Randgold Resources continues to shine

Brendan Ryan | Tue, 28 Jul 2009 10:29

[miningmx.com] -- RANDGOLD Resources shares dipped 2% in London today despite the release of June quarterly numbers showing an 18% rise in gold sales and a 35% rise in attributable profit.

The group is still the one the top performers in the gold sector with the share having risen from around ₤15 in November to just under ₤45 in June before pulling back to current levels around ₤39.5.

Randgold is now embarking on a period of aggressive growth with its Loulo mine in Mali ramping up production while the Tongon mine in Cote D’Ivoire remains on track to start production in the fourth quarter of 2010.

Randgold is sizing up the Massawa project in Senegal and the Gounkoto project in Mali as potential new mines with construction scheduled to start on Massawa in 2011 subject to completion of a positive feasibility study.

Unlike most of its peers Randgold has been extremely restrained over the issue of new equity which is one of the reasons the share price has performed so well but it is now issuing 5m new shares.

It announced yesterday the proceeds of the placement will be used to fund the feasibility studies for the Gounkoto and Massawa projects as well as to start development of them following board approval.

The money is also intended for “other organic and corporate opportunities, including possible acquisitions” and some of the funds are being linked to the possible acquisition of Moto Gold Mines (Moto).

If that deal goes ahead the money could be used for development of Moto’s proposed mine in the Democratic Republic of Congo.

Randgold’s offer for Moto is the most serious merger and acquisition activity the group has gotten involved in since it bid unsuccessfully against AngloGold for control of Ashanti.

Ironically, the bid for Moto is now being made in partnership with AngloGold Ashanti with which Bristow has developed a far closer relationship since former CEO Bobby Godsell retired and was replaced by current CEO Mark Cutifani.

Randgold made the initial bid on July 16 and yesterday made the offer irrevocable following the decision by the Moto board that this offer was superior to the agreement Moto had previously reached with Red Back Mining.

As of July 24 the Randgold offer valued each Moto share at C$5.01 compared with a value of $4.50 attributed to the Red Back offer while the Randgold offer also includes a cash payment alternative which is being funded by AngloGold Ashanti.

Red Back has the right to amend its bid by midnight on August 4 after which Randgold’s irrevocable commitment kicks in provided Red Back does not match the Randgold offer by that time.

Randgold increased mining profits to US$44.8m in the June quarter (March quarter - $36.5m) on the back of a 10% rise in attributable gold production to 121,685 ounces (110,313oz) and a 3% increase in the average gold price received to $832 ($809).

Randgold hedges some of its production and, at end June, was committed to the forward sale of 79,248oz at an average price of $466/oz by the end of 2010.

The forward contracts are all related to the Loulo mine and the remaining portion of the hedge book represents about 12% of planned production at Loulo and 9% of the group’s production for the period.

The increased production came from the Loulo mine where management deliberately went for higher grade ore to compensate for the anticipated impact of several planned plant shutdowns linked to the crusher expansion project .

Total cash costs rose 4% to $428/oz ($414) mainly as the result of accounting changes at the Morila mine which switched from in-pit mining to treating stockpiled ore during the quarter.