[miningmx.com] – RANDGOLD Resources CEO, Mark Bristow, said he was hopeful the company wouldn’t have to dip into its recently arranged $200m debt facility in order to complete its 40%-owned Congo gold project, Kibali.
Even if it did, it would be a brief revisit to lending for the African gold miner which last recorded net debt in 2005. “With a bit of luck we may not need it,’ said Bristow in an interview.
“Even if we do, it won’t be for long. The intention is to have Kibali paying for its own cost of capital at the beginning of 2014,’ Bristow said.
Kibali is a $700m, 550,000 ounce/year gold project held in joint venture with AngloGold Ashanti (40%) and the Congolese government (10%) yielding attributable production to Randgold Resources of 220,000 oz. This is enough to take Randgold Resources’ total output by 2015 to about 1.2 million oz.
The project is due to pour its first gold in October, although Bristow added the aim wasn’t just “producing a brick of gold’ so much as making the gold circuit operate as well as possible so that the mine was reliably productive.
Funding pressure, and some prescience in respect of the gold market, is behind Randgold’s decision earlier this year to set up lending – a $200m syndicated credit facility. But Kibali also couldn’t come at a better time as its total cash costs are not projected to move above $600/oz from 2013 to 2017.
This compares to group cash costs in the second quarter, which Randgold Resources reported today, of $725/oz, and total cash costs of $795/oz.
Analysts said second quarter production came in slightly lower than expectations at 196,000 oz, while cash costs were subsequently higher than expected. Set against a 17% decline in the gold price, Randgold Resources’ was only just cash flow positive at some $18m. Cash subsequently fell to $45m from $250m in the previous quarter reflecting the pressure of funding Kibali, and the lower gold price.
Nonetheless, Randgold Resources was still cash generative and did not write-down any assets – compared to global gold industry where impairments have breached an estimated $20bn so far this quarter – mainly because Randgold Resources’ planning had been done at $1,000/oz.
“We haven’t scaled back any people either at corporate head office because we don’t have a corporate head office,” said Bristow. “We also have only five assets so it can be handled,’ he said.
There wasn’t any immediate pressure on the dividend. “We have a dividend policy where we try not to reduce it. Should the gold price fall further then we may have to look at that,’ Bristow said.
Bristow also brushed off analysts’ worries that Congo government rumblings about changing its mining code would affect the ability of Kibali to deliver.
“I think you’ve got to give us and the Congo government a bit of credit for taking the project this far,’ said Bristow. “It’s a revenue generator for them and an employer,’ he said.
“While this premium has hitherto been justifiable on the company’s well-respected management team and its ability to find, develop and bring into production new mines, it stands to be tested at Kibali,’ said Michale Starke, an analyst for Standard Bank Group Securities.
“In our view, getting cash flows from this mine as soon as possible is crucial for the company’s balance sheet,’ he said in a note to clients today.
Said Investec Securities in a note: “The depressed gold price has not come at a good time for Randgold Resources, given the high capex requirements as it develops Kibali, which remains on track.
“We note, however, that its operations are still cash generative, as opposed to some of its peers’.
