[miningmx.com] – THE global gold industry was “in real distress” and might be in for further pain if gold dipped below $1,000/oz as it may do, said Mark Bristow, CEO of Randgold Resources which today posted a 15% increase in second quarter profit.
“We are starting to see real distress. The question is when does the industry take action for rescue measures rather than some moron paying over-the-top for assets, and giving cash just to keep the dogs at bay,” he said of recent corporate action.
The sector was mining at a loss in order to keep its debt payments up, he said. “The industry is struggling with survival. It can’t get out of its own debt structure, mainly as it doesn’t have a good enough quality reserve base,” he said.
Shares in Randgold have fallen 11% in a month, and are down 9.5% in a year. This compares to a hefty 38% decline in the shares of Barrick Gold, and 13% decline in Newmont Mining Corp. over the last 12 months.
While this raised the prospect of corporate action – Bristow said the company remained on the alert – it was worth noting that the industry had not done a good job of improving its reserves. “What you are seeing now is the sale of dogs,” said Bristow.
Second quarter profit came in at $59.2m for Randgold owing to a 7% increase in gold production which topped 300,000 ounces for the first time. Overall total cash costs were 3% lower at $684/oz.
Analysts said the quarterly performance was solid and with cash on hand of just over $109m, the company was on track to reach its cash target of $500m by the close of its 2017 financial year.
However, they said the real excitement in the stock was the ability of the company to continue generating its own organic growth rather than merger and acquisition opportunities thrown up by the weak gold price.
“The key for the stock performance in our view remains conversion of exploration effort into tangible development targets,” said Goldman Sachs in a morning note.
“All in all a solid quarter with record production, costs well controlled, no cut to capex or exploration despite the gold price,” said Numis Securities. “Exploration upside is firmly back in the frame,” it added.
Bristow said the discovery of non-refractory ore at Sofia, a satellite prospect of the Massawa exploration site in Senegal had improved the potential of the project. “It [Massawa] doesn’t meet our 20% hurdle rate yet,” said Bristow.
“But if we could bulk up the resource to about 500,000 ounces then it could be a game-changer for the project. We are getting pretty excited about it,” he said. The benefit of the non-refractory ore is that it’s ‘free gold’ which does not require roasting or chemical reduction.
