Randgold defies growth fears after Obuasi exit

[miningmx.com] – RANDGOLD Resources shrugged off fears its growth prospects were less clear following its decision to terminate a joint venture agreement with AngloGold Ashanti over the mechanisation of the Obuasi mine.

Shares in the UK-listed group gained 4.5% on December 21 after it said a conditional agreement with AngloGold had been ended. The two firms were hoping to recapitalise Obuasi but a study found Randgold could not earn a 20% return from the effort.

Shares in Randgold were slightly off today (December 24) but the company is worth 3% more over the last 12 months at some £3.97bn. Shares in AngloGold dipped slightly on the announcement but have gained about 1% since in Johannesburg.

Goldman Sachs said in a report that the re-development of Obuasi “… provided investors with one very clear growth option”. Organic growth and merger and acquisitions had been one of the aspects of Randgold’s equity case, and granted it a superior valuation against its peers, the bank said.

“The continuous lack of visibility on delivery of low costs ounces growth from Randgold may be one of the factors we identified that may push stock into de-rating versus its history (lack of growth options),” it added.

Mark Bristow, CEO of Randgold, said in a statement earlier this week that his company would continue “… to invest substantially” in its exploration programmes as well as by investigating potential growth opportunities presented by the market”.

For AngloGold, the impact of the failure to proceed with the joint venture was less because “… investors already do not assign any value associated with Obuasi mine”, said Goldman Sachs.

The key concern was with the amount of costs required to fulfill obligations AngloGold has to government of Ghana regarding limited operations of Obuasi mine, as well as the longer term viability of the mine development.

Said Srinivasan Venkatakrishnan: “We have made a concerted effort to unlock a new opportunity for Obuasi, and the work we have done lays a good foundation for the operation in the long term”.

“But in the current environment, we believe it is prudent to conserve our resources and to revisit this opportunity when market conditions improve,” he added.

AngloGold Ashanti spent $100m financing the development of Obuasi’s decline shafts. It was estimated it would spend about $50m in 2016 keeping the company in mothballs, or until another partner could be identified. Before it was put on care and maintenance, the mine cost AngloGold $300m in cash burn a year.

The failure of the joint venture was also related to problems extracting speedy regulatory clearances from the Ghanaian government.

“This decision follows concerted efforts by both companies to improve the project’s returns and also to secure an appropriate set of consents from the government of Ghana, within an ambitious time frame that would have allowed for a feasibility decision on the redevelopment of the mine in early 2016,” said AngloGold in a statement.