[miningmx.com] — SHARES in LSE-listed Randgold Resources gained more than 7% on Wednesday, after a strong set of results affirmed the erstwhile exploration start-up’s ability to be a one million ounces producer by 2015.
Analysts said there were more to come, as the group continued to invest heavily in growth projects while maintaining an impressive track record of delivery.
Reporting third quarter financials, CEO Mark Bristow told Miningmx the group was sticking to its target of 750,000oz for the full-year – a 70% jump from 2010’s 440,000oz – despite its flagship Loulo/Gounkoto complex in Mali suffering from “a downpour of a once in a hundred years severity’ in August. Its year-old Tongon mine in Ivory Coast, which was already producing at nameplate capacity of 270,000oz per year, would account for most the difference, while further developments at Loulo and the ramping up of Gounkoto would make up the rest.
Some analysts did say the 240,000-odd ounces needed (182,000oz in Q3) to reach the 750,000oz target this year might be a stretch too far, but this was insignificant given the group’s growth outlook and ability to cash in on high gold prices in years to come.
“Free cash flow generation is very strong at current gold prices and the group is easily able to fund its growth capex internally and still pay dividends,’ read a research report of JP Morgan Cazenove.
Bristow also affirmed its Kibali JV with AngloGold Ashanti in the DRC would start operating from 2014 with an initial gold output target of 400,000oz. The mine could become one of the biggest in Africa.
When Randgold took over Kibali almost two years ago the project had declared a 22 million oz gold resources, of which 5 million oz was classified as reserves. So far, Randgold’s geologists have refined that to an 18 million oz resource of which 10 million oz is classified as reserves.
“In the next two years you’ll see step changes as we improve our grade and expand capacity, whereafter Kibali will pull us over the mark,’ Bristow said, referring to his Randgold’s production target of 1.2 million oz by 2015.
One concern flagged by analysts was Randgold’s steep increase in cash costs at Tongon (from $477/oz in Q2 to $637) and continued high costs at Loulo ($943/oz).
RBC Capital Market’s Jonathan Guy said the cost increases were “consistent with these of other African gold miners and indicate the fundamental shift in cost curve driven by unit cost increases in 2011′. However, Randgold said power costs at Tongon would be significantly lower once it has finalised a connection with Ivory Coast’s national grid, expected in November.
Numis Securities’ Andy Davidson said ongoing scoping studies for the possible retreatment of tailings at Morila, as well as a potentially additional 2 million oz in Gounkoto’s reserve could be the next drivers of Randgold’s share price, closing at £72.30 on Thursday.
Morila mine, also in Mali, was scheduled to close in 2014, but Bristow said its life could be extended to 2020 through the retreatment of tailings, which could add 45,000oz of gold to annual output.
