Randgold Resources maintains 2018 guidance despite interim shortfalls

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Mark Bristow, CEO, Randgold Resources

Randgold Resources has kept its full year-guidance on production and costs intact despite revealing  some slippage in the six months to end-June with gold production down 9.5% and total cash costs 19% higher.

Despite this,  Randgold is maintaining its full year 2018 guidance for gold production at  between 1.3m to 1.35m oz  with total cash costs of between $590/oz and $640/oz  which compares with total cash costs of $708/oz recorded at the interim stage.

Randgold CEO Mark Bristow commented, “ we always said this would be a back-weighted year and we would  be playing catch-up in the second half.  Reasons include the ramp-up at Kibali and, more importantly, the push-back at Gounkoto which has affected the grade but the grade will improve in the second half.”

The Kibali mine in the Democratic Republic of Congo (DRC) was the stand-out performer in the June quarter for Randgold pushing gold production up 17% to a record 201,742oz  from the March quarter. That level of output was also 43% higher than the June quarter of 2017.

Kibali’s total cash cost dropped 11% to $651/oz  (March quarter – $735/oz) which Bristow said reflected the benefits of higher grade ore and lower power costs from the increased usage of hydropower.  Commissioning has also started on Kibali’s third hydropower station at Azambi which is expected to be fully operational before the end of the September quarter.

Gold shares generally have taken a beating this year and Randgold is no exception  despite the strong case that Bristow continues to make for his group being way ahead of its competitors.

Randgold is currently down 35% from its 52 week-high which Bristow attributes to negative investor sentiment on risk in Africa generally with particular concerns about the situation in the DRC.

He commented, “That has hurt us but we are going to work that out. We are still comfortable we are going to find a workable solution in the DRC.   I  stand by my previous comments that 90% of the time the commercial logic will prevail in the DRC.

“You have to work something out otherwise you are going to high-grade this industry – particularly the copper industry  – and you will end up with nothing. I still believe common sense will prevail all round.”

Bristow defended Randgold’s  investment  case stating, “ on dividend yield, we are the highest in the industry and, if you look at growth in dividends over the past 12 years,  there’s no-one who comes near us.

“Then, if you look at profitability – our margin on  EBITDA (earnings before interest, tax, depreciation and amortisation) and our margin on cash operating cost – we are higher than anyone in the industry.”

But he added Randgold was still looking at “global growth opportunities” despite its stated core strategy of organic growth through exploration.

He commented, “ I want to grow and I think the (gold mining) industry needs to be re-arranged and transformed because the way it is being managed today puts the whole relevance of the industry at risk as (being) an investible part of the market.

“So we are looking hard at opportunities in the Americas and in Africa. The northern part of  South America  is an interesting place because it has the same rocks as we mine in West Africa.

“We are a seasoned and effective management team and we think this is a good time to signal that we are interested in pursuing opportunities that may exist to create value .  We think asset quality overrides jurisdiction.    It’s all about value per share. That’s the holy grail.”

Bristow stressed this was  “ a long term strategy” although he added, “the industry is under a lot of pressure.”

 

10 COMMENTS

  1. Dear Fellow Readers,

    Let’s ask a philosophical question :

    WHAT CONSTITUTES A BAD SET OF FINANCIAL RESULTS FOR A MINING COMPANY ?

    What about this co. interim results?

  2. you should put things into perspective GS, these type of companies don’t get build over a quarter – low blow to isolate this one off – doing a lot better than your punt Sibanye…. on which you went relatively under the radar lately?

    • Dear Curious,

      I don’t punt SGL. I just highlighted its merits , and demerits. I did the same for B2Gold etc.

      I never said you can build a >1,4Moz/yr gold producer over a quarter. This company’s MCap is down some >$3B over a year. SBGL is down ± $1B, so….

      I ask a philosophical question for readers to engage. The H1FY18 results were poor by Randgold standards. Sure, it will happen sometimes, thats business…
      I am soliciting views about its results to check if other fellow readers can discern a poor financial report card!If they have, what are the drivers of such poor performance. Reply to this, and i will provide you with the full analysis of why this H1FY18 was poor!

      I am not under the radar at all. The Editor of miningmx is censoring me big-time!

      • Dear all – Comments on articles are edited if they contain content that may constitute defamation, or lead to suits of defamation, contain hate speech, or are obscene. If anyone notices any such content appearing on the publication that may be construed as such, pls let the editor know.

        Regards

        David

    • Dear Curious,

      Randgold ( RRL) has been a go-to growth gold stock for >15yrs, and for good investment reason. The gold price , in $/oz , has supported this investment thesis. Unlike other gold miners, this company really focused on a single geography , and honed the skills to manage the attendant risks. For example, it build its Tongon mine during the civil war in Ivory Coast without a glitch. This is not an easy feat, but its because of its adaptive management processes and approaches to challenges in Africa. To buttress my point, the CEO at Denver Conference, elaborated as to why he would not be prepared to built a sub-5Moz M+I resource in the DRC. In his words ” IT WILL BE A WASTE OF TIME FOR RRL FOR THE DRC WE WILL CONSIDER ANYTHING MORE THAN 10Moz”

      Well, for desk-bound joggies analyst in Sandton, this might seem odd and skew, but for a seasoned mining man like your truly ( thats me , GS) he is onto something. If one considers the costs of such mines ( >$500M ) in Africa, and OpEx at this highly US$ denominated jurisdiction that is DRC, you realise that the pickings ( returns) are not bound to be there for $800M) had been subsumed by other capital providers for 1,4Moz/yr for less than $50/oz for forecasted AISC 1,4Moz/yr gold production is a lot of work and dedication , more so at some AISC 11% and production decrease of 65Koz with Invested Capital ( IC) having increased by $267M ( read growth CapEx). THIS IS A BAD REPORT CARD!

      WHAT ARE THE DRIVERS OF THIS BAD FINANCIAL REPORT CARD?

      It’s the cornerstone asset performance: Loulo-Gounkoto. Production is down 86koz y/y and costs are up 40% due to grade declining to 3,8g/t ( H1FY18 : 5,4 g/t). However, RRL indicated that they will undertake the pushback to access better grades to nurse this cash flow machine to its potential. Please note , this is still an extremely profitable mine at AISC= $700/oz….at current gold prices.

      The reduction in such highly cash flow ounces could not be matched by improvement elsewhere in the portfolio, namely Kibali. Kibali delivered mining profit , on 100% basis , of $240M ( H1FY17 : $111M) BUT at AISC = $690/oz at full tilt. So RRL attr is $108M (H1FY17: $50M). Loulo-Gounkoto’s 86koz production reduction would have delivered an additional OCF = ±$113M , thus 2x profitability of Kibali at full potential.

      Tongon mine also delivered production down and costs up. Morila is not meaningful to RRL anymore.

      RRL is still an extremely profitable company and will be so for at least another >10yrs. Loulo-Gounkoto ( at ± 700koz/yr) will recover post stripping , and Kibali is now on full hydro power so will continue to be a AISC $600M in cash , and NO debt!

      I trust the above should assist you in forming an opinion about this company. yes the report was bad, but this is certainly a buying opportunity more so when MCap <1,5 x IC ( $7,5B). BUT RRL is NOT a growth stock anymore!

      Yours Truly,
      GS

      • Dear Curious,

        Apologies that the above does NOT make any sense given that it was censored by the editor. He removed illustrative table with figures ( which are from RRL financial reports) etc. Please consider going to seekingalpha.com website and i will rewrite the analysis again.

        My sincere apologies.

        Regards
        GS

    • Dear Curious, I give it a second try for your benefit.

      Randgold ( RRL) has been a go-to growth gold stock for >15yrs, and for good investment reason. The gold price , in $/oz , has supported this investment thesis. Unlike other gold miners, this company really focused on a single geography , and honed the skills to manage the attendant risks. For example, it build its Tongon mine during the civil war in Ivory Coast without a glitch. This is not an easy feat to achieve for anybody, but RRL did due to its adaptive management processes and approaches to challenges in Africa. To buttress my point, the CEO at Denver Conference, elaborated as to why he would not be prepared to built a sub-5Moz M+I resource in the DRC. In his words ” IT WILL BE A WASTE OF TIME FOR RRL & STAKEHOLDERS FOR IT IN THE DRC, BUT WE WILL CONSIDER ANYTHING MORE THAN 10Moz”

      Well, for desk-bound joggies analyst in Sandton, this might seem odd and skew, but for a seasoned mining man like your truly ( thats me , GS) he is onto something. If one considers the costs of such mines ( >$500M ) in Africa, and OpEx at this highly US$ denominated jurisdiction that is DRC, you realise that the pickings ( returns) are not bound to be there. Please refer to the Banro saga , whereby for $800M Invested Capital to develop 2x mines with M&I = 3Moz & 2Moz , these were later subsumed by other capital providers for a mere $180M due to ongoing operational challenges. The orebodies did not have scope to deal with vagaries of operating a mine in the jungle , whereby you need to carry inventory for everything , including sanitary towels for female workers.

      RRL is an established >1,4Moz/yr producer. Therefore it needs to replace this highly profitable 1,4Moz/yr production for less than $50/oz at forecasted AISC 10yrs. Loulo-Gounkoto ( at ± 700koz/yr) will recover post stripping , and Kibali is now on full hydro power so will continue to be a AISC < $700/oz for production = 700 – 800koz/yr , with RRL attr = 315 – 360koz/yr .Clearly the cash flow driver will remain the Loulo-Gounkoto complex for a while!

      Furthermore, RRL has $600M in cash , and NO debt!

      I trust the above should assist you in forming an opinion about this company. Yes the interim report was bad, but this is certainly a buying opportunity more so when MCap <1,5 x IC ( $7,5B). BUT RRL is NOT a growth stock anymore!

      Yours Truly,
      GS

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