Randgold stands apart from its peers

[miningmx.com] — “What investors [in gold shares] want,” intoned Randgold Resources CEO Mark Bristow at that company’s six-monthly results briefing in London, “is a profit trend that moves up in line with the gold price.”

There are two inferences to be drawn from this: firstly, and explicitly, that Randgold Resources is providing this; secondly, if implicitly, that other companies aren’t.

Since the June 2007 quarter, quarterly net profits have risen steadily and progressively from US$6.8m to $20.2m. Investors in South African producers can only wince when they compare this record with those of local producers. And this, mark you, from a company that is continuing to spend heavily on exploration and development.

going bust

A focus on profits, says Randgold Exploration, means a focus on costs. But Bristow explains that this means total costs, and that placing undue emphasis on cash operating costs can be misleading.

“There are plenty of companies that are boasting cash costs of $400/oz but are going bust because they’re spending too much on exploration and development and are simply running out of cash.”

That’s not a mistake that Randgold Resources seems to be making. In 2007, with what in hindsight looks brilliant timing, the company raised $237m from share issues.

Though investment absorbed $38m in the six months to June, against a net operating cash inflow of $28m, this scarcely made a dent in the cash pile, which stood at $275m at June 30.

As well as the established Loulo and Morila properties in Mali, Randgold Resources is establishing a third mine at Tongon, in Ivory Coast, and only 100 km west of Loulo, in Senegal, the Massawa prospect is bidding fair to become its fourth mine. While it’s early days, indications are that Massawa could be a 300,000 oz a year mine, with a 10-year life.

Click Here to subscribe to our daily newsletter

Several other prospects are being explored, which could extend operations into Ghana and Tanzania.

In the June quarter, though, Loulo and Morila remained the cash cows. Loulo earned a mining profit of $42m, up from $28m a year ago.

At Morila, Randgold Resources has only a 40% stake, but has taken operations over from majority shareholder AngloGold Ashanti after turning down an opportunity to buy AngloGold out. Bristow clearly finds new AngloGold CEO Mark Cutifani easier to work with than his predecessors and while Morila has had its problems, it contributed $22.4m to Randgold Resources’ operating profit, up from $9.5m a year ago.

It’s ironic that, though Randgold Resources is one of the few profitable legacies of the Kebble empire, and was originally spun off from RandGold & Exploration, South African investors are unable to benefit. It listed in London in 1997 and in New York’s Nasdaq in 2002.

Over the past year, the share price in London has risen from about 1,100p to 2,500p, against a sector that has fallen by abut 10%. On the JSE, over the past year AngloGold Ashanti has fallen 20%, Harmony 22%, and Gold Fields 27%.

There’s still an South African connection. Bristow reckons that probably 80% of its equipment is sourced from South Africa, and much of its skilled labour. But that’s small consolation for investors.