Randgold Resources CEO Mark Bristow says the lack of investment in exploration by other gold miners, together with global geopolitical and economic uncertainty, should be good for the gold price in the long run.
That would benefit miners like Randgold, which is continuing to spend money on finding substantial new deposits. It expects to spend about US$60m on corporate costs and exploration projects this year but Bristow says it would be prepared to spend more if it found a superlative target.
Randgold’s requirement for a new development is that it must offer least 3m mineable ounces of gold that can be extracted at a cost of $1,000/oz or less and deliver an internal rate of return of at least 20%.
Bristow says the group has at least three advanced targets that could potentially be important assets, apart from the work it is doing in close proximity to its existing mines.
New areas include Fonondara and Kassere in northern Côte d’Ivoire and Sofia in Senegal.
At Kassere, drilling has intersected some high grades and the target has been extended to 1.2km, while at Fonondara additional drilling suggests the broader system could extend from 1.5km to 15km to the north. Sofia would add to the viability of the Massawa project, 10km to the east, which is at feasibility study stage. Massawa contains a large proportion of refractory ore, which is costly to treat, but studies at Sofia show it contains nonrefractory ore, which makes a combined Massawa-Sofia complex more economically viable.
A higher gold price helped Randgold Resources’ profits in the six months to June after technical problems at its Tongon mine in Côte d’Ivoire and Kibali mine (a joint venture with AngloGold Ashanti) in the Democratic Republic of Congo.
The problems were partly offset by higher output from the Loulo-Gounkoto complex in Mali.
Group sales fell to 571,904oz from 582,045oz but an average gold price of $1,224/oz was realised compared with $1,202/oz in the first half of last year.
Bristow says the problems that arose at Tongon and Kibali are being addressed quickly and production will be higher in the second half of the year, which should enable Randgold to meet its full-year targets.
Tongon put 24% less ore through its plant in the June quarter compared with the March quarter as one of the two milling circuits broke down for 46 days. It has now completed a crusher expansion and mill circuit upgrade and held constructive discussions with the country’s power utility about stabilising its power supply.
At Kibali, the KCD pit was mined out in the first quarter and as replacement ore was sourced from several different pits in the second quarter, the processing plant struggled with recoveries. The mine will take ore from additional pits this year and fast-track the higher-grade Kombokolo pit. Some higher-grade ore from underground development will also be added to the plant.
Bristow says Randgold is fundamentally profitable and he expects its cash holdings to reach $500m by early next year, from $272.7m at end-June. Asked whether this would prompt a special distribution to shareholders, he says Randgold already has a progressive dividend policy.
CFO Graham Shuttleworth says Randgold does not intend to hold surplus cash on its balance sheet but it is optimistic that some of its exploration projects will come to fruition next year, and money will need to be invested in them.
"The company has a robust balance sheet, multiple operating mines and a strong pipeline of projects which, in our view, provide a stability which other London-listed gold companies find difficult to match," SP Angel analyst John Meyer says.
Randgold’s shares fell 8% to 8,255p in London immediately after the results were released, against a 0.01% drop in the gold price to $1,357/oz, but they partly recovered later in the day.