Companies: RRS   

Dr Mark Bristow, South African chief executive of Jersey-based gold mining group Randgold Resources, has set himself an ambitious agenda and is confident of carrying it out. He wants the company to increase attributable annual production from its West African mines by 50 per cent to 600,000 oz by 2011, reverse its recent trend of falling output and ore grades, tackle cost increases and expand into new regions.

He can cite some promising developments that should help the fully listed company achieve these goals. Randgold is on track to start high-grade production later this year from Yalea, a promising underground ore body at the company’s flagship open-pit Loulo mine in Mali.

Meanwhile, drilling has increased probable gold resources at Tongon in Côte d’Ivoire by 52 per cent to 2.4 million oz at a modest grade of 2.32 grammes of gold per tonne of ore. Randgold now has an effective 81 per cent stake in this project, allowing for the government’s ten per cent free participation.

Continued drilling is likely to upgrade more of Tongon’s resources into the firmer category of reserves. The company draws comfort from what it regards as a ‘steady improvement in the political climate’ of Côte d’Ivoire, where elections are scheduled for November this year.

This is timely, given that production is waning fast at another Malian mine, Morila, a joint venture of which Randgold recently agreed to take over as operator from AngloGold Ashanti. Morila’s production estimate for this year has been cut by 35,000 oz to 430,000 oz, as it becomes primarily a stockpile reprocessor.

Previous rises in the gold price have helped mask the pincer movement of declining output and soaring diesel prices and other costs. Although pre-tax profits slipped by 13 per cent last year to $66.9 million (£33.7 million) on gold sales of £145.5 million, Randgold scored a 57 per cent year-on-year pre-tax profits gain in the first three months of 2008 on gold sales up 38 per cent to £44 million, primarily from its mines in Mali.

Production at Loulo fell by 7.3 per cent to 63,249 oz. Cash costs rose by 12 per cent to $440 an ounce overall, with Loulo’s costs rising by seven per cent to $470 an ounce against the current price of around $900.

The expected start of the Yalea underground mine within the Loulo complex will drastically improve the economics at Loulo, argues Bristow. Gara, a second underground mine in the Loulo complex, is at the final planning stage.

Randgold expects that Yalea will help Loulo’s grades recover from a depressed 3.1 grammes of gold per tonne of ore to 3.4 or 3.5 grammes a tonne. Bristow stresses the ‘paramount’ importance of plant efficiency and effective grade control if the company is to reach its goals.

He suggests Yalea should enable the mine to reach its target output of 400,000 tonnes a year by 2010, offsetting the trend elsewhere. Randgold is looking for ‘another Morila’ in Mali and is looking at prospects in Côte d’Ivoire, Senegal, Burkina Faso and Ghana – and there are suggestions Bristow could even cast his net beyond Africa, for solo projects or joint ventures offering the appropriate balance of risk and potential reward.

The company has active exploration teams at work in six West African countries.

They continue to feed possible new prospects into Randgold’s pipeline.

If gold’s average price remains above $900 an ounce for this year, Bristow does not quarrel with suggestions that the company could increase this year’s net profits by 60 to 70 per cent.

Randgold raised the equivalent of £120 million in November with a placing at £16.85 and, since then, the shares have risen as high as £28.03 (in April). At the current price of £21.91, valuing the company at £1.67 billion, if Bristow’s plan succeeds there could still be more to play for.

Randgold Resources	LSE	£1744.97m	2281.00p	11.00p
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