Randgold pins its hopes on four new gold mines

Randgold Resources says it has the money it needs to bring big plans to fruition, now shareholders will have to wait and see

GRONINGEN, THE NETHERLANDS - 

Despite record high gold prices, Randgold Resources produced worse-than-expected results for the third quarter of 2009.

But, the group is hoping its shareholders will look past this result, which CEO, Mark Bristow ascribed to "short term" problems (mainly an increase in open pit and underground mining costs at Loulo and the transformation of Morila into a 100% processor of stockpiles) and look ahead to the four mines the company has in development.

And, given the premium at which its shares trade, it seems that many in the market are doing just that.

Speaking to analysts in London on Tuesday, Bristow acknowledged the premium but, said that the group needs no further financing to "really ratchet up" its attributable ounces

He added, "We expect our equitable ounces, which currently stand at 400 000, to grow by 50% to 600 000 ounces by 2011 and then by 2013 we should see them double again and that is before the impact of the Kigali mine.

The lack of a need for further financing will be welcome relief to shareholders to whom the company has come hat in hand regularly, raising $585m in the past three years.

But the group has stuck to its strategy and believes that these same shareholders will be rewarded handsomely.

In a note released with the results, the group writes that "investors recognise the effectiveness of Randgold's strategy of building long-term value, and prize its proven ability not just to discover growth opportunities but also to bring them profitably to account.

"It is a strength of this strategy that it is capable of generating both a classic greenfields discovery such as Gounkoto as well as a new business opportunity such as Moto, which not only has the potential to rank with our other world-class assets but takes us into a new and exciting goldfield,"

And, indeed the group is sitting rather pretty at this stage, with net cash in hand of $521m - a figure that rises by $181m if the pro forma effects of the Moto transaction are taken into account - and four exciting prospects.

Not only has it secured, the Moto gold project, [now known as Kigali] in partnership with AngloGold Ashanti, it also has the Gounkoto project, just 25km away from its Loulo complex. It is also currently building the Tongon mine in Côte d'Ivoire, which it expects to pour its first gold in Q4 2010 and Massawa in Senegal, where a prefeasibility study will be completed before the end of this year.

According to Randgold, Gounkoto has an initial inferred mineral resource of more than 2.6 million ounces at a grade of over 6g/t as well as "a relatively simple metallurgy process with recoveries consistently over 90%".

While Kibali is described as "one of the largest undeveloped gold deposits in Africa. A feasibility study completed earlier this year envisages an open pit and underground mining operation with probable mineral reserves of 5.5 million ounces which is planned to produce some 2.4 million ounces of gold in its first five years."

And this is all on top of its Ivorian project which is ahead of schedule, although Bristow is reluctant to push up any of the existing timelines as Côte d'Ivoire has yet to have its elections.

In terms of the numbers themselves the group reported gold sales of $103.5 million for the third quarter, up 32% on the corresponding period for 2008.

But, total cash costs rose 17% to $68.2 million; profit for the quarter was $13.6 million against the previous quarter's US$18.9 million and a loss of US$684 000 for the corresponding period in 2008.

As for timelines, Bristow says the next 15 months will be critical:

"The management team has set itself a series of targets to be achieved during this period. These deliverables are:

• Complete the Loulo expansion, which sets it up to expand its annual production to 400 000 ounces.
• Complete the Massawa prefeasibility study by the fourth quarter of this year.
• Complete the Gounkoto prefeasibility study by the first quarter of 2010.
• Bank Massawa and Gounkoto by the fourth quarter of 2010.
• Pour the first gold at Tongon in the fourth quarter of 2010, setting up the company to meet its production guidance of 600 000 attributable ounces per year by 2011.
• Complete the Moto feasibility study review and give a definite development timeline in the first quarter of 2010.

Bristow acknowledges the ambitious nature of these plans but says, "If the Randgold Resources record shows anything, it's that our team is capable of hitting the targets we set ourselves."

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