JOHANNESBURG (miningweekly.com) – London- and Nasdaq-listed gold mining company Randgold Resources, which produced a record 283 763 oz in the three months to March 31, is in a sweet spot as it reaps the benefit of 19 dogged years of low-cost discovery and development that enables it to cock a snook at low gold prices.

Well positioned to scale the million-ounce-a-year hurdle for the first time this year, Randgold has a big enough reserve base to repeat that level of production for ten years on the trot.

Repeats of the March quarter output in the next three quarters will, in fact, put 2014 calendar year production well beyond the million-ounce mark at 1 135 052 oz.

“We can definitely keep the production above the million-ounce mark for ten years,” says Randgold CEO Mark Bristow, who spoke to Mining Weekly Online en route to taking part in the President’s Air Race currently under way at the Gariep dam.

The keen pilot’s company has now entered an important period of diminishing capital expenditure (capex) and strong profit-growth outlook, without having to pursue growth in ounces.

This is because it resolved several years ago to be profitable at a gold price of R1 000/oz, investing in self-built gold operations in Mali, Côte d’Ivoire and the Democratic Republic of Congo (DRC) during the periods of low gold price, and making money in the peaks.

When gold fell below $1 000/oz years back, Randgold set out to make 20% return on a gold price of $1 000/oz, which gave it the benefit of a rocketing margin when gold moved to $1 900/oz.

That high-margin period enabled it build up sufficient capital to fund a new phase of growth, the high point of which was the successful Kibali gold mine in the DRC.

As a whole, Randgold is able to produce at an all-in sustaining cost of $950/oz to $1 000/oz over the life of its reserves, with cash costs of $650/oz to $700/oz, taxes of $75/oz, discovery costs of $25/oz-to-$30/oz and capex costs of $150/oz.

The upshot is that Randgold finds itself at an optimum point, comparable to the combination of favourable factors that buoyed the share prices of gold stalwarts in the 1980s and 1990s.

For example, from 1985 to 1995, the share price of Barrick Gold went up some 400% on the back of substantial growth in profits, without growth in ounces.

If the company had stuck to the five or six best assets it had, Bristow calculates that it would probably have become one of the world’s best international public companies, but instead it chose to chase production and size, at the cost of returning value to shareholders.

Moreover, theoretical consolidation, from 2002 to the end of 2013, of the entire gold-mining industry shows that it collectively failed to generate sufficient revenue to cover its capex, despite the gold price rising by $1 000/oz.

In strong contrast, Randgold has always focused on being profitable.

“The last thing we want to join is the herd of unprofitable gold companies,” says Bristow, who will follow up his air race with a $1-million charity motorbike ride from Abidjan, in Côte d’Ivoire, via Benin, Togo, Nigeria, Cameroon, Gabon, Congo, the DRC, Angola, Namibia and ending in Cape Town on June 29. This follows his Cape-to-Cairo ride in 2009 and his North Africa to Abidjan ride in 2012.

“You don’t have to grow gold production to grow value. We have put this capital in, we have a very strong cash-flow profile, we’re keeping production up and we intend to be able to return some of the cash to our shareholders as promised.

“We all trash the low gold price, but it would be a lot higher if the mining industry stopped working so hard to depress the price by continuing to produce gold at a loss and feeding it into the market,” Bristow comments to Mining Weekly Online.

Three years ago, Randgold embarked on a five-year rolling business plan to separate itself from the industry’s obsession with ounce growth and is now looking forward to a period of profit growth and dividend declarations.

Last year capex peaked at $750-million. From now on, it is set to fall yearly, stabilising at between $60-million and $70-million in 2018, when production will have reached 1.3-million ounces a year.

Kibali has a “banked” plus-650 000 oz/y outlook for 13 years from 2017, with spare plant capacity and satellites pointing to upside potential.

The profile of the Loulo mine in Mali in the next five years is 640 000 oz/y, with a plan in place to keep its output above 600 000 oz/y for the full ten years, based on the million underground ounces at the 6 g/t Gounkoto, 600 000 oz of plus-5 g/t resources at Yalea, 300 000 oz of plus-5 g/t at Gara, and several satellite opportunities.

Added together, that totals to 2.5-million ounces of potential reserves at more than 5.5 g/t.

“If we can add a bit to that and replace some of the lower grade ore in our mine plant at Loulo-Gounkoto after 2020, then we can show a profile there that stays above 600 000 oz/y to 2024 and beyond,” Bristow tells Mining Weekly Online.

Randgold’s Tongon mine in Côte d’Ivoire, which is battling all sorts of operational challenges at the moment, requires high volumes of processing material to be efficient and low-grade material is being earmarked to lift the throughput to optimum levels.

“If we can crack the recoveries and get the crusher sorted out, we can get the volume we require. We’re in with a fighting chance of doing that,” says Bristow.

Randgold, whose maiden Morila mine, in Mali, is now heading for closure after laying a solid six-million-ounce foundation, had a rough start in the mid-1990s when it was forced to put the Syama mine on care and maintenance prior to disposing of it.

After buying the openpit mines at Loulo, it went underground there and then built the metallurgically complex Tongon mine.

Along the way, it has learnt how to run its own power plants and manage the power grid.

It is currently commissioning its first hydropower station and planning another three.

It has shown that it can learn and grow and deliver value from underground mining and multifaceted complex infrastructural capital projects.

The contribution it makes to the economy of Mali alone is said to represent something like 12.5% of that country’s gross domestic product, with cash flow to the government coming close to settling the costs of Mali’s civil service.

Reserves extend the life-of-mine of Loulo to 2027, Kibali to 2030 and Tongon to 2022, and sights are now also being set on turning to account the three-million-ounce Massawa gold prospect in Senegal and scrutinising an extensive portfolio of organic growth prospects, supported by intensive exploration programmes in Côte d’Ivoire, the DRC, Mali and Senegal.