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Despite ‘complete crisis’ in gold industry, Randgold remains buoyant at low prices

5th March 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – With a ten-year plan in hand that would ensure Africa-focused gold producer Randgold Resources remained profitable at a gold price of $1 000/oz, CEO Mark Bristow on Wednesday accused the company's peers for having done a horrible job in recent years.

Speaking during a breakfast presentation on the fringes of the Prospectors and Developers Association of Canada’s 2015 convention, Bristow charged that over the last three decades, the gold industry only had four years of positive cash flow - from 2008 to 2011 - and then, with the correction of 2012, it went back into the red.

To show just how “sick our industry is”, he noted that despite the growth of earnings before interest, taxes, depreciation and amortisation, while gold output remained flat, gold producers’ debt rose significantly, resulting in the accumulated earnings on a consolidated basis for seniors and midcaps of zero.

“The industry has already written off all the earnings it created in that little period of high gold prices,” Bristow pointed out, adding that the gold industry was now trying to sell its assets to people who did not want to buy them to try and settle their balance sheets, so that they could start over again.

“We are very mindful that given the complete crisis that our industry faces, there’s got to be opportunities to pursue value-creating [mergers and acquisitions], as we have seen everyone running around trying to sell Barrick and AngloGold assets that they don’t need, and trying to get full value for it, which would give them cash and leave me with their problems,” he said.

“That’s not our business. We don’t want to pay full value for assets that are not core to other businesses. We would like to find ways where we can deliver a 20% return to our stakeholders at $1 000/oz.”

Bristow believed that the best way to replace the ounces it was harvesting was through exploration.

The company currently operated five gold mines in three African countries, namely Loulo, Gounkoto and Morila, in Mali; Tongon, in Côte d’Ivoire; and Kibali, in the Democratic Republic of Congo. Randgold was actively looking for the next big ‘Kibali’, which, according to Bristow, would without doubt make it the most valuable gold company out there.

He stressed that even at $1 000/oz of gold, Rangold would still be able to do business profitably and be able to pay tax to its host governments, which was seen as a critical part of maintaining social licence.

In a low price, high political risk environment, the quickest way for a company to lose its social licence was to drop into the lowest-profit quartile of producers and to not be able to pay tax anymore.

“On the upside, where the gold price is higher and political risk is lower, you should be able to leverage your business and really deliver value to shareholders, and we are very confident that we can do that,” Bristow said.

He boasted that despite Randgold not having impaired anything, as opposed to the billions of dollars of asset impairments many of the major gold producers had suffered in recent quarters, the company strove to manage its business in a “holistic” sense. This had helped Randgold to show that it was right up there with the best when it came to stock performance.

“And it gets more and more difficult as our competitors write down their businesses and start afresh by effectively resetting their businesses. It is our intention to continue to focus on delivering real value [for every] share as it’s the only way to get people to continue to buy one’s stock,” Bristow advised.

Over the past five years, Randgold's LSE-listed stock had shown remarkable resilience in the face of low gold prices and restive investor sentiment, losing only 14.31% since 2010.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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