TORONTO (miningweekly.com) – Africa-focused gold miner Randgold Resources’ stocks had beaten the severe market headwinds of the past five years, posting 40% growth on the LSE to £63.25 a share throughout what had been termed one of the worst gold price downturns in living memory.

Since the start of the year, the company had gained 49.89% in London, while stocks rose 25% on the Nasdaq over the five-year period, and by 47% since the start of the year to $90.48 apiece on Friday.

“After 20 years in the business, no other gold company can deliver on the same track record of the company, or hold quite the same portfolio of organic growth opportunities over the next five years,” said chief executive Mark Bristow during a recent investor presentation in Toronto, held on the fringes of the yearly Prospectors and Developer Association of Canada’s convention.

SUPER CYCLE TROUGH?
Bristow stated that the market capitalisation levels of companies in the precious metals mining sector had again reached levels last seen at the start of the previous super cycle. Market valuations of senior gold miners had fallen 66% since the March 2011 gold price peak of $1 880/oz, 59% for intermediates and 61% for juniors.

He noted that the mining industry was cyclical and paradoxical in nature as companies focused on production growth during bull markets and survival in bear markets, as seen over the last four years.

Bristow repeated his mantra that exploration was the only way to create value in the gold mining industry, as mergers and acquisitions (M&A) driven growth was largely dependent on higher gold prices. The discovery and development of greenfield projects were the only way to drive value, while brownfields exploration was also critical to move assets further up the value curve.

The mining industry was focused on survival rather than investing for the next cycle, and stakeholders were busy cutting capital and exploration costs, selling assets at a fraction of the purchase price and financing almost every cost, which meant they were all, in fact, selling their futures just to survive.

Bristow stressed that to maintain the quality of Randgold’s resource base, it constantly needed to replace what it mined through discovery and development. However, this was not a trend followed by most miners, as gold discoveries and the discovery rate of new ounces had fallen to 20-year lows, while current global output was accelerating.

This resulted in the reserves per share metric slowly decreasing over the past ten years. “Shareholders now face a more uncertain future over the long-term view of the gold industry – a positive implication for the gold price,” he advised.

Compounding matters was a fall in the global reserve grade from 2.5 g/t in 2000, to below 1.5 g/t in 2014, versus mining head grades falling from 2.8 g/t in 2000 to above 1.5 g/t in 2014.

ORGANIC GROWTH
Bristow boasted that Randgold had not cut a penny of its exploration budget during the metal price downturn, which helped position the company now at the potential start of a new super cycle, with ample opportunity to grow output while reducing costs in a growing gold price environment.

“We can afford our own future without issuing any shares,” noted Bristow, pointing to the company’s strong balance sheet with $213.3-million cash available, as at the end of December, to fund growth projects.

Randgold was robustly profitable, having reported strong cash generation year-on-year in 2015, in line with declining capital, lower costs and improved working capital management. Bristow stressed that the company’s policy that any project it touched would be profitable at the $1 000/oz hurdle guided its success in the low-price environment, an added upside if the price continued to rise.

Randgold expected significant grade improvements over the next five years, starting from 2018 when Kibali Underground production was expected to start, with forecast consolidated gold output of about 1.35-million ounces a year from 2018. Other growth opportunities existed in every jurisdiction the company was active in, including Mali, Côte d’lvoire, Senegal.