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Randgold on gold discovery hunt but walks away from Obuasi mine

  • SOURCE: | qwesa2big
  • randgoldGold Miner, Randgold Resources, is on the hunt for its next “big discovery” but is not interested in the Obuasi mine as it aims to increase its 2016 exploration budget.

    The Africa-focused mining company is making steady progress in its quest, said CEO Mr Mark Bristow, who described exploration as the engine that drove its business and expanded its footprint in its target areas.

    “We can afford to build our next new mine without recourse to the market, thanks to our robust balance sheet,” he said.

    In line with this, the company has set aside some US$60 million for corporate and exploration expenses for 2016, a significant rise on the US$45.1 million spent in 2015 – already a double-digit increase on that spent in the preceding year – as the group grew more serious about increasing exploration activity, principally drilling, during the year.

    Exploring opportunities

    But while the company is investing heavily in exploration activities in other parts of Africa, it walked away from the Obuasi mine, saying the project will not meet its internal investment goals.

    It abandoned plans to redevelop a gold mine in Ghana, just three months after announcing its interest in the “world-class resource”.

    The FTSE 100-listed company, which operates in central and West Africa, has scrapped a potential joint venture with South African firm AngloGold Ashanti to reopen and expand the Obuasi mine, which has some 5m ounces of gold reserves below ground, after it failed to pass due diligence.

    “We spent more time on it than most people would do. But it got to the point where whichever way we cut the cake, we couldn’t get it to pass our criteria,” said Mark Bristow, Randgold’s chief executive. “Anglo has never made any money out of this asset, ever,” he added.

    In September, Randgold said it would fund and lead a plan to modernise the loss-making mine, which was shut down by AngloGold in 2014, with a view to forming a joint venture to manage its output.

    AngloGold said it would now continue to operate the mine – which dates back to 1907 – on a limited basis. “In the current environment, we believe it is prudent to conserve our resources and to revisit this opportunity when market conditions improve,” said Srinivasan Venkatakrishnan, chief executive.

    “We saw Obuasi as another exploration opportunity that we look at all the time. We continue to look at other opportunities because as the gold industry deals with the stress it’s in, and the market prices down assets, those assets start to [move closer] to our valuation of them.”

    “While everyone else is stopping exploration, we’re committed: we employ 75 geologists and we keep them busy,” he said.

    “We’re making significant progress in the hunt for the next big discovery and the pleasing thing is we’ll be able to afford to build it,” he added, pointing to the company’s debt-free balance sheet.

    Balance sheet

    In contrast to some of its mining peers in the FTSE 100, Randgold has a strong balance sheet and is debt free; it had net cash of US$168m in the third quarter.

    “In the short term, there is still pressure on the gold price. In the medium term, there is a lot of upside.”

    The mining sector has been battered by tumbling commodity prices this year, forcing many companies to cut back spending and strengthen their balance sheets.

    Analysts at Investec said: “Obuasi was a case of wait-and-see what Randgold comes up with, so this has no impact on our outlook. A strong positive in that it shows that Randgold remains financially disciplined, but a negative is that medium-term growth options remain lacking.”

    Randgold, which operates in central and West Africa, beat analyst expectations to report pre-tax profits of US$260m for the year to December 31. However, this was significantly lower than the US$353m it made last year.

    Turnover of US$1bn was also marginally ahead of forecasts, despite being seven per cent lower than the year before.

    Gold prices fell nine per cent during the year, although this was partially offset by a 6pc rise in production to a record 1.21 million ounces, at an average cost of US$679 an ounce.

    Randgold has been helped by the relative strength of gold, which despite falling in 2015 has held up reasonably well compared to other metals. It has risen in value since the start of the year on the back of turmoil in the stock markets and the weakening of the US dollar, and is trading at around $1,165 an ounce.

    Declaring himself “very bullish on gold”, Mr Bristow said: “This is the time we should be buying mines because when the gold price picks up further – and it’s bound to do that – we’ll be ready.”


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