Randgold (GOLD) overcoming incidents; big year
from Business Day
Posted to the web on: 17 January 2006
Randgold overcoming incidents, looking forward to another big year
Stephen Clayson - www.resourceinvestor.com
LONDON - Though just hit by twin misfortunes, Randgold Resources has much to offer those investors seeking a well-managed mid-tier gold miner. Randgold is putting the finishing touches to its Loulo mine in Mali, which is already producing, as well as making progress with other endeavours to grow its production profile.
Two scandals affecting Randgold have surfaced of late, the first being a dispute over the taxation of Morila, the company’s first mine, a 50% joint venture with AngloGold also located in Mali, and the second being the sudden dismissal of the prime contractor at the Loulo mine. The first issue has now been totally resolved, while potential operational damage from the second has been counteracted, although full resolution may take some time. Randgold’s CEO Mark Bristow aptly describes the wrangling over the taxation of Morila as “typical third world stuff,” complicated by the intercession of the Christmas period, which despite the fact that Mali is a Muslim state, still causes a slowdown in Malian government departments. Such disputes tend to be settled fairly easily once a typical sequence of posturing has taken place on both sides.
The dismissal of the prime contractor at Loulo is a little more unusual. Of course, inept contractors exist in the mining industry as in any business, and the conduct of MDM Ferroman, the contractor that was engaged at Loulo, has indeed been inept. It has also led to MDM being indebted to Randgold to the tune of $12 million, a state of affairs that arose as Randgold essentially had to bail out MDM to keep their heads above water. MDM has pledged security for $7m of the debt, but has not provided security for the remaining $5m.
According to Bristow, Randgold has no overriding wish to force MDM into liquidation, but will do so unless it can come up with security for the remaining $5m. Now that the Loulo project has been taken back under direct management by Randgold, the only risk posed to Randgold by MDM is that of its debt. MDM may advance security for the remaining $5m sum, avoid liquidation and in time, settle their entire debt with Randgold through normal means. But if the company is forced into liquidation and other creditors line up as well, there is the possibility that Randgold may not be able to recover all that it is owed.
The loss of MDM as contractor will probably push back the completion date of the Loulo mill’s hard rock circuit, but Randgold hopes to be able to prevent this by continuing to draw on its stockpile of softer ores, which Bristow describes as “plenty big enough.” The final shipment of components for the hard rock circuit should have left for Mali last week, following Randgold’s intervention to ensure that all relevant parties were paid; something that MDM had neglected to do.
Bristow hopes to see the hard rock circuit functioning by April or at the latest May of this year, and believes that through careful management, Randgold can avoid significant deviation from Loulo’s year 2006 production target. Work on the planning of an underground mine at Loulo to complement the open pit operations already underway is proceeding unabated, and Randgold intends to begin construction of the underground mine this year.
Randgold’s early stage project portfolio is also still being progressed, with the company fairly active in Tanzania, Ghana and Burkina Faso, and beginning to nose around Congo. Thanks to the improving political situation in Ivory Coast, Randgold is also hopeful of gaining significant access this year to its Tongon project in the country, which may have the potential to produce in fairly short order around 100,000 ounces of gold per annum, assuming that circumstances in troubled Ivory Coast permit.
As if in vindication of Randgold’s position, the company’s share price shrugged off its initial concerns over the MDM debacle, and was trading today back above 1,000 pence, close to its lifetime high. The market seems to have faith in Randgold’s ability to manage incidents such as the two detailed here, as well as confidence in the company’s ability to keep generating value. With particular regard to Loulo’s underground scheme and the possibility of somewhat near term access to the Tongon project, it could be said that the scope for further value generation is significant.
AI
