4th Aug 2016 09:27
LONDON (Alliance News) - Randgold Resources Ltd shares were being sold on Thursday after a solid set of first half results that showed over a 24% rise in profit was marred by technical problems at two of its main producing mines in a second quarter that the chief executive described as "one of the toughest in years".
Randgold shares were down 11% to 8,025.0 pence per share on Thursday morning, the second worst performer in the FTSE 100. Gold mining shares have been rising since the start of the year following a 27% rise in gold prices. Randgold, although trading down heavily on Thursday, is still valued more than 90% higher than at the start of 2016.
The gold miner's first-half results were solid. Sales increased, and it obtained a higher price than the year before and costs declined overall, leading to a rise in revenue and an even larger lift to pretax profit in the period to USD165.3 million from USD132.9 million a year earlier.
Revenue came in at USD544.4 million, compared to USD478.8 million a year before, but total costs declined to USD397.2 million from USD412.1 million. Net cash of USD197.2 million was generated in the first half compared to USD173.2 million last year.
Sales in the period rose to 700,203 ounces of gold at an average price of USD1,224 per ounce, compared to last year when Randgold sold 699,408 ounces at an average price of USD1,202 per ounce. Total cash costs fell to USD392.8 million from USD404.8 million.
However, Chief Executive Mark Bristow admitted that the second quarter was "one of the toughest in years" after its largest producing mine in the Democratic Republic of Congo, Kibali, suffered a fall in production as it continued to deal with throughput, recovery and dilution challenges caused by using multiple ore feeds.
The Tongon mine, the third largest producer out of Randgold's five major mines, also lost 46 days of production after a breakdown.
Production in the second quarter from Tongon was 7.0% lower than the first whilst production at Kibali dropped 6.0% from the first quarter.
The issues not only hampered production, which was 3.6% lower overall in the second quarter than the first, but also pushed up costs. Cash costs in the second quarter were more than 12% higher than the first quarter.
Bristow said both Tongon and Kibali have made "significant progress" since then, declaring that Tongon had fixed the mill and is currently completing the new circuit, whilst the new Kombokolo satellite pit at Kibali is expected to improve its feed flexibility and grades.
Ultimately, Randgold remains confident that full-year production guidance can still be achieved and the overall development at Kibali also remains ahead of schedule.
"Looking ahead at the rest of the year, all our teams have been reworking and optimising their mine plans to ensure that we end 2016 within guidance. In addition, we're intensifying our focus on critical operational issues to ensure that we deliver a substantial second-half improvement," he said.
Bristow is also confident that the ongoing performance from the Loulo-Gountoko complex in Mali, the second largest producer after Kibali last year, helped offset the issues elsewhere in the portfolio and said the complex was, alongside its exploration efforts, the "highlight" of the second quarter.
"The quality and scope of our exploration portfolio continue to grow and there is a solid pipeline of projects being developed through our resource triangle, from grassroots and generative work to resource definition. I believe we have at least three advanced targets, already scheduled for drill test campaigns, with real potential to become important assets," he said.
Those advanced targets include Fonondara and Kassere on the Boundiali permit in the north of the Ivory Coast, Sofia at the Massawa project in Senegal and the Bakolobi target that is currently being drilled in Mali.
In addition, Bristow said the feasibility study for the "superpit option" for Gountoko will be concluded by the end of this year.
"'The rest of the gold mining industry continues to shy away from exploration and there is now a consensus that new gold production will consequently continue to decline. This, in combination with growing global geopolitical and economic jitters, must be good for the gold price, at least in the long run. That's where Randgold's focus has always been fixed," said Bristow.
"We're building a sustainably profitable business on a very solid foundation, but considering the internal and external challenges ahead, our teams will have to test and, if necessary, re-invent the way they operate on a continuous basis," he added.
By Joshua Warner; [email protected]; @JoshAlliance
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