Randgold Resources Ltd. (NASDAQ:GOLD)
Q4 2013 Earnings Call
February 3, 2014 11:00 AM ET
Philippe Lietard – Chairman
Mark Bristow – CEO
Graham Shuttleworth – CFO
Patrick Chidley – HSBC
Ladies and gentlemen, welcome to the Randgold Q4 and year-end results. For the duration of the call you will be on listen-only. However at the end of the presentation you will have the opportunity to ask questions. (Operator Instructions).
I will now hand you over to the Chairman, Mr. Philippe Lietard to begin. Thank you.
Thank you, and good morning and good afternoon, ladies and gentlemen, and welcome to this presentation of Randgold’s results.
In 1988 when I joined the Randgold board, the company has recently listed on the London Stock Exchange and was just embarking on the Morila feasibility study. The gold prices were at historically low levels, the gold mining industry was in disarray and gold stocks were badly out of favor. So much has changed since then, that the Randgold of today is barely recognizable as a grown up version of that little exploration company.
In the ensuing years it has built five world class mines in three countries, most of them based on its own discoveries. It has joined the FTSE 100, has listed on NASDAQ and has become a go-to for share for shrewd investors. We have also experienced the longest bull-run in gold’s history. But as we say in French, Plus ça change, plus c’est la même chose; the more things change the more they remain the same. And that is certainly true of the gold mining industry. Having failed to create real value in the bull market it is now again floundering as it attempts to deal with the downturn in the gold price.
Nor has the essence of Randgold changed. It has grown in size and rich, but it’s founding strategy of creating real values for discovery and development that it strives to deliver remain intact. This is why as the past year’s results have shown again Randgold stands almost alone in terms of its capacity to sustain its profitability even at lower gold prices and why it can coincidentally forecast growth in production over the next five years on the back of new or expanding operations, higher grades and lower costs and a robust balance sheet.
The successful early start-up of Kibali in September epitomizes all the characteristic Randgold qualities; a long and focused vision and entrepreneurial flair, an effective risk management and operational competence and productive partnerships. It stands as a sitting marker to another great step forward in the Randgold voyage.
So on a more personal note I would prepare to move on but it is with immense satisfaction to have been associated with a unique adventure and also with the conviction that a strong condition of the company, the clarity of its strategic destination, the exceptional quality of its leadership guarantee that the voyage will continue. So I will stop here. Thank you so much for your attention and thank you also for your interest in our company. Mark?
Thanks, Philippe, and good morning to those in the U.S. and good afternoon and evening here in South Africa and Europe.
I think we have given the full presentation earlier on today and that presentation is available on our website. But my intention this afternoon as has become customary is to try and paraphrase that presentation for everyone and then give people a chance to ask questions. So really looking back, you know, Randgold has made significant advances throughout its history but very few have been as significant as 2013 given a lot of reasons.
We had many challenges, we brought on the Kibali Project and we were able to really deal with those operational challenges and demonstrate the whole Randgold value and that we were able to increase throughput, improve our recoveries at Loulo and Gounkoto, deal with the multi-faceted challenges of bringing a new mine into production and also Loulo-Gounkoto delivered for the first time at its full design.
If we move to the second slide in the presentation I think I’ll just take this opportunity, it’s always good in a record year to reflect on where you’ve come from and by no means are we claiming that we always got it right. We’ve had to deal with our fair share of failures throughout our history and with sometimes surprising social and political turns in Africa, it’s always a dynamic operational environment. But I would point out that we’ve always been clear about our objectives and our strategic destination. And we’ve been able to get back on track when things have gone wrong. There’s no better example than in 2013.
And this graph that I include really shows what I mean, and what it really underscores is what I have always said is you cannot run a gold company on a quarterly basis, neither can you run a gold company on the spot price. And it shows you that we’ve moved when you increase the gold price at which you calculate reserves, the consequence of that is your costs go up and you can see at the end of 2010 when we stopped calculating our reserves and used a steady $1000 long term gold price we stopped the cost creep.
And what’s significant is that 2013 is the first year in eleven years that we’ve been able to bring the average total cash cost of production down on an annualized basis, and I will wait and take you through where it’s going to go in the next five years, but we’re certainly on that onward trend as we’ve been promising the market for some time.
Moving then on to the operations, again just starting with our traditional sustainability overview and on the back of a very successful operating year and record production we were also able to deliver a 60% year-on-year the plant and our lost time injury frequency rate taking us on to this sort of acceptable international levels as far as that measure goes.
And then on top of that we continue to invest in our social responsibility programs. Kibali won for the second year the corporate social responsibility trophy of excellence in the DRC. All our operations are now certified and assessed for health and safety and also for the environment. The only one outstanding is Kibali which is still in development.
Moving then onto the operations highlights, really past year as I pointed out one of our best on all fronts. Operationally, new mine development, sustainability, our whole finance and administration and our continued building of the partnerships with our host countries, our communities and most importantly, our labor. Despite the 17% reduction in gold price over the year we were able to deliver a 15% increase in production. Profits were down slightly and I’ll touch on that on the next slide but overall all the numbers align.
And so if you move to the next slide, key highlights. Profits down to $325 million and that really can be explained $80 million difference in costs, $50 million in revenue and extra $40 million in tax because Gounkoto came into tax, out of its tax holiday and then a $13 million adjustment in depreciation, and that explains the difference in the numbers.
What’s significant is if you look at the quarterly it’s going across the quarterly back to December, 2012 it’s really encouraging to see how we brought the costs down, the total cash cost down from sort of upper 700s now to the lower 600s and that I would point out is what we guided. And as you see if you look on a 12 month basis a significant reduction in cost and we will continue to deliver on that.
If we move on to the next slide, and really look at the operations themselves starting with our flagship Loulo-Gounkoto it delivered a stellar set of results which were really the main driver of our overall performance in 2013. Throughput improved, recovery rate was back up in the 90s, grade was on plan and cash costs were down again to a very credible $605 an ounce.
Financials underline the significant improvements year-on-year as-well-as the mark difference between the fourth quarter of 2013 and as I was pointing out the corresponding quarter of 2012. Loulo’s standalone production really for those who understand our business is all about the underground operations at Yalea and Gara. And really that was the driver of the Loulo-Gounkoto performance overall. And you can see the numbers really follow the Loulo-Gounkoto numbers.
And moving on to just expanding on that and that’s the Loulo underground update, the significance there that year-on-year we achieved a 30% increase in ore tonnes mined for the year. And this was on the back of us introducing intermediate backfill plans, cemented aggregate fill which allowed us to reduce the amount of development. And also start mining the 100% of the ore body rather than having to leave the secondary sludge for latter as part of our support plans. The reduction and development will continue to come down with the commissioning of the paste backfill plant which is scheduled for this quarter.
Gounkoto standalone really. Gounkoto’s gold production was slightly lower than last quarter but really in line with the plan and our overall stated intention of bringing the contribution from Loulo and Gounkoto into a 60:40 ratio in favor of Loulo because that’s the sort of ratio that the reserve sits in.
Operating results Gounkoto remains a very profitable operation and paid another dividend to shareholders last quarter and just last week the Board approved another similar dividend, $25 million which will be paid out this quarter. Just looking at some of the potential and again we’ve never been a company that includes resources into our guidance and reserve plan.
This is a slide that just points you to the upside around Gounkoto and particularly the underground what we call the jog zone we have defined about 1.2 million ounces at over 6 grams it’s accessible underground, it’s mineable and at the same time we started looking at what happens if we push the pit down at $1,375 gold price we can add another million ounces in the pit.
So we have got a whole lot of GAAP analyses continuing at the moment. We’ll continue to update our feasibility studies as we go. We have no stress to get anything decided on this year because the underground feasibility points to the fact that it’s better to start the decline a little bit lower down in the pit. So we need to let the pit go down a bit and that really cuts out quite a significant amount of capital in the form of decline access down to the ore body and we still have some opportunity to drill additional extensions to this ore body.
If we move on this is our production guidance for Loulo-Gounkoto very much in line with what we have been guiding for some time. We always operate in a five year rolling plan. We have smoothed out a little bit from last year but the trends as you can see are all in the right direction, grade production slightly improved grade and commensurate drop in costs.
Stay with Loulo, just then Gounkoto collectively exploration is still something that we really believe offers significant opportunity to not only extend the reserves of our current ore bodies but we still believe there is good possibility that we can still find that next big multi-million ounce deposits in this terrain. And the numbers if you just look through the slide there are number of very interesting intersections, I said this morning, some of these intersections couple of years ago you could [flow to Juni] on the Toronto stock exchange. But on a serious note these deposits are all capable of unraveling into a big discovery and we’re committed to continue to search for that next big discovery.
Just some more specifics on nearby Bakalobi permit where we are in joint venture with Taurus Gold. The exploration team has completed field mapping and a grand geo physical OP survey which has identified a structural corridor anomalous gold and this will be the focus of our fallout work out into the range of the middle of the year.
Over now to Morila which again has delivered a solid set of results. It’s now very much a twilight operation but still profitable as you see from the next slide and our focus really at Morila is that we’ve always stated we really need to refocus our business on closing it down, we’re now guiding closure in 2017. Still profitable as you see on these operating results and as far as production goes you know it’s lot lower than its former glory and the dropdown as you see in 2015 is when we start processing the tailing dam. Again still not bad as far as profitability goes compared to many of its competitors in the industry.
In Côte d’Ivoire, our Tongon operation as I pointed out in the introduction had another challenging year. But I must say the management team has done extremely well to improve its performance both as a management team and having tackled the efficiency improvements projects and all of those are now really delivered apart from the lower recovery issues. We believe we found the solution to this problem however and I’ll explain that in the slide after next.
Operationally as we all know Tongon is a low grade mine, so volume and recoveries are critical to its success. We’ve certainly started to see the improvement in throughput, so that’s good. And what remains is the recovery if you go to the next slide really that this explains it. We’ve been working on – we’ve really been determined to get the operations up and we’ve really looked at every aspect of the operation. But exhaustive tests over the last nine months is highlighted that we’ve been losing fine gold in [product] on the mill overflow and for those who understand process with the flash floatation that we’ve got installed at the moment only draws its product from the underflow from the mill. And so the test work very clearly points that we should be capturing both the underflow and overflow product and floating it. So we need to expand the float circuit, it’s about a $12 million capital program will take most of this year to get sorted out.
In the meantime we will continue, we think we’ve got 2% still in the operational efficiency and probably we can do the same by capturing some of the overflow and putting it through the current flash float. So we are not going to sit on our hands and wait for everything to be perfect but it’s at the same time I think we are relived that we believe we’ve got to the solution and just for those who are interested the $12 million on improvement on our recovery is about 8 to 10 months payback.
As a result of that we’ve adjusted 2014 guidance down from 280,000 ounces to 260,000 ounces. But the overall production forecast on a five-year basis is still trending in the right direction. And I think Tongon without a doubt is the base from which we plan to expand our footprints in the Côte d’Ivoire and which we’ve said before we really have a high regard for its prospectivity and relatively underexplored environment.
We now have 12 permits, seven of our own and five in joint venture with local businessmen and streamlined application. And we continue to really highlight some very significant early stage anomalies to particular permits that are showing promises. I indicated last quarter really was Fapoha and Mankono.
Moving on and now certainly we come to the star of the show, Kibali which I must say the team’s delivery in this project it epitomizes everything that Randgold stands for. Its success is the product of without a doubt a sound strategy and a high level of confidence from the team as well as our partnership policy which secured the cooperation of all stakeholders and I am very quick to point out that whilst we get all the kudos, got to accept that there is no ways you can build a project of this nature on time and within the cost constraints we set ourselves without full co-operation from the Central Government, the Provincial Government and even the governments of the surrounding countries in which we had to transport all the equipment.
The operating results really kept us, our reputation we have, this is the fourth gold mine that we’ve – sorry this is the fifth goldmine that we’ve built and commissioned and every one of them has produced net profits and in accounting sense that’s after everything depreciation included in the first quarter of operations. So really, really commendable performance from the team and I will point you to the total cash cost of sub $500 an ounce.
Main outstanding thing at Kibali is really the underground mine where our own teams are working closely with the contractors to keep developments of the vertical shaft and the twin declines on track which they are on track and it’s worthwhile for those who are interested we just intersected the first part of the five thousand stope out of the decline and that’s a big event for us and so over the next couple of quarters we’ll be establishing the first underground stopping infrastructure.
This is quick update of the Kibali’s capital which is running about 13% ahead of the initial 2011 estimates and I would point out that those estimates exclude contingencies and escalation we don’t believe in that so we’ll have to give you our best number and then just update it as we go along. Of that 13% just over 6% is attributable to our prudence and one of the things that we do very well what our capital team does is as we build the mine we try iron out the wrinkles and we’ve also expanded the capacity of the plug from a 6 million ton to annum name plate just 7.2 million ton per annum name plate.
One of the crucial achievements was the success story settlement of more than four thousand families from 14 villages from the mine site to a model town we call Kokiza and this is affectively now being completed with only the big catholic church which you see at the bottom right hand part of the slide complex and some finishing touches to the infrastructure to be completed.
And our five year guidance for Kibali remains exactly as it was last year. We’re guiding 550,000 ounces for this year and then growing production ounce in the next five years and the cash costs are really attractive sort of from $500 to $600 for that period. There are some upsides on these numbers because we haven’t utilized the full name plate capacity of the plot. At this stage we can’t fill the plant totally because we just don’t have that sort of reserve but as we become more confident in the underground and our abilities will certainly be looking to do that.
And I would point out straight away that as I pointed out earlier we don’t always get everything right but we seldom make the same mistake twice and we have really learnt a lot from the Loulo underground experience and going to Kibali we just had some analyst and fund managers through there recently and I am sure they will reinforce the fact that we have learnt a lot from our experiences and we’re pretty competent miners, even I will say so myself when it comes to underground.
On the Kibali extensions we continue to extend the potential for the KCD main underground components of the ore body. We have drilled 450 meters down dip now and confirmed that the ore body is still there. This is still above the base of the shaft so it’s accessible from the shaft infrastructure that we are putting in. And then we followed the upland spot and that is really an exciting opportunity and it would help flexibility because if we can prove up and we’re busy doing that now those ounces that are already in the pit, they are just not in reserve so that’s a real opportunity.
And then as far as the exploration goes we continue hunting for other opportunities both within the vast lease area that held by the Kibali joint venture and within our recently concluded joint venture with Kilo Gold to the west of Kibali and we’ve just completed the first field mapping and built the first base dataset and started to generate targets for follow-up work. So by the end of this season we should be in a position to and our target is to have some drilling targets in this concession by the end of the year.
I am sure those people who follow us closely would have noticed we took our Massawa project out of the five year forecast as it is not given the gold price to pass out, filter 3 million ounces and 20% return at $1,000 gold price. It’s one of the – although it’s one of the larger developed gold deposits in West Africa it’s also geologically and metallurgically the most complex ore body in our portfolio. And its viability hinges on finding either effective power solution and/or additional resources. And we’re working on both but as with the Gounkoto underground project we don’t see there is a need for rushing into anything and we’re going to systematically evaluate it. In mean time we also believe the Mako belt in Senegal still very perspective and we’ll continue to search for ways to expand our footprint there.
That brings me to the Group’s five year plan forecast that the consolidated forecast with planning and other big step up in production this year aiming at an increase of between 24% and 30% or on aggregate somewhere between 1.13 million ounces and 1.2 ounces which brings us close to the long stated target of 1.2 ounces by 2015, and as I noted earlier this year’s rise will be driven by Kibali’s contribution in its first full year of production and the additional ounces that we’re forecasting out of Loulo-Gounkoto and to a less extent Tongon.
I thought I had finished the presentation, just to remind people that exploration is the engine that drives our business stream. It’s really being the success or the driver of the value that we’ve been able to deliver for our shareholders. And we have really refreshed our business model as far as exploration goes.
We have, as you seen not cut off budgets but at the same time we are very focused on ensuring that we clean up our portfolio and we drive those projects because having looked at the market and potential M&A activity there is no doubt in all our mines that the best way to really separate ourselves once again from the industry is to deliver another world class discover.
And we’ve certainly got a power plan of projects that offer the potential to deliver on that objective. I also thought I had refreshed the country ranking being in Cape Town at the Indaba and point to the fact that our ranking takes is based primarily on geological potential and then we down rank it against political stability, fiscal and economic regime and infrastructure and you will see that we’ve changed Senegal to a B and so we’ve got many more Bs but no Is have left in Africa that doesn’t’ mean to say that just means to say that needs a little bit more management those big countries.
But certainly you can see where the geological terrain lasts that we are interested in and we’re pretty excited about the emergence politically of that sub-Sahara region in Africa. And finally ladies and gentlemen I end the presentation as usual with the share price comparison and I think I’ll leave it up to you all to judge our performance as far as that goes.
That brings us to the end of the presentation and we’ll be delighted to take any questions should you have any?
Thank you. (Operator Instructions) The first question comes from the line of Patrick Chidley from HSBC. Please go ahead.
Patrick Chidley – HSBC
Hi, Mark can you hear me?
Hello, Patrick. Yes we can. How are you?
Patrick Chidley – HSBC
Good, thanks. Just want to ask couple of [inaudible] questions on Kibali and the plant capacity of 7.2 million tons does that – that doesn’t include the oxide, the proposed additional oxide plant, could you may be going into the detail on that?
No, it doesn’t. For everyone’s information we’ve definitely got the scoping done on additional circuit, oxide circuit where it will come into our 2015 capital program. It’s about $20 million running over from late 2015 into 2016. We have designed it for 600,000 tons a month and just the reason why is that the mine itself Kibali was banked on the basis of us running oxide for the first two years and then on the one stream and then campaigning because we just don’t have a lot of oxide. This is a sulphide mine long term. But when we looked at it we always have a little bit of oxide around and so 50,000 ton a month oxide circuit would take away the requirement to constantly retrofit the oxide crusher every time we built up oxide ore to campaign.
At the same time it feeds oxide at 50,000 tons a month into the CIL circuit which will treat the tails from the flotation and that’s a very small volume. So it bulks up the CIL circuit and it efficiently consumes the cyanide, otherwise we would have to kill the cyanide and so we use that extra cyanide not only to cover gold from the flotation tails but also to process that small stream of oxide. So effectively it would lift the overall capacity of the plant to 7.8 million tons a year.
Patrick Chidley – HSBC
Right, okay. Thanks very much. And then in terms of the underground production tonnage that you would expect at Kibali just long term where is that going to be end up at the moment from the news at the plant?
It’s 3.2 million to 3.6 million tons a year.
Patrick Chidley – HSBC
And it will be you know Patrick there is some little oxide. The capacity of the plant is I mean of the shaft is 3.6 and we have always made in our plant to hoist 3.2, there is waste and other things but we have also got the declines at the same time, it’s much more efficient to bring it out of the shaft. But we have got flexibility in that. We don’t get to 3.6 million tons in our ten year plan.
Patrick Chidley – HSBC
Okay, all right, thank you. And lastly just on the Massawa, what was the – based on the reserve model you had what was the original capital that you…?
It’s about $300 million. It’s a small operation because you float the sulphides ore brought up by the full floatation and then you process that concentrate through the plant. So the actual processing part, the gold melting part is very small. And that was run at a $1,000 Patrick, so 1.8 million ounces at a $1,000 that gives our share of it is whatever 83% of that and it’s nowhere near our 3 million [inaudible] yet but it is viable at thousand.
Patrick Chidley – HSBC
Okay, thanks very much Mark.
Thank you. The next question comes from the line of [Howie Klinker for Klinker & Company]. Please go ahead.
How’s it, Howie, how are you?
Good. How are you?
I am good, thank you, a whole lot better than you. I am in Cape Town.
No we’re fine here. Snow is pleasant. I have a few questions. First overall how did you get your depreciation down in the quarter from a $34 million down to $19 million when your production was up?
It’s just a product of the year and the way we – every fourth quarter we make an adjustment. And it’s because we through the quarter in the countries in which we operate we depreciate on a straight line basis, life of mine but when we consolidate in a group at the end of the year we use a tonnes basis. And so there is an adjustment we have always done it. Some years its bigger than the other. I’ll ask Graham to embellish on that but I think I’ve got the draft.
You mean last year’s fourth quarter too?
Yeah you are spot on Mark that’s right, Howie, if you look at last year as well there was an adjustment in the fourth quarter as well.
So this year’s adjustment was bigger, relatively bigger?
Oh, I see okay. Second question are you going to spend about $300 million on Kibali this year to CapEx?
Okay. And second last…
310 to be exact.
Oh, what’s 10 million between friends.
Every dollar counts Howie.
Yes, I know. At Tongon your tonnes mined were the same I am not sure what ore tonnes mine means because they were lower. But your cost dropped substantially with the same tonnes mine please explain that to an amateur asking a question.
Well it’s a good observation. We’ve been beating up on all our suppliers and contactors. We started in May as we promise you we’ve been tightening the belt. We have not left one stone unturned. The other big drawback, so there is efficiencies in that and you can see we’ve reduced the ore tonnes mine overall because we don’t want to tie up working capital in stock – and the other big player in the cost for Tongon has been the power efficiencies, we really got on top of the power. We had a little all setback in December and it’s going to loss for where we had a part, one of the what it’s called when you convert – transformer blew apart which has taken a few weeks to get flown in and that has necessitated us to start up some of the gensets but it’s not – limping along we’ve still got significant good power. But we really led to – and so our power efficiencies have improved substantially.
Are you going to have to spend much money this year on hydro power plant or is it the government’s responsibility?
Government has got lots of and they’ve just spent one on a big turbine they worked out that there is got a way for a while to get the gas into it. But I know there is quite a lot of capital going into Côte d’Ivoire gas power generation and hydro. And as part of the American led millennium infrastructure project which is West African wide initiative.
All right they have plenty of offshore gas and oil, they can…
They’ve got lots of gas they try to find more oil but they’ve lots of gas.
Finally I’ll say this past year despite a large decrease in the price of gold roughly 30% give or take, and your buildup of Kibali when you didn’t make any money while spending money for three quarters of the year or last year plus this year. You still made 11% on capital which in your case same as the return on equity you essentially have no leverage.
You and I know there are plenty of companies that dream of making 10% on investments at higher gold price if Rumpelstilt come along and gives the money I would say without knowing exactly where the bottom of the down sweep of the cycle is we’re probably pretty close to make 11% near the bottom is highly commendable nice work guys.
We should make 20 because we had on 20.
Well on the up – on the half cycle you will make more than 20.
I think look at our cash flow we made $465 million in cash flow that’s why we were able to keep out of debt.
Exactly. Nice work again.
You’re welcome. That’s it.
Thank you. The next question comes from the line of [Claus Kliesner from Middlepool]. Please go ahead.
Hey, Mark, how are you? Claus here.
How is life Claus?
I just want to ask can you give us an idea as to – an insight as to how you derive your geopolitical ranking and such as the B that you mentioned earlier. And on that basis where would you rank Mali today and just from extraneous alternatives Zimbabwe and South Africa. And lastly would an exploration potential, highly significant exploration potential influence those rankings?
Absolutely, Claus. Our rankings start, look we use lots of different institutes but this our ranking which we published today and we do it every six months. It starts with geological potential, so the potential to make a 3 million ounce, 20% return at a $1,000 gold price discovered. So those countries I can list. – so they start as eight countries Mali, Senegal, Côte d’Ivoire, Mauritania, Ghana and DRC, South Sudan, Central African Republic, Tanzania and then we down grade that on politics. So some countries will start as a B geologically and stay there like Namibia for instance.
It’s a good safe country, it’s well, it’s good mining codes, it’s got – it’s really done well since its independence. And so Senegal used to be our only A grade country, Mali and Ivory Coast used to be A and they both had big crisis and Ivory Coast went down to a C it’s come back up to a B same with Mali. Senegal we’ve just rewrite to a B because it just made a unilateral statement it’s going to review its mining code and it’s not an industry yet, it’s really it’s only a fledgling industry. And immediately that impacts on our future perception of where we deploy exploration dollar, so that’s why.
We’ve got to work with the Senegalese government hopefully we will get something like we did with the Côte d’Ivoire government that really is attractive and we will rewrite it. South Sudan is another example of country that geologically is really perspective but politically it takes it down to a C where in the Central African Republic that’s a D.
We don’t see Central African Republic politics, infrastructure, or fiscal and economic relief ever getting anywhere near a situation where we would invest in it. But we certainly see South Sudan despite its challenges at the moment picking itself up and making progress. Zimbabwe is a D it’s got gold. It’s a D for a number of reasons. It doesn’t start off as a A grade country, it’s a B grade country geologically. It’s high and it’s [inaudible] it doesn’t bulk up in gold deposits. So it will never get there. And then for all the reasons you already know it doesn’t get past C.
South Africa when you look at it as a gold investment destination is a C. Note these C countries are countries that don’t have prospectivity at all and it’s something where we wouldn’t go and because it’s just not, there is nothing that would meet our 20% return on a $1,000 gold price in South Africa today, so that’s the reason behind it. And we have a set of principles and rules at which we allocated. So we start with geology, we downgrade it then politics and political rest and then we look at fiscal and economic regime, we run a standard 3 million ounce gold project through the fiscal and tax regime and see our grades and then finally infrastructure. And we’ve got a fairly rigorous process, it’s completely subjective, we all spend the most of our time in Africa.
And if you pullout our annual report and read that section you will see what are we.
So then on that basis given that gold is currently averaging around 1250 why are you annually returning 11%, if 20% is your parameter at a thousand gold and everything is going well.
Because things change, Claus. You know there is inflation. We do it on a spot basis and it’s you know there’s inflation there’s you know we messed up things from time to time. It took us 2 years to get the underground work job and that’s what I have always said is you know when you invest in some southern Africa and in fact when you invest in any country in the gold industry it’s not a perfect size. And so you know our criteria ensures that we deliver real profitable businesses.
It don’t take high calculation in one year for return on capital because we deliver better than that. It’s calculated on a certain set of assumptions but what’s no doubt in my mind is that if you look at everyone worrying about Randgold risk because we’ve invested in these countries I would suggest that if you were investing in the gold industry 7 years ago your biggest risk is management, not geographical location or geopolitical location and we’ve demonstrated I think beyond doubt that we’re able to deliver better returns than most of our peer group that claim they are not risk because they are enforceable jurisdictions.
It’s a relative game we play and you know we do strive to that 20% return and I can point out to you that you know the Kibali project when we go back and run our numbers today and that’s five years later we get back to our original feasibility number and we’ve added few more extra ounces but we get back to those numbers.
Tongon at this stage is not big because we’re not delivering what we planned to do but certainly if you go back to our original Loulo plan when we made that decision to invest that capital in Loulo remember all the capitals invested in Loulo not in Gounkoto. But we found Gounkoto and we have delivered much more than our original forecast on that project. So as you know Clarke I don’t have to lecture you on this. Give me another gold company that’s delivered the value we have.
Yeah, you are number one in my book Mark no doubt about it. I am just comparing it to your own internal parameters?
Yeah, but you have used Howie’s opinion as gospel.
Yeah. I will say that. Thanks Mark.
Thank you. We currently have no questions coming through. (Operator Instructions).
All right, thank you ladies and gentlemen. Really appreciate your time. As you know William and I will be in Bima in 10 days or two weeks’ time we’re going via we want a week in Kibali and a week in West Africa and then we’re off to Bima. And those people who can’t get to Bima we’ll hopefully catch you in New York. The New Yorkers that are not planning to go down to visit the sun and for those snow geeks who don’t leave the cold we’ll catch you in Toronto. Otherwise thanks for your time and see you soon.
Ladies and gentlemen thank you for attending this webinar. You may now disconnect your lines.
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