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Randgold Resources Limited (NASDAQ:GOLD)

Q3 2011 Earnings Conference Call

November 2, 2011 12:00 PM ET

Executives

Phillipe Lietard – Non-Executive Chairman

Mark Bristow – Chief Executive Officer

Paul Harbidge – Group Exploration Manager

Graham Shuttleworth – Chief Financial Officer

Analysts

Martin Pradier – AGF

Patrick Chidley – HSBC

Josh Wolfson – Stifel Nicolaus

Andrew Breichmanas – BMO Capital

Operator

Good afternoon, ladies and gentlemen, and welcome to the Randgold Resources Q3 Conference Call. My name is Denise. I’ll be the coordinator for today’s conference.

For the duration of this 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’m now handing you over to Phillipe to begin.

Phillipe Lietard

Hi, everyone, and welcome again to the quarterly review and our results and performance.

The past quarter was one in which Randgold resources again posted a number of memorable milestones. Those milestones are considerably significant in our company’s progress particularly the (inaudible) as part of our long-term strategy and where the achievement marks the completion of one growth stage while pointing clearly to the next.

Along these milestones are the successful start of the Gounkoto operation, the accelerating events of the Loulo Complex underground development, the resettlement of the first Kibali village, and not the least, the official opening of the Tongon mine in Cote d’Ivoire.

I had the pleasure of attending the opening. I was enormously impressed by what I saw and heard there. As you know, Tongon was conceived in the midst of what was in effect (inaudible) and was then commissioned on time despite the disruption caused by the disputed outcome of the presidential election.

It went on to make a profit in its very first quarter, like all the other mines Randgold has developed. This is a tribute to Randgold’s tenacity and technical skills, but, overall, it represents a triumph of its partnership philosophy which was guided through some very (inaudible) obstacles.

At Tongon, I experienced firsthand the (inaudible) of corporation that exists between Randgold and its host country at all levels, from the central government, the local authorities, to the ordinary Ivorian. That rule will exist because the company has seemed to start, given ample proof, first thing at Randgold as a long-term commitment to Africa, and secondly, that it shares the value created by its mines equitably with all its stakeholders, including government and the people of the country where it operates.

That philosophy not only supported the development of Tongon. It also underpins the company’s all around performance to consistently produce as the kind of result we are proud to report on for the past quarter.

And on that note, I will hand you over to Mark Bristow for a detailed overview. But just one more thing before I do that (inaudible) that Andrew Quinn is joining the board. Some of you know Andy as a managing director of CIBC. We are delighted that he can join us. He brings first-class, technical and financial skills and practice, all of them in the management sector. And that experience will contribute to the quality of the growth engine and perspective.

And thank you again for your interest in our company. And now, over to you Mark.

Mark Bristow

Thank you, Philippe. And good afternoon, ladies and gentlemen. Good morning in the US.

Just for repetition’s sake, I did have a detailed presentation on the results at lunch time today at the London Stock Exchange and that presentation is available on webcast on our site, on our website. So if you’d like to check on anything in detail, please do that.

Our intention is to run quickly through the results, so using the same set of slides which are available for those who are logged in on meeting zones and just touch on the key points and issues and then hand it over for questions.

I think the key in starting out in my presentation that I’d like to leave with you is, really, those key indicators that I believe make Randgold Resources who they are, who it is, and really have those our value for our shareholder’s great production and prospectivity all point to our ability to continuing to deliver on our promises of sustainable and profitable growth.

And I think that’s the call of our message this quarter. We’re starting to see the benefits of improving grades at Loulo, the better grades coming out of the high-grade Gounkoto deposits, the importance of growing production into a rising gold price that it has on profitability, and, of course, given the last three months of reflection that our geological and exploration team have spent looking at where we go in the next field season, we’re excited about the prospects and prospectivity of our exploration pipeline of projects.

Again, what’s become important in our company is safety and we have a slide on safety, the first slide. And on top of that, we’re constantly working to institutionalize not only our safety programs, but also our environmental and social programs, all critical in ensuring that we retain our social license to operate within the communities across the African continent.

It is with regret that I have to inform our shareholders that we had a fatality this last quarter at Gounkoto, a drowning caused by the 1 in a 100 year abnormal rainfall we experienced there. Notwithstanding the unusual nature of this event, we have taken the opportunity to, again, reinforce our policies and procedures and learn from this incident. Constantly a reminder to our set where we operate many of people who work for us particularly in the labor category need constant reminding of the hazard associated with large industrial activities.

Moving on to the highlights. Really, I would summarize the highlights illustrating the effectiveness of Randgold’s strategy of taking the long view and investing in the future. We managed a challenging operational environment with Tongon going through the transition zone from soft oxide ore to hard rock right in the middle of the rainy season. We dealt with the challenges (inaudible) by the significant rainstorms at Loulo and Gounkoto.

We still managed to continue to show a steady improvement on the combined Loulo Complex both in production and in cost. And as you all see, and I’ll expand on that, we delivered an improved – a constantly improved rate of development in the two underground mines at Loulo.

We have brought in our new trucks to be able to manage our own haulage strategy from Gounkoto to Loulo. We’ve commissioned a hard rock crushing circuit and the flotation circuit in Tongon, and as the chairman pointed out, the mine officially with the new government represented there. In Kibali, we are on track and we have – all long lead items are secured and all permitting in place to be able to proceed with the construction of the mine. And at this stage, we see no reason to change our target of commissioning the project in the backend of 2013.

We have started with greater controls running at Kibali, and as I alluded at my opening, the exploration team has again lifted our horizons, and it’s very exciting what they’ve come up with in their annual review of projects.

The numbers speak for themselves. And again, year-on-year, significant improvement on the back of both growing production and, of course, higher gold price. I think the takeaways from this are that – if you look at nine months, it really shows what we (inaudible) to grow our production some 70% year-on-year from last year and we’re certainly on track with that.

We’ve got a bit of work to do with the cost, largely driven by grade, and I’ll touch on that under the separate operations. And I think the other thing is that you’ll see how steady our exploration spend is. And again, I think we’re under no illusions about the importance of exploration, but also we’re not confused about whether there’s a linkage between dollars spent and answer that’s covered. There’s no linkage. The linkage is intellectual capital and a long-term commitment to investing in ones future.

Moving on then to the Loulo Complex, specifically, again as I alluded to. And those were all improvement operationally. I think you would be all pleaded to see that the inset shows a picture of the first can for the big mill going into place. That expansion program is on track for the end of the year and a significant part of – and I think on reflection, we’re delighted with our decision to expand the capital base and infrastructure at Loulo and integrate the Gounkoto operation with one significant piece of infrastructure rather than duplicating it.

It’s certainly the right way to go. We’re bringing in the extra capacity on the back of more minable reserves and both adding to the lack of the – in which we amortize the capital and then equally importantly increasing the production out of the combined entity.

The results really speak for themselves and we’re expecting recoveries to get to continue to improve as we improve our capacity with the new mill. We were lower in our throughput rates this quarter largely because we’ve been dealing with tie-ins on some of the bottleneck projects.

One of the things that we’ve charged our capital projects team with is, as we expand and put in place the new mill, we want to make sure that we have capacity to be able to deliver on that expanded throughput. And that required an upgrading on some of the Thompson [ph] and in particular maintaining them to the tanning storage facility.

Cash cost as I pointed out under a little better. That’s on the back of a better grade and we expect that to continue to improve as we improve the delivered grade at the combined complex. On a standalone basis, again, Loulo standalone showed an improvement in both costs and just a low performance.

Throughput as you see is down from 870,000 to 600,000 tons. That’s because we have – Gounkoto taking it, contracted capacity for itself as we expanded the supplies from Gounkoto mine.

Moving onto the underground, the Yalea underground mine, there’s the graph showing these improvements in development grades. We are now very close to meeting our target of thousand meters a month, which is very key to anyone who follows underground mining to ensure that we’re developing the reserve.

We have started developing within the Purple Patch. Again, it takes some time to develop the search in the Purple Patch. But we busy with the 188 and 208 levels.

Moving on to the next slide, you’ll see the layout. We also through the quarter holds the Yalea Pit decline into the main decline. That’s opening up the way for us to see actually AUMS high-speed development contract and to rationalize our whole mining strategy at Yalea in line with our Gara strategy. That’s in place already. It’s effective this week. And now, our focus is on building up the starting reserves in the region from below the pit down to the – below the pit down to the Purple Patch. We will be mining from level 113 for the next 69 months and, again, as we built the capacity at the main parts of the Yalea orebody.

As I reported on last quarter, we have reviewed the starting (inaudible) in layouts and repository design concepts. We’re now busy with capital schedules and scheduling the (inaudible) plans. Really, we have four styles of (inaudible) designs for the mines, particularly in Yalea. The first is related to lower grade areas, possibly the orebody which is more variable. That’s focusing on extracting about 73% of the orebody on the Rib and Pillar basis as outlined on the inset on this slide.

And then, when we get into the higher grade parts of the orebody, we’re expecting to extract as close to 100% as possible using that goal. We’ll initially start with 30-meter wide scopes leaving 50 meter remnant reserves. And then once we comeback and pull the 30-meter scopes, we’ll take the remaining 30-meters scopes, as pointed out in the label longitudinal extraction in the bottom rock end inset.

And then, for the wider ore bodies, we’re going to be mining transfers mining. In other words we’re mining out across the orebody and then we’ll use backhoe to come in and stabilize the orebody and then extract the rates that’s highlighted in purple in the diagram.

Moving on to Gara. As we’ve always said, Gara is being on plan as from the beginning. It just started (inaudible) between the 40 and 65 levels. It’s fully developed after the south of the southern extremity of orebody. We have mined about just over 40,000 tons in the development this last quarter sort of upper four grams grade, which is very encouraging.

In both Yalea and Gara, the ongoing underground exploration and grade control drilling has certainly reinforced the (inaudible) the orebody and grade models that we made the decision to go underground on. Again, Gara’s development grade has increased significantly quarter-on-quarter over the last couple of quarters. As I pointed out, we’re busy mining now from the stopes and that stoping time will build up over the course of this quarter and into next year.

The next slide is just a schematic of, again, the mining and we expect that the first part of the mining in Gara will – Rib Pillar, Rib and Fill mining strategy, we will love to backfill to be able to extract later on in the (inaudible) of the mine, the pillar levels going forward.

Moving back to Gounkoto. It produced 35,000 ounces, up from 14,000 ounces last quarter. You’ll see that over the next slide, there’s an increase in cost that’s really on the back of grade. I think the key for us is we’re very focused on mining this orebody on the grade of the orebody. There are going to be swings roundabout, but if you look at nine months to date, we’re at 5.1 grams (inaudible). And that’s really the grate of the orebody and we’re going to be managing around that grade as we go forward.

We have taken out all restrictions on the ability to feed the Loulo facility with the Gounkoto ore. As I pointed to the arrival of the new Volvo trucks, which gives us a lot of flexibility to build the feed, the process in project Loulo.

And then finally, in the Gounkoto mine, we commissioned, as the chairman said, Tongon opened at this year. Gounkoto should have its official opening early next year. We will complete the final capital project along with the permanent crushing circuit at Gounkoto by year-end. And so, it’ll be ready to roll. It is mining active capacity at the moment as far as mining activities go.

Staying in Gounkoto and just updating everyone on the drilling program. We continue to expand our understanding of the controls particularly the deeper high-grade positive orebody as we schedule and sign off for the updated pre-feasibility study, which is due out when we talk to you next.

And again, the work (inaudible) body exploration and evaluation team has allowed us over the page to really get our head around the frameworks, the techtronic framework and controls of the regional mineralization. And we have some very interesting success in Toronto South, shown in the next slide. I think we’re starting to link in and understand the importance of the cost structures.

We certainly have revisited our Faraba targets and join them up with the Toronto occurrences. And we believe that with Tom, we’re going to really be building on that framework and certainly not only do we see the potential to extend at depths in a long (inaudible) Gounkoto resources, but the opportunity to enhance and grow our reserves and resources within the region. It’s certainly very real.

Moving up north into the northern part of the premise, we’re around the infrastructure, the Loulo infrastructure. Again, we now have about 2 million ounces at around three grams to fund that are outside our current mining reserves. We’re going to be putting about 350,000 ounces of that into reserves in the form of two pushbacks, one at the Yalea South, which is a high-grade resource, just over 100,000 ounces and over five grams, and the Loulo three remnant resources below the pit, which again is about 190,000 ounces at just under four grams.

And the plan is to be able to bank those two pushbacks with the intention of ensuring that we continue to have open flexibility as we ramp up the underground and introduce the back flow plant over the next 12 to 18 months.

Just a quick update on Senegal. As you recall, we post it back to the exploration team on the back of bringing Gounkoto forward and Kibali forward, and certainly Massawa is a prospective permit. It’s got 3 million ounces of resources at the moment, about 1.8 million ounces of reserves and plenty of opportunities to continue to add to that portfolio.

And as you see in this group, the exploration team is being very busy and we’re not short of opportunities. The intention is to really beef up the total resource space and revisit it in a year or two time.

Morila, steady producer, another stellar performance. And we’re pleased to point out that we, again, paid a significant dividend, $65 million last week for the quarter (inaudible). You can see the results in the next slide. Steadier she goes, it’s a real factory for us and we’re very proud to be part of it, and everyone benefits from it.

Moving down south to Tongon, I think the chairman has pretty well covered the opening. I would pause and move immediately to the next slide operating Tongon result. Point to the higher Tongon cash cost. Really, a product of – if you’ve got the full handout you’ll see that our mining rate was down from 5 million tons to 3 million tons.

As we manage the transition, we had many difficulties in getting through the soft and hard rock together. What that resulted was we didn’t mind extra ore. So we didn’t put any ore back on to the stockpile, which we had planned to do. And that’s impacted on our total cash cost.

We also took gold out of the inventory, which we’ve been doing for the last three quarters. We expect to start putting that back certainly onto the stockpile and will manage those cost down again as we go forward. But really, it’s an accounting cost. What I will point to you is if you look at the overall P&L. Our total cash costs in dollar terms were pretty steady.

Next is just some pictures of the mine opening. As the chairman pointed out, a significant affair. And I will just point out that I don’t think there are many places in the world where you could have 450 invited guest sand complete official opening from 10 to 4 on time without any hitches. And the team did that. So it’s a commendable effort.

Moving on to the exploration, we now control the whole of the center through (inaudible) and Corte d’Ivoire all the way up to the (inaudible) border. Paul and his team have identified about 150 kilometers of mineralized structures on surface within the zone. And again, we continue to identify and add to our resource trials. We’ll talk a little bit more about the resource trials in a moment.

At the same time, we are moving back into the other tenements that we owned in northern Ivory Coast as the country returns to normal. And as you can imagine, the new government and the northern authorities are delighted to have us and face the prospect of perhaps another goldmine adding to the employment we’ve already created in that part of the country.

Across the Kibali and the DRC, the project remains on schedule. The relocation action plan continues. We have now moved the first 350 families, the first of 13 villages. The second village will be moved towards the end of this month. We’ve started the construction of the church, Catholic Church complex. We’ve commissioned along with the First Village Movement, the first primary and secondary schools. And as far as the project goes, we’re on track as far as open pit mining changes, which are in adjudication phase.

All major long lead items have secured and earth moving and civil and engineering contract packages are also being adjudicated as we speak. We’ve started the great control drilling in line ahead of the first dripping for the pit early next year. And the detailed design of the metallurgical process and shared service facilities are being finalized. And we’re actually busy at the moment working through with our shareholders the final development plans and capital schedules as well as the life of mine scheduling.

And we expect to be able to update you on that and what that looks like along with our guidance for 2012 and revised (inaudible) mine plans that we’ll share when we talk to the financial statements in February.

Staying with Kibali and just reflecting back on the geology, you would have recall last quarter I showed you this diagram with all the yellow arrows we fondly refer to as the (inaudible) model. Each of those arrows represents a cigar-shape mineralized body plunging down in the northeastern direction. And the main cigar-shaped orebody of KCD represents 80% of the current 10 million (inaudible) defined already in that region. And that’s all based on a plunging thrust package.

And if you go over the page, what we have done and we refer to last quarter is we split the teams and introduced the Greenfields team to look at generating and structuring our resource triangle in building a portfolio of new targets. And what that came up almost instant was with the new style of gold mine realization associated with a big structure very similar to the sort of structures in West Africa, the shear zone.

And as you can see, we’ve added up a sequence of new targets along the structure. In particular, we’ve got two advanced targets in the name of Zambula and Kalimva. If you turn over the page, you’ll see a detailed account of those two targets, one in new discovery or a new defined target with a number of significant early stage results. We are busy mobilizing the rigs onto these targets of 5.5 kilometer continue to soil anomaly with the kinds of geological and topographical anomalies.

And then in Kalimva, this is part of an old Belgium high-grade operation. What we’re seeing is the potential for an interface between the northeast and the shear zone and the sort of the thrust packages that make up the classic Kibali deposits. And we’re very excited about the prospects of both these targets as well as many others.

Staying with resource triangles very quickly. This is the framework in which we run our exploration business. It’s the basis of our success and that we generate in a disciplined fashion, early stage project, and then force them through (inaudible) up to the apex of the triangle. When they reach the apex, they need to pull their criteria of a minimum of 3 million ounces of producible gold and a 20% internal real rate of return.

As you can see we’ve really brought up our triangles across the big footprints of the (inaudible) in West Africa. We brought an early stage triangle emerging in Burkina Faso again. We’re back in that country as far as the exploration goes. Ivory Coast, despite its relative dormancy over the last five years, has quickly come up with a number of key targets. And over the two years Paul and his team have really brought a solid triangle in the Kibali concession, shown in the little DRC.

So an exciting time certainly having found our first four gold mines ourselves (inaudible) we have no doubts that we have a portfolio that could well already host the next big development. And we’re super excited about where we are in the pipeline we’ve got to work with.

And finally just in summary, as you know and many of the shareholders on the call would have experienced the correction and some of the anxious moments on the back of the Ivory Coast situation and the darts on the Loulo underground project. We’re happy to see that we’ve clawed back our position to at least a month to (inaudible) leaders as far as our performance goes. And we really do believe that our business of focused on creating value for all our stakeholders is the right formula to succeed in the new emerging and developing Africa.

Thank you very much for your attention and we’ll be delighted to take any questions that you might have.

Operator

Thank you, Mark. (Operator instructions).

Our first question comes from the line of Martin Pradier from AGF. Please go ahead.

Martin Pradier – AGF

Hi. My question is about the guidance of (inaudible) 760. According to my numbers, well, you showed that you produced already (inaudible). So you need about 240 in the last quarter. And if I’d look at Tongon, usually it’s about 75, Marila about 35. So more or less, 110 coming from there. You need to produce like 130 from Gounkoto-Loulo complex. And if you could provide some insights on how that can be possible.

Mark Bristow

Martin, your arithmetic is perfect. And the way to get there is we probably get the grade up. And we’ve got the grade as far as Gounkoto goes and we’ve got a bit of stretch on the Loulo side, but we’ve got plans to do that. So we’ve got flexibility. We’re currently planning to feed somewhere between 160,000 and 180,000 tons in November and December out of Gounkoto. We should manage that profile but we’re mindful of that.

I think even if we met it by 10,000 ounces, Martin, it’s still a significant quarter. And that’s the point I made today. We had a big hockey stick in to the quarter and we’re definitely going to have a much better quarter in quarter four than we had in quarter three. And quarter three and two were significantly better than quarter one and that’s part of growing our business. So I would just confirm your arithmetic, but we’re mindful of the challenges of getting there.

Martin Pradier – AGF

Now, in terms of the total process in tons percent, I noticed that this quarter you have for Loulo and Gounkoto, it’s 64 and second Q was 91. What is the maximum that you can get through?

Mark Bristow

We are currently – remember we’re commissioning the third mill as well at the backend of this quarter. Until we commission that mill, we process that through crusher and the mills about 300,000 to 315,000 tons, if we don’t have any interruptions. But we’re generating a substantial number of jets [ph], about 8% of jets [ph] running at about 1.5 gram.

And so what we post through the CIL circuit is around 270,000 to 275,000 a month if everything’s perfect, but at a slightly higher grade because we’re moving this stretch up to the grade, but it effects the overall recovery negatively, around 88% to 89%.

Once we’ve commissioned the third mill, that will go away and we are forecasting to bring the full throughput up to about 330,000 tons through the first six months of next year.

Martin Pradier – AGF

So in December you are not going to have the third mill running?

Mark Bristow

No. We’re going to be commissioning, but won’t have it in the circuit.

Martin Pradier – AGF

Okay. Great.

Operator

Okay. Thank you. Your next question today comes from the line of Patrick Chidley from HSBC. Please go ahead.

Patrick Chidley – HSBC

Hello, Mark. Hi, everybody.

Mark Bristow

How are you doing, Patrick?

Patrick Chidley – HSBC

Not bad. I wanted to get a bit more updates on the grade profile just as a follow-up to Martin’s question for Q4. Do you think is it going to be grade? Or tell me is this going to get you to the November?

Mark Bristow

Grade.

Patrick Chidley – HSBC

So, Gounkoto, some outside grade as well as, obviously a little bit more for the other grams.

Mark Bristow

As you saw over on the visit, the search in Gara is sitting at about 4.8 grams (inaudible). We’ve finished the Gara (inaudible) next week. We finished mining. We’re just finishing the stockpile house. And then it’s about managing the production (inaudible) as far as development production goes, and balancing that with Gounkoto, and we’ve got plenty of that.

We have plans to feed 120,000 tons of Gounkoto mine in quarter three which we didn’t do because of the rain. So as far as the mining plan goes, we’ve got some capacity to catch up and we’re going to do that.

Patrick Chidley – HSBC

Right. And then the Yalea development, you’ll be doing some high-grade areas as well as (inaudible)?

Mark Bristow

The Yalea development before – it’s going to only start moving the needs into next year as far as grade goes.

Patrick Chidley – HSBC

Okay. And then just exploration question on the Toronto south project. You’ve got a couple of drill results there that look quite interesting. What are you seeing in the geology relative to other deposit scenario? Is it like a Yalea or is it like Gounkoto? Or what are you thinking then?

Mark Bristow

I’m going to pass you on to Paul. He can answer that question. He’s sitting here.

Paul Harbidge

Patrick, it’s thrust. Mineralization is incoming to surface. We’ve got repetition of packages and about 150-meter zone of alteration and sharing with silica- albite-carbonate-pyrite mineralization. So in terms of the alterations, so far, it looks very similar with Gounkoto. And so far we confirmed it over 630-meter strike length.

Patrick Chidley – HSBC

Right. And it’s kind of subvertical?

Paul Harbidge

No. It’s got a sort of ramped flat geometry. If you think about a thrust, which is low-angle weaver asphalt, and we’ve got – where it goes steeper towards surface, it tightens up and then it flattens out the depth we’re seeing in the – it’s dilating and opening up.

Patrick Chidley – HSBC

Okay, all right. And when will you be able to draw program there in the next sort of few months?

Paul Harbdige

We’re just putting some more reconnaissance holes in there to understand better the geometry and the orientation, because like Gounkoto we’re seeing both (inaudible) fabrics in the hanging wall and see west dipping in the foot wall. But we just want to get some framework into it in the first instance.

Patrick Chidley – HSBC

And that will be this quarter?

Paul Harbidge

Correct. I expect to see some more drill results this quarter.

Patrick Chidley – HSBC

Great. Thanks, Paul. Then the other question was in terms of reserves this year. Your Gounkoto underground, is that going to come in to reserves year-end here or is that…?

Mark Bristow

No. I think (inaudible) but we got to be doing an updated pre-feeds and are moving the...

Unidentified Participant

(inaudible). So I think we’ll probably leave that until next year. We’ll see.

Paul Harbidge

Yeah. Patrick, the drills pricing won’t enough to be if you take it into reserve.

Patrick Chidley – HSBC

Okay, okay. Good. All right. Well, thanks very much.

Operator

Thank you. Your next question today comes from the line of Josh Wolfson from Stifel Nicolaus. Please go ahead.

Josh Wolfson – Stifel Nicolaus

Hi. Congratulation, Mark, on the quarter. Just going back to Loulo underground, you mentioned some of the grade reconciliation has reinforced your reason to go underground. Do you have any sort of data you can provide on how the model as compared to what you were catching underground?

Mark Bristow

Yes, Josh, I mean to tell you the exact numbers, in the area that we’ve opened up in the Purple Patch, which is admittedly quite a small area, the model looked to 8 grams and we’ve got average of 15 on the bore holes. But I’m not saying it it’s in early stage, but it’s a comforting thing that – we’re not saying it’s a higher grade orebody but we’re definitely confident that what is there (inaudible) there.

And Gara, I’m turning at Gara, which is a lot more extensive than the Purple Patch in the Yalea spot up with 10 grades.

Josh Wolfson – Stifel Nicolaus

Okay. What’s the grade on the 113 level like for Yalea?

Mark Bristow

The 113 level is just under 4 grams.

Josh Wolfson – Stifel Nicolaus

So that’s what we should expect to – a thing to keep in mind in the next several quarters.

Mark Bristow

Yes. I think we’re saying to the mining team, we don’t have to mine all of that. We don’t want to mine all that we don’t put in the plot. And as I pointed out to Patrick, we’ve got a bit of catch-up to do on Gounkoto as per our plans. So, we believe we can probably squeeze a little better grade up in this sort of 4.2 grams from 113 level.

Josh Wolfson – Stifel Nicolaus

Okay. And then, do you have any comments on the mining dilution you’re encountering underground so far?

Mark Bristow

So far we’ve been very successful, but then I might point out that it’s hardly a high volume mining exercise, yes, because we’re opening up the stopes. So, everyone is very cautious and it’s very new and not a hell lot of studies. So, it looks great, but I think give us the couple of quarters and we’ll be able to update you on that.

Josh Wolfson – Stifel Nicolaus

Okay. And then earlier in the call you had mentioned about mining (inaudible) in the deeper Loulo strip ore in the development underground would be in progress. When would that occur in the mine planning?

Mark Bristow

We’re going to have it banked before the year end. And the indication at this stage is that we’ll start stripping in December for Yalea South pushbacks so that we can expose the ore in Q2.

Paul Harbidge

Yes, end of Q2.

Mark Bristow

For the backend. And Loula III is easy. We’ve got a bit of drilling to do. We’ve got about 50,000 ounces available in the current set of 40,000.

Unidentified Participant

Fifty and four grams.

Mark Bristow

I’ve got 50,000 ounces and 4 grams in the current reserve, which we’re going to take and just to make sure we’ve got that flexibility in the first six months of next year. And then we need to drill the thousand dollar pit shell to be able to put it into reserve in our mine plan. And that’s going to be take until the end of the year.

And the key advantages, that we’ve always been able to survive at Loulo because we’ve had these flexibilities from open pit reserves. This gold process on the thousand dollar pit which is what we’re expecting to restate our reserves at, it makes good business to make sure that we can take that or at least have it available next year.

Josh Wolfson – Stifel Nicolaus

So, should we expect to see the underground decline, again from the first half of next year in the open pit to come in? Is it in the actual both Yelea and Gara or just Yalea?

Mark Bristow

I mean our view is that if the underground team deliveries on plans, there’s a steady improvement from now on onwards and we’ll make it. If they slip a month (inaudible) like we’ve been seen to do in the last year, we would all feel comfortable with whatever is reserved and that...

Josh Wolfson – Stifel Nicolaus

So, it’s more likely we’ll see steady paces around in the open pits.

Mark Bristow

We’re going to see steady gold up but not – what we’re taking is a bit of insurance on the rate of gold up rather than the build-up.

Josh Wolfson – Stifel Nicolaus

Okay. That’s very helpful. And then just the last question on Gounkoto. Could you talk about what the stripping profile looks like and what your mining cost is per ton there?

Mark Bristow

Yes. I think the mining cost – I see Graham scrambling up for the numbers, but I want to say about $3 at the moment, the total mining cost per ton. We had a bit of an increase this last quarter as we cleaned up the pit. We got caught both with Gounkoto and Tongon. One in Tongon as I pointed out was in the oxide. We had more oxide than we modeled, and we ran into the rainy season with (inaudible) oxide on the floor. We had a slightly similar situation with Gounkoto, but we just had buckets more rain.

We’ve threw that completely to the oxide mill in Gounkoto – some of the (inaudible). Patrick was there last week. He will tell the Gounkoto pit looks really good. We really can put our finger on the grade and we’re back on – we’ve been improved on. We will make our budget to catch-up about a year.

And that’s why we’re saying we’re going to have more ore available to feed through to the mine in the next few months. And we intend to try and catch-up.

Graham Shuttleworth

Now, the mining cost this last quarter was 270 a ton and the strip ratio was a bit higher this last quarter, about 13, plus or minus, it’s more like eight.

Mark Bristow

Okay, did you hear that, Josh?

Josh Wolfson – Stifel Nicolaus

Yes, I got it. And I’ll give Patrick a call, I guess, after this one.

Mark Bristow

Yeah, I guess it’s a good idea to give him call. He can you catch up on his visit.

Josh Wolfson – Stifel Nicolaus

All right, thanks so much.

Operator

And for your next question today comes from line of Andrew Breichmanas from BMO Capital. Please go ahead.

Andrew Breichmanas – BMO Capital Markets

Okay. Good afternoon, guys.

Mark Bristow

Hey, Andrew.

Andrew Breichmanas – BMO Capital Markets

Just a quick question, in fact, on Gounkoto, you mentioned the flexibility that you’ve get there. How much do you have stock (inaudible)?

Mark Bristow

It’s not a lot at the moment, but it’s probably, I don’t know, 20,000 tons at sort of 4.5 grams. That way as you can imagine given Martin’s question earlier, when we get – every time we get ore, we stick it in the plant. We’re mindful of meeting our guidance.

Andrew Breichmanas – BMO Capital Markets

Okay. And then to switching to Tongon. The mining cost there, how do you see them going forward and with the connection to (inaudible)? How do see that impacting cost?

Mark Bristow

I think for us, Tongon is at $480 an ounce type of cash cost (inaudible). Probably, it will be somewhere between there and 500. It’s a low grade orebody. We’re slow out of the blocks on connecting to grid for no reason of our own. It’s just the way the (inaudible) supply commission is managing the commissioning process.

We have already drawn power on the mine and we’re now working through the loads levels. What we’re trying to do is use the peripheral demand to build the loads because if you use the mills, which is the quickest way, you got to keep going down with the mills. And that impacts run our throughput.

The bottom-line is that when we use diesel power with $2 million a month more expensive, as we go into a hard rock, we’ll become even more expensive. That is we draw more cost. So, the net result once we get into a hard rock and we’re running the float circuit in that is that we will be at the same sort of level of cost as we were when we are mining pure oxide.

On the mining cost side, it’s all about strip ratio. We had higher strip ratios and also lower overall mining volumes this quarter. We picked up on that and we’ll get that back into a better shape this quarter. Next year, we got to have a year, which is slightly higher on strip ratio and then we already have the – because we just want to keep the pit wide and accessible. Because the key in Tongon is you want to – you can’t afford to high-grade the orebody. You got to feed that at the reserve price. And so, you’re going to have maximum flexibility, particularly in the southern pit.

But we’re not out of (inaudible). I mean, Graham can comment on the mining unit cost but they’re in good shape. We’re just more expensive by a dollar this quarter but that’s because we didn’t move the volumes because of our – the challenges of getting through the soft and hard rock, the very uneven floor. But on a budget basis, we’re comfortable that we’re back on it just over the $3.

Andrew Breichmanas – BMO Capital Markets

Okay, thanks.

Operator

Thank you. (Operator instruction) We have follow-up question from the line of Martin from AGF. Please go ahead.

Martin Pradier – AGF

Yes. I was trying to reconcile the numbers. It looked like you need 5.25 average to feature your numbers. Is that the number you’re getting?

Mark Bristow

Five grams is the number.

Martin Pradier – AGF

In quote it was 4.6 or 4.7 this quarter? Did you say usually it’s about five?

Mark Bristow

Yeah, if you look at nine months to date, Martin, it’s about 5.1

Martin Pradier – AGF

Fair enough. Let’s say five. Now, how are you going to do the others to maintain that level, because Loulo has been significantly lower? You were saying in Gara maybe 4.7, 4.8.

Mark Bristow

We’ve got to mix and match the ore delivery, as we pointed out. You’ve got to see a lot more Gounkoto ore coming through in December and November as we catch up with the fee that we should have paid the plant in the quarter three from Gounkoto, and we couldn’t because we couldn’t access the pit.

Martin Pradier – AGF

But is there ore that is much higher in Gounkoto like six or sevens so that you can get...

Mark Bristow

There are lots of grounds that run up to eights and nines. But our intention is not to high-grade the orebody. We will manage it, Martin.

Martin Pradier – AGF

Okay. Then it’s more likely than not that you will have more problems in getting that pipeline.

Mark Bristow

Well, let’s see how we do.

Martin Pradier – AGF

Okay. Great. Thanks.

Operator

Thank you, gentlemen. That was your final question. If I could hand it back to you for closing comments.

Mark Bristow

Thank you very much once again, everyone, for taking the time out to catch up. Again, we’re always available on the end of an email or a telephone call if there’s anyone who would like to follow up with additional questions. Otherwise, if you bump our website, just send out a demand. We’ll pick up on that as well.

And again, we’re looking forward to a strong end to the year despite market concerns and we’re already well-placed to continue to deliver on our growth profile with our target being successful at 1.2 million on production within the next five years. And again, thanks for your interest and speak to you next time.

And also for the Americans, I’m going to be through visiting everyone starting in 10 days time. So I look forward to catching up there. And, Martin, I’m sure we got to catch up and we’ll be able to update you and do some of the arithmetic, further arithmetic.

Operator

Ladies and gentlemen, thank you for joining today. You may now replace your handset.

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