Philippe Liétard – Chairman
Mark Bristow – CEO
Andrew Breichmanas – BMO Capital Markets
Josh Wolfson – Stifel Nicolaus
Randgold Resources Limited (GOLD) Q4 2011 Earnings Call February 6, 2012 11:00 AM ET
Welcome to the Randgold Resources Q4 Conference Call arrangement. My name is Anna and I’ll be your coordinator for today’s conference. For the duration of this call, you will be on listen-only. And at the end of the call, you’ll have the opportunity to ask questions. (Operator Instructions)
I’m now handing over to your host Chairman, Philippe Liétard to begin. Please go ahead sir.
Thank you. And good morning and good afternoon and welcome to this presentation of Randgold Resources result for the past quarter and for the whole year 2011.
As we mark a year of record results, Randgold sustained growth in the face of considerable challenges, demonstrates again the effectiveness of its strategy of continuing investment in its long-term future. In 2011, we harvested the fruit of seeds sowed over several years just in the years to come, it would benefit from the work done in 2011.
The company’s success has been based on our deep sense of the importance of partnerships and of sustainability and our consistent long-term strategy to address these in all our operations and activities.
The impact of these strategies can be seen in Randgold’s ability to create a real value for all its stakeholder through the discovery of multimillion ounce deposits and their conversion into mines profitable for all.
The impact is also evident in every other aspect of the business, from the safety and health of its worker to the care for the community and of the respect of the environment.
It has become clear to the world that despite of the company’s excellent work with regard to the environment, to the circle programs, to the respect of governance, and to the sustainability initiatives, small work needs to be done in communicating these – our initiatives to our stakeholders. Something we’ve started to do by consulting the various voting agencies and which we will be focusing on in our 2011 annual report due out at the end of March.
Randgold’s growth and successes are brought with its corporate as well as operational challenges, foremost among them is how best we manage a dynamic and increasingly complex corporation with multiple businesses in different countries, while equally importantly how best we protect and preserve the distinctive corporate culture on which Randgold’s success has been built.
That is why the board and management have and will continue to place particular emphasis on expanding and strengthening our management teams, structures and systems to meet the demands of its continuing operational development without diluting the company’s characteristic qualities.
Before I pass you on to Mark, I want to make sure you have noted also that the board decided last week to propose a doubling of the dividends to shareholders, the sixth increase in dividend in a row. And with that, I hand it over to Mark Bristow for a detailed look at the company’s performance and prospects.
Thank you, Philippe and again good morning and good afternoon, ladies and gentlemen. Again, I’ll just start my little presentation today pointing you to our webcast, I give a full presentation as discussed – lunch to the U.K. and in fact many of the analysts and investors that I have in Cape Town as part of the endeavor .
So I’m not planning to go through a full detailed presentation, but just to walk you through our presentation, those of you who all hooked up to our sock and then for questions.
Holding on from what Philip left off, our company has gone through a big strategic inflexion point over the last two years, 2010 being a year of consolidation and building the base on which we were able to grow our production in 2011, which we – which is now materialized and significant in every aspect primarily because we were able to deliver two new operations into our portfolio.
Sustainability, you heard that Chairman referred to it a significant part of our business as we always said, we want to be sustainably profitable and sustainability in the sense of ESG is also an important part of our business. We operate in remote areas and job creation and building our social licenses proven time and again to be an interval part of our business.
We’ve only said that for one to pristine in Africa you need to be able to create 34 stakeholders. On the safety side, another good year, last year of improvements significantly Morila achieved lost time injury free year in its operation, in Tongon following that tragic accident early in January last year 2011, since then it has also had a lost time injury free run, which is very significant given a new mine in an area where many of our workers have never worked before, metallurgy and heavy industrial environment.
We continued to improve our safety and we have make – have made good progress over the last year in our drop to be accredited both on the environmental program also and the safety Oso program in all our operations.
At the same time, we will also continue with our other social programs, reaching out to the communities which are not included in our mine social budgets and community programs. Those include supporting medical supplies to more remote clinics and looking towards people who are bypassed by – most in the form of women and the more remote education sites and we certainly continued to support those.
Moving to the next slide, the record performance all around not only if you go to the next slide – it will highlights significant improvements in our production, significant improvements in profits. Most significantly of all of them is the earnings per share growth, in other words, we’ve grown our profits without having to issued lots of paper. The summary financials really speak for yourself and other couple of landmarks you can take away from this and the one of them is for the first time, we went over $1 billion as far as revenues or gold sales goes.
Costs reasonably well contend contained, still an area that we can improve in, at the same time, we are planning – and we will show you in the presentation, we are still on track to continue to grow through the improvement of great or asset base and therefore also drop cost and as well as the discipline of cost controls. If we move to the next slide, and just catching up with Loulo, the Loulo complex is showing an improvement year-on-year, really on the bank of Gounkoto as I guided last time we spoke.
Gounkoto really contributed to the overall performance in that. We were able to deliver significant grades, not at the detriment of the Gounkoto plant, you would have recalled that quarter three was a poor quarter for Gounkoto and all we did was catch-up the planned tonnage and grade that we were supposed to feed in the plant and improve production for quarter four.
It also gave us the time to really continue with the ramping up of the Yalea and Gara underground mines and again we made good progress Yalea in the Loulo complex through the commissioning of the Gounkoto crushers and also getting the third mill up and running in fact the third lock and report is also starting to take all.
So, that plan for the third mill is key to our future and that we’re planning to take the throughput at Loulo, Gounkoto up to 4 million ton run rate by middle of this year. And really results again speak for themselves again improvement in total cash costs driven as I pointed out by the increase in grade from Gounkoto.
Recovery still on the low side, we expect those recoveries to start picking up towards 90% again and above as we bring in the third mill and get rid of the scat issue, that’s the cumulated scat discard at the moment.
If we continued to look at the Loulo standalone results, this highlights those costs hype given the fact that we’ve started the pushback on the Yalea South pit to access about 120,000 ounces that at just on 5 grams. That gives us an extra flexibility in the mine plan for this year. We will have – we will be down at the ore by June-July and we’ll be able then manage the ramp up on the back-end of this year. On the front end of this year, we continue to supply a balance the feed with material from Gounkoto.
If we move on then just a quick update on the undergrounds, the Yalea underground development, we’ve made a lot of progress in Yalea and we’re pretty comfortable that we’ll see a steady buildup to the 100,000 tons a month by year-end. We built a strong team. We have the team now working alongside AUMS only contractor and they have been very successful. We’ve cleaned up all the risk. We don’t have any other contractors on site. And at the same time, we’ve sorted out the ventilation. We’re very comfortable with the infrastructure and layout and we’ve just started stuffing in the levels below the Yalea to – it’s our first type site to produce ore from the main Yalea ore body and we still are mining the higher grade stuff up in 113 level and underneath the P125 pit.
We’ve started developing the purple patch and you’ll see in our capital, we’re been very aggressive in the development over the next two years, we’re above – just under 3 million ton in mine reserve over the next 24 months and that will really entrench our flexibility for the operation going forward.
On Gara, same story, we have established the stopes, we’re starting to mine, we’ve delivered some meaningful grade and tonnage to the – this last quarter on the back of this production startup and that again will build up to around 90,000 tons by year-end a month, on a per month basis.
Continuing but staying with Loulo before I go to Gounkoto. I’ve pointed over last year the importance of the fact that we’ve got 16 million ounces of resources, there’re just over nine in reserves, there is a 7 million ounces of potential minable resource. This table shows the distribution of those resources and what we’ve done is looked at heap leach test work on those resources that average on the right hand column.
The CIL recovery is much better, the grades are more like CIL grades anyway. And one thing, now that we’ve settled down the Merlin circuit, in Loulo, we see there is potential for an addition, once we get to 4 million tons, we can still take it up another 100,000 tons a month, so just over a million tons a year.
That has a potential at around 2.6 to 3 grams of another 100,000 ounces for the complex, it’s not in the full cost at this stage, but you’ll see we’ve got the markets that will be completing that estimate, it’s – all it requires is an extra leach capacity in the process and another bank of cyclones and Nelson concentrated.
The question we’re asking ourselves is, do we split the mill and put in a third circuit or do we integrate it with the current flow sheet and that’s really some requires a little bit more taste work, but the capital cost is very moderate than we think that this will be the right way to go to expand the plant to a five or there about 1 million tons a year.
Moving then to Gounkoto, as I said a solid quarter from Gounkoto and a good year at the end, again we’re happy to update you on our discussions with the Mali government. They have agreed to a two-year tax holiday, we’re busy finalizing the convention as we speak and we expect that to be signed during this quarter. We’ve had lots of challenges with just logistics in getting this through we’re at in the middle of the start of a presidential race in Mali.
One thing as well as that in the convention they’ve agreed that there’s an overall five year tax holiday available, the other three years allocated for next investments where there’d be underground or maybe something else. And as we’ve proved to you this region has the potential to produce more deposits. Standalone results ready to speak for themselves, you can see overall pleasing set of numbers, what it does point out is when you move at 5 grams, you get down into the low 500s total cash cost.
Moving on to the next slide, I just thought I’ll put this in because last year was a very dynamic year as far as grades go and we showed quite big swings in grade and some other – the market asked me, how is it going at Gounkoto, as the orebody standing up to what you expected, and this is just to show you the correlation from our resource model to the great control or real model, the actuals, and the orebody has certainly performed very well and we’re getting very good returns back to the original plan.
Next is another topic, we’ve talked about a lot and that is the underground potential at Gounkoto. We’ve done a lot of drilling in the southern extensions of the high grade shoot, we closed it all fairly early and – albeit that there are some extra reserves at reasonable grade, it – we’re comfortable that we’ll be always taken into deepen pits.
What has been interesting is the Jog Zone and it’s – the multiplicity of significantly thick and high-grade orebodies stacked up in the Jog Zone as shown in the cross section and the depth extension thereof. And our initial estimates are – represent a potential to host somewhere between 1 million and 1.4 million ounces, that’s between 6 grams and 9 grams a ton.
We’re all busy with the work at the moment. Is it quite a variable orebody? We’re busy doing twin drilling at the moment and ready getting our head around the variation and then we’ll drill it out and be able to complete the study. There is no real time pressure on this, but to put it in perspective, this is not dissimilar to the purple patch way – just under 2 million ounces at 10 grams. This is a significant potential minable asset and metallurgically a very simple ore.
Moving on then to the district again we continue to explore our big focus shifting to banking the Loulo 3 pushback and the underground extension and we’ve done the Yalea South 1. And then really as looking at the northern extensions of the Gara structure and the southern extensions of the Yalea structure, that’s where we are focused at the moment. Stepping to the west into Senegal, we will see later on that we push the Massawa project up to 2016 not because of anything other than we really want to remain focused on the Kibali development. Kibali is the bigger project now than what we envisaged.
We comfortably get to our guidance of beating the 1.2 million mark in 2015, and really the trigger behind Massawa as we’ve either got to double the reserve and grade – the reserve with the refractory or add significantly with non-refractory material. Currently, it’s a viable project, but only 1.5 million ounces gets into reserves if we look at the refractory material. The big driver in this project is power. We have – in our quarterly handouts you’d have seen we got a story on power and our strategy in West Africa and we believe that in a couple of years of time, we’ll will have the power options to be out to deliver reasonably priced power to Massawa and bring it to accounts. And that’s really our focus on – focus on three fronts really, looking at ways to add to the reserves or be at refractory looking at additional prospectivity to enlarge the resource space with less refractory ore and of which we – define quite a lot now in the dog-run you can see and then the other one is finding a power solution.
Moving up to Morila, just – Morila just continues to roll along – it’s been a solid performer in fact it beat it’s production, good production from 2010 to 2011, on the back of better efficiencies, cost welcome controlled and we paid another $50 million out to shareholders last week. So, it really continues to perform.
On the future of Morila, we’ll run out off dump material to price it end of next year and then we’ve presented feasibility to the Board to continue to process or re-process the trailing stream through the plant and deposit it back into the pit which deals with two things. We make some money and it pays for the close of the mine, supports every business over a period of some 10 years.
So, that’s an interesting one line, we’ll start, we got the permitting in place and we need to make some investments during next year to be able to be ready to process (inaudible) material. Nothing that moves the Randgold Resources valuation though, but something we believe we need to be able to demonstrate that we can close our mines properly and responsibly at the end of their lives.
Moving back to down to Tongon, a solid performance from the Tongon team, despite all the challenges we had to deal with last year. Where is a power grid. We’ve pretty well started getting on top of the transitional zone as the hard – percentage of hard material increases. We’ve back up around 10,000 tons a day, which is 300,000 tons a month. We see this mine was having some upside on the throughput during this year and we’re guiding 285,000 ounces for the year. I’ll come to the guidance in more detail when we get to the end of the presentation.
Numbers again, speak for themselves. The title cash cost we guiding on the back of the 285 is, we expect will do better than the 557 that we achieved for 2011 just because we’ve got more ounces. There is a push back which will impact on costs, but nothing that we shouldn’t be able to manage. Stepping away and looking at the exploration, the team has done very well, defining already some 500,000 ounces of potential resource within the 15 kilometer radius of the mine.
The reserve – the grade is a little low, but metallurgy and easy to process and I think the takeaway from this is that the systems are big, there’s lots of gold around and it’s early days, and we believe that the potential to transform Tongon into a real leg of our business, rather than just a good investment is real. And we’re going to continue to work on it. At the same time, we’ll spread our wings across northern Côte d’Ivoire restarted exploration programs and ready getting back – at least back into the various concessions that have been – during the crisis.
Moving on to the next slide and just stepping across to Kibali, really the Kabali projects made excellent progress and all our predevelopment objectives have been achieved. Construction is started with a bulk earth works, long leads, clogged and equipment items have been ordered. Key contractors have been selected where the final stages of processing the tenders as well as the underground development, and we’re about to post the last of the big tenders, which is the soft-thinking tenders this week.
The relocation program is on track, and we’ve got it now for the first time. The size of the project, we’ve reached agreement on the upper range, last year January we said 4 million to 6 million ton plant. We’ve signed off on a 6 million ton a year plant. And this will produce around 600,000 ounces on average for the first 12 years.
The costs are going to be in the 500 to 550 range. And Randgold Resources Board was up in – on the mines 10 days ago, we got sign off from the Randgold Board for the project and we’re currently as we speak we’re walking the project through the AngloGold process, approval process.
In the meantime, the two shareholders have approved the first three months of capital for the project to ensure that we maintain the momentum and don’t slip on the schedule, so we’re all pretty comfortable with that.
Moving on, just some visuals, this is the long section through the KCD orebody which hosts about 80% of the reserves. You’ll see as an integrated mine plan looking at open pit mining some twin deep 20 times and a vertical shaft, ready to access the various ore bodies simultaneously and to build in the maximum amount of redundancy of extra capacity as we ramp up the project.
The next slide is just a schematic of the processing plant it’s a Tongon look alike flow sheets with a full flotation circuits capable of being supported by both streams. So one stream has got a CIL circuit to be on a process oxide both streams can process sulphide and feed the full flotation circuit capacity of 6 million tons per annum.
Moving on then, the schedule – construction schedule as I’ll say we’re on a tight schedule, but we’re mindful of the key critical parts, we got a couple of items on the critical parts as we’re speaking, we’re working furiously to keep on that plan, the target being to commission the metallurgical processing plant at the back end of the 2013.
As discussed with Loulo – Kibali offers huge prospectivity just the Loulo, Gounkoto region. We’ve got a significant amount of work just to convert their outstanding resources to reserve as much as possible. We’ve got a – so far had a good conversion ratio and at the same time as we talked – last quarter, we’ve started now rate chasing down some new targets in generating a new level of inventory in the form of primary Greenfield’s or Brownfield’s exploration that’s not defined. And in the next slide you’ll see we talked about these two targets, now I’ve got two of these targets up and focused and I’ve got no doubt through the year you’ll see a couple of additional targets coming to the full as the team gets its keys into its new mines and continues to process the regional work.
Moving on, as I pointed to the guidance, you’ll see regarding – our guidance to break the 1.2 million ounce consolidated picture. And 2015 is certainly intact, what I pointed to the fact that we forecast to continue to grow our reserve base and even I said 2016 we’re still mining at slightly below our reserve grade. So, that’s really hope as well for our sustainability strategy. And at the same time keeping today’s input cost avail on the relative basis or real basis, we are forecasting a significant improvement in total cash cost as we have been saying for the last couple of years.
So, nothing changed in the big picture, and I think the point I would make is that this forward looking statement was built on a solid foundation of past performance and so we’re comfortable that we’ve really consistently told the market this is what our business is growing organic production without issuing powers of paper.
Capital, we’ve got a very big capital spend this year and next year, but at the same time eminently affordable that most gold price forecast we can deliver our plan. At $1600 gold price for the rest of this year that really makes us fairly bulletproof to be able to handle our capital going forward, and once we through next year 2013 we start building cash again significantly.
And finally to wrap up as this is customary just a quick look at our performance in the market and we continue to deliver on value and it’s something I’ve always spoken about value for share as our gain, profitability as the measure. And I think we are a bigger, stronger team today, we’ve been through a lot together.
We got a new generation of managers that have had to cut their keys on some challenging situations and we well established in the Congo I think it’s an exciting destination for us as we got it two years ago and I think we’re pretty comfortable and it’s a good place to be, a gold miner and the jurisdictions we’re at, given the current – I don’t think there are many other businesses I’d like to be involved in other than ours today.
So, with that, we’ll be too happy to take questions. We’ve got Graham sitting in London and Philippe and I are in Cape Town with Luiz, ready to take any questions you might have.
Thank you. (Operator Instructions) And we have a question coming from the line of Andrew Breichmanas from BMO Capital Markets. Please go ahead, Andrew.
Andrew Breichmanas – BMO Capital Markets
Thank you and congratulations on the good results. Just a quick question, if you could provide a rough breakdown of the Loulo capital spend this year. I understand, a portion of it is for the Yalea South push-back, but if you could provide a little bit of a breakdown on that?
Sure, Andrew. That’s – well, it’s about $270 million for Loulo 2012 and the – about $36 million for the push-back, and we’ve got about $50 million in for the back flow plant and the rest is underground. Capital apart from $20 million, which is ongoing capital to view as the expansion around the plants.
Andrew Breichmanas – BMO Capital Markets
Okay. And then – so if you were to exclude the scoping study and pre-feasibility study and additional resource inventory that you’re evaluating at Loulo, how do you see that trending on a sort of continuous basis going forward?
We get down to – and there is a lot of work still to do the underground development capital, we’ve said to the team, we’ve got a pretty robust capital program this year and next year. And we’re busy balancing that now. We’ll get down to sort of my guess is sort of $60 million to $80 million by 2016.
Andrew Breichmanas – BMO Capital Markets
Okay, great. Thank you.
Thank you. We currently have no further questions coming trough. (Operator Instructions) And we have a question from the line Josh Wolfson from Stifel Nicolaus. Please go ahead Josh.
Josh Wolfson – Stifel Nicolaus
Hi Mark, congratulations on the quarter. I just had a question on Tongon, what are your expectation for per ton cost there I guess as the grid power comes in but also the proportion of sulphide ore increases?
Yeah, Josh sorry for everyone an implication I’ll just quickly turn you to the guidance for I’m just looking for my numbers here. We’re guiding Tongon is 285,000 ounces at – we should beat $550 dollars an ounce. At Loulo we’re guiding 500,000 ounces and we want to beat the 650,000 ounce more and Morila has more of the same, but 165,000 ounces and if I comment more, yeah. And so overall you’ve seen the guidance as we put out in the market.
So, Tongon is slightly better than what we expected because we’re showing better efficiencies on our great control, which is reduced the amount of dilution, so the grade – C grade is slightly up, running more for same.
Josh Wolfson – Stifel Nicolaus
In the mines because you’re processing a sulfide or purely this year or is this still going through the transition?
It’s got about two months to go, before we really out of the oxide, that mixed zone. But it’s dominantly are ready, we got much better control of the feed and substantial amount of the feed is hydro. The crushers are working really well, the recovery is coming up, it’s up into the 80s now and as we settle the flot circuit and the less upside there is to interfere in the process the better our recoveries and we can see that coming through in the process now, we’ve already stabilized this operation.
Josh Wolfson – Stifel Nicolaus
Okay. And then – sorry – going into the 2013 at Tongon, how will that sulfide or greater portion sulfide impact pipeline costs.
No, it’s – I mean we’re guiding it’s – I’ve always said it’s 500 and 550 total cash cost project, even with – because of the savings we get from diesel, even that’s a great that we are processing. And that makes the difference, when you look at the Loulo, the gone corn price is grades like Tongon and get these sort of costs, because of the power.
Josh Wolfson – Stifel Nicolaus
Okay. And then just one more question, I know you guys are obviously in close discussions with the Mali government with the tax code. There have been some rumbling about changes through these fiscal agreements. And it looks like it’d actually be a little bit positive, but I just want to know what your perspective is on current expected changes for taxes and their equity interest, I guess, or interest, I should say.
I think, Josh, the key in Mali as you know, we’ve got three different codes, they operate – you have a – each code is a law in itself and in fact each convention, each exploitation license is an actual law. So, we have the right to accept new codes or stay with the old. So, our negotiations under Gounkoto were under the 1991 code. So, there are – and the Malians have really always respected that.
As you know, there has been an ongoing debate with a new code, which – it’s been to parliament in debate, the mining industry has entertained that debate and been part of it. At the same time, there is also pressure from the ECOWAS region to reduce the tax from 35 to somewhere low as a regional tax within the – zone is 25%, and no we’re not expecting Mali to get down one step, but there is an – certainly entertainment of that discussion. When that comes through is questionable. We are going into a presidential elections and so the chances of it actually being affected before the presidential elections, I’m not sure.
Josh Wolfson – Stifel Nicolaus
Okay. That stands very reasonable. Okay. Thank you very much.
Thank you. Our next question will coming from the line of Howard (inaudible). Please go ahead.
Hey, how are you.
What’s that excess $64 million claim from the Government of Mali for taxes?
It’s a tax issue that we’re having with the Mali government has got to do what the interpretation of the convention at Loulo and additional taxes that are covenanted and that are not in our convention. We’re working through it there is a dispute resolution process. At the end of the day, we might go to arbitration to get really on it. We’re working through it as part of our disclosure.
But there are rules and standards for all –
Yeah. We – how you cost your mine back few years, we’ve had similar situations with the Mali government, we’ve always ended up in finding a solution whether it’s brokered through various advisors or whether we’ve got a court or we’ve got some sort of arbitrator we always found a solution, but every new administration has the own view of some of the agreements that we’ve had in place now for 20 years.
Good enough. Thanks.
Thank you. We current have no further questions coming through, so just a final remind. (Operator Instructions) We’ve got no further questions coming through. Now, I’ll hand it back to your host to wrap up today’s call.
Thanks very much, and thank you everyone for taking the time to join us on this call. Again, we’re available if you would like to share up any ongoing discussions. Graham is available and so am I. We will be seeing some of our shareholders here in Cape Town as part of the endeavor process but anybody else is not here I would like to you’ve got any questions, please feel free to drop me or Kathy or Louis or Graham an email we’ll pick up with you. Thanks very much again. Cheers.
Ladies and gentlemen, thank you for joining. You may now disconnect your lines.