Randgold's Gold Mining Success Story - Dividend Increases While Its Peers Are Cutting

| About: Randgold Resources (GOLD)

"Randgold Resources' (NASDAQ: GOLD) operations are strongly placed to generate robust cash flows even at gold prices below current levels and to continue delivering value to all stakeholders", so says chief executive Mark Bristow in a release on the company's 2015 annual report published today.

Randgold has arguably been the biggest gold mining success story of the past two decades (It was only established back in 1995 and was first listed in 1997). It has increased gold production from tiny beginnings to become the world's 15th largest gold producer (according to consultancy Metals Focus) with an attributable output now of comfortably over 1 million ounces a year.

It now numbers Africa's two biggest gold mines - Kibali in the DRC and the Loulo-Gounkoto complex in Mali, both of which it built from scratch among its operations. All this has been accomplished in a part of the world which some of its major gold mining peers feel is too risky in which to manage significant operations.

At Kibali in particular it succeeded in building a huge gold mine in one of the most remote parts of Africa, close to the DRC's border with South Sudan, hundreds of miles from both Africa's east and west coasts and with virtually no local infrastructure - a major logistical exercise in its own right. And yet it succeeded in bringing the mine on stream ahead of schedule.

It is notable here that although it is in equal partnership with the world's third largest gold miner, AngloGold Ashanti (NYSE:AU) (both have 45% stakes), the latter ceded construction and operational control to its much smaller partner, presumably because of Randgold's unparalleled record of building and operating mines in West Africa and its skills in navigating the often troubled political waters of the region.

What the gold mining industry needs, says Bristow, is to make new discoveries, as even a significant rise in the gold price and an injection of fresh capital will at best enable it to clear its debt, but will provide little scope for adding any value or reversing the production decline. Through its consistent investment in exploration and development Randgold, in contrast, was projecting sustained growth from a solid foundation.

He says:

Our mines have been modelled to generate cash flows at gold prices well below the $1,000/oz level. Our positive production and cost profiles extend to a 10-year horizon, we have had no impairments or write-downs, and have substantial cash resources. Our exploration teams are not only replacing the ounces we deplete but are making significant progress in the hunt for our next big discovery. In fact, we are in a unique position to continue delivering value to all our stakeholders.

Randgold set a new annual production record of more than 1.2 million ounces in 2015, up 6% on the previous year, while reducing group total cash cost per ounce by 3% to $679. Strong cash flows from the operations boosted cash on hand by 158% to $213.4 million. However profit for the year was $212.8 million against the previous year's $271.1 million, reflecting the decline in the gold price. The board has nevertheless still recommended a 10% increase in the annual dividend.

Also in the annual report, chairman Christopher Coleman reports that even in the current challenging market, Randgold is not reducing its investment in corporate and social programmes, in line with its philosophy that sustainability is central to all its activities.

He says:

Randgold's social initiatives extend far beyond the life of its mines. At all its operations, it is developing ambitious legacy projects designed to provide a permanent source of employment and economic opportunity to these communities. Based on agriculture, the primary building block of any developing economy, these range from training and funding would-be commercial farmers to a wide spectrum of agribusiness initiatives, many of which are already supplying local markets. The company is equally mindful of the health and safety of its employees, and it strives constantly to improve an already exemplary record in this regard.

Contrary to the position of many of its peers, Randgold, as noted above, also reaffirmed its intention to continue to pay a progressive ordinary dividend that will increase or at least be maintained annually. The board thus proposed the 10% increase in the 2015 dividend to $0.66 per share for approval at its annual general meeting on 3 May 2016. This is almost unique among major gold miners, most of which have been having to take big impairments in their balance sheets and have been sharply reducing their dividend payments.

Commenting on this statement, financial director Graham Shuttleworth said that at a time when the gold mining industry was focused on survival, Randgold was able to maintain its dividend policy on the back of last year's strong performance. He confirmed that the company still intended to build its net cash position to approximately $500 million to provide financing flexibility for future new mine developments and other growth opportunities.