Randgold Resources' (GOLD) CEO Mark Bristow on Q2 2016 Results - Earnings Call Transcript

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Randgold Resources Limited (NASDAQ:GOLD)

Q2 2016 Earnings Conference Call

August 04, 2016 11:00 AM ET

Executives

Mark Bristow - CEO

Graham Shuttleworth - CFO

Analysts

Tanya Jakusconek - Scotia Bank

David Haughton - CIBC

Josh Wolfson - Dundee Capital Market

Adrian Hammond - Standard Bank

Howie Flinker - Flinker and Company

Operator

Ladies and gentlemen, welcome to Randgold Second Quarter Results International Conference Call. Today’s speaker will be Mark Bristow, the CEO. Sir, please go ahead.

Mark Bristow

Thank you very much, operator, and good afternoon, ladies and gentlemen. Thank you for making the time on a summers day to share our results. As you’ll see from the reports coming out today, a tough quarter. In fact, a tough first six months for this year, but having said that, sort of fundamentally profitable and we’ve made progress on a number of fronts. Certainly, quarter two is not a continuation of quarter one. There’s different drivers in it and I’ll wait to take you through the detail as we go through. My objective today and the stuff we’ve been dealing with is we worked very hard this last quarter to catch up on some of the challenges in Kibali. We used the opportunity with the mill downtime at Tongon to get that mine commissioned and ready and we built a big stockpile ahead of the plant and both operations have had a good start to quarter three. And then of course, Loulo-Gounkoto is doing extremely well. It’s ahead of plan and it’s still got a big improvement as it’s always had in the hockey stick. So, its delivery has been the quarter one to quarter two ahead of plan delivery, which allows us to forecast it, beating its guidance for the year, which will help ameliorate the revised guidance at Tongon.

So that quick catch up. The other thing is the results. There’s a number of results that are not really reflected in the numbers, in particular, the progress we’ve made with our exploration portfolio and I intend to touch on that in the brief summary. The full presentation is on our website. Its podcast, so if you want to go back and listen to the discussions and debates at the London Stock Exchange this afternoon, you’re welcome to do that. I think before we start, just a comment on the gold price and where Randgold is. We note with interest that the industry has moved back very much forgetting the trauma of last quarter. We see what I’ve been talking about for a long time, a continued tightening of the supply side of the gold supply. We don’t see a let down on the growing demand side of the equation albeit that we still believe that there will be some significant volatility as the global Central Banks manage their free money policy. We don’t see any improvement on the global economic and political stability in the short to medium-term and certainly the excessive values on the stock markets and that are all pushing people to search for different ways to one, store their wealth and two, to attract some sort of returns and gold along with other collectibles like paintings and diamonds and that sort of stuff is certainly attracting some of the sort of world’s leading investors.

And we see a good space ahead of us in the gold market and I’ll try and share with you our strategy which is really not different to any previous strategy and points you to how we believe we’ll be able to continue to deliver that value to our stakeholders going forward. I’m starting as usual with the self-safety health environmental report. As usual, the record continues to show improvement across all the programs and as you see in the slide and it’s a critical part of our business, not only the environment which is key for us as an extractive industry, but also more importantly to health and safety of our most precious assets being the workforce. The highlights, as I’ve already touched on, if you look at quarter-on-quarter, down on profit and production, but if you look at the mid-year, mid-term year-on-year six months, up 11%, earnings flat on the six-month basis, and production down quarter-on-quarter, but relatively flat on a six-month basis again, overall a profitable quarter just as we had last quarter, cash up 6% on the quarter and about 270% if you look at six months on six months.

The results were led again by Loulo-Gounkoto with production as I pointed out, ahead of guidance. Morila was steady and I think continues to fund its closure, which is the key part of our strategy. Tongon joined Gounkoto as it paid its first maiden dividend in June and Tongon had some challenges which revolve around continued hassles with the machining of the journal, which we reported on last time we spoke and this journal repair uncharacteristically went on, it was more than 46 days and that’s really the driver of the gold production in Tongon.

Kibali continued to address the challenges and the gaps that were identified in the 100% sulfide trial run in quarter one and it also wrestled with moving back to the previous ore mix, which included the Pakaka satellites ore that’s been particularly challenging to process. It’s an ore that will eventually will work out. The positive side of Kibali is we’re working through some smaller satellite ore bodies that are variable, that they are important and they are part of our plan and we have to get through them. As I pointed out when we spoke in January and gave you guidance, the 2016, 2017 years are challenging because not that we don’t have enough ore to feed the plant, but it’s the grade profile of that ore as we’ve seen.

We have now caught up with the evaluation of the Kombokolo deposit, which will add a significant grade to the rest of the year’s plan and on into next year and this is a satellite orebody that was scheduled to come in right at the end of this year. We’ve been able to bring it forward, its better grade. It’s much friendlier metallurgy and we’ve drilled it out on 15 meter spacing. So we are pretty comfortable that we know what’s there and it’s running at -- the reserves are looking like 200,000 ounces at 3, 6 and that’s really what changes the profile, take you through some additional information as we get to the operation. So there are the numbers in the next page, they really support what I’ve just said, but again I would point to inherent profitability of the Group. The build-up in cash -- gold prices of today will be certainly looking to get to $0.5 billion by the end of this year, early in Q1 and that brings forward a lot of the strategy that we have shared with you over the last five years.

Loulo-Gounkoto was as I said the star performer and certainly looks to continue that way largely on the back of the return to owner miner. Cash costs was slightly up on quarter-on-quarter basis, but down significantly six months on six months and really the driver there is we drew more, mined more ore from development, that’s expensed development ore as we build the flexibility in the underground with the new team. And on top of that as we guided, we are in a big strip part of Gounkoto, we’ve been pushing back the pit and building some flexibility to get back to our planned strip ratio, which is a high strip ratio this year of around 18 to 1 and so as part of that, we had a double whammy. It’s the extra cost of the strip and also, we only mined part of the feed from Gounkoto from the high grade orebody and we added to that medium grade ore from the stockpile.

The feed into the plant was lower grade, but also again part of the plan. We will do the same in this quarter, quarter three and quarter four is a big quarter for Gounkoto and so for the complex as Gounkoto is scheduled to produce feed ore at around 5.5 grams to the mill. So big step up there and that drives the hockey stick nature of the production and is the underpin to our guidance that we’re going to exceed the original targets. The numbers again support, on a complex basis, what I’ve just taken you through, profit from mining flat, production also flat, again slightly up on the cash costs, but overall, if you look at it 4.8 grams is largely a result of lower grade from -- for the quarter. On a standalone basis, the Loulo underground part of the complex rarely delivered showing an increase across the Board apart from cash costs, which was slightly up again for the same reasons, that’s the increase in underground development ore and that really will bring flexibility going forward. Otherwise, a good solid quarter once again, because we had a good one and we were very pleased with the performance of the owner underground team and as it bids down, we’re sure that we’re going to be able to look for some additional efficiencies.

Next slide is really a summary of where we are with the underground mines. Again ore tonnage delivered was on plan and the development continues ahead of plan. And the other good bit of news is we’ve really had a good look at our paste backfill as we get our hand around running the mine ourselves and every indication that we -- there are some savings to be had with the change in the paste for management policies and as well the mix of components in the actual paste itself. We are busy doing some tests, power runs in Gara as we speak and we’re sure that we’ll be able to give you some positive results out of that work when we meet next. The numbers are a very slide to talk to on the Loulo standalone operating results. All the arrows in the right direction and I’ve touched on the total cash costs. Just to continue, so and our brownfield exploration continues apace at Loulo and particularly at Gara, the smaller of the two ore bodies and you’ll see how we’ve got an orange and a blue square. Those are the southern extensions of the main Gara reserves.

We estimate more than 1 million ounces potential in those two blocks and we expect to convert about a half of that to reserve this year and our initial estimates are that it should be north of the current reserve grade for Gara which ultimately if we can convert it all, looks to represent about three of the four years of life -- additional life for the mine. We also are looking at a small open pit in the south. We got about 100,000 ounces at 3,6 grams. Again, by the end of the year, we’ll have it fully bagged and be able to bring it into our life of mine plans and that’s attractive because Gara is right next to the processing plant and it’s free milling ore.

We continue with our work on the down dip extensions of the main Yalea purple patch. Some of the drill holes we drilled this last quarter certainly hit some very good intersections, but we’re struggling to sort of tie them into and really understand the controls so that we can continue to try and broaden out a potential reserve. So the plan is now to stop that drilling for a while, get the team together, go back underground, really look at the controls and see if we can’t remodel the whole higher grade portion of the Yalea orebody and then we’ll be able to start the next drill phase. And so that’s the plan for Yalea. On the rest of the permit, as you know, we’ve spent a lot of time on the Gara south extensions over the last two quarters. We have however, we’re mindful of the fact that it’s important to generate new targets and that’s what the rest of the team is focused on in the Loulo permit this last quarter and we built a good generative early stage conceptual target portfolio which will progress once we get over the rates.

Gounkoto was delivered, our plan as I pointed out, it really balanced the -- and stuck to the 60-40 split or thereabouts between Loulo and Gounkoto operations. Because of the lower grade slightly lower production, costs are up for the equivalent reason, but profit from mining still at $33 million, that’s the EBITDA for the operation. And you’ll see on the next slide, again, the numbers support what I’ve just told you. And more significantly, I’d just point you to the specifics, ore tonnes mined 390,000 tonnes, tonnes processed 587,000. That’s because we blended the ore mine with the stockpile ore as part of our orebody management strategy and that will continue this quarter as we push back and catch up with the strip, but quarter four is back to full grade ore and the consequence of that is about an improvement of 20,000 ounces to 30,000 ounces in quarter four. And of course, our objective is to try and bring a bit of that into quarter three just to manage that hockey stick.

Exploration in Gounkoto permits focused on greenfields targets both north and south of the pits in addition to the ongoing drilling as part of the feasibility study on the superpit. That’s progressing well and we’ve now completed the geotech drilling, no red flags, and what’s left is the completion of the hydrological study. This is going to be a very big pit. It’s going down 450 meters and it’s important that we understand and can tick all those boxes particularly with and managing any ingress.

Across to Morila, still in Mali, again, a steady quarter. Morila is right -- it’s starting to look to process to move to the TSF retreatment. We are ready to start the switch over. We’ve got a bit of mineralized waste resource left with us [indiscernible] we are trying to mine as much of it as we can because it’s still making a contribution and so we’re constantly doing trade-off studies with the short-term planning. The test being, if it makes a contribution after paying for any closure costs going forward, we’ll take that ore. We have not yet got a final with the community and their sort of elder representatives back in Bamako on the Domba project although it’s pretty well permitted and it’s something that I’m reluctant to force. We’ll work with the community. We are sure we will ultimately get their buy and it’s about a 30,000 ounce three months mining exercise. It adds a couple of million dollars to the balance sheet and what it does to us is boil the place up [ph] closure risk, captures that closure risk and beefs up the ability to finance the project out to its complete closure and the various legacy initiatives that we’re currently driving to ensure that we leave something behind and that’s one of Randgold’s big strategic challenges is prove to the world that we can make sure that we invest part of that ore bodies’ value back into a sustainable economic endeavor once the mine closes.

The numbers, next page, speak for themselves and is in line with a slightly lower grade and a little lower recovery and that’s all linked to the actual feed grade. Moving to Tongon, as I indicated in the introduction, Tongon really had on balance a good performance and when you look at its recovery, when you look at the improvement in our mining and mining control and the key is to flick to the next slide which where you can see grade up at 2.5 which is in line with the reserve grade. You’ll see that the tonnes were down because of one circuit being down for 46 days in the quarter and recoveries are nicely up and what you need to do is look at if you keep that quarter and you increase the grade to about 1 million tonnes -- to just over 1 million tonnes, you will see that the recoveries -- the gold production steps up very nicely and that’s what we intend to do. And then, quarter four, as we ramp up, we’ve already far down the line having complete in July. And Q4 will be, the target is 1.15 million tonnes at also the same 2.5 to 2.6 and 83% recovery or 84% recovery and that really delivers our revised guidance of 260,000 ounces. In fact, it should beat 260,000 ounces by a little margin. And that’s what we’ve done with the recut guidance for Tongon is really accepting that the -- because of the low grade nature of the orebody, it’s not an orebody unlike Kibali where we’ve got flexibilities to change the mining schedule around and access better ore. We’ve really got to manage this orebody carefully and so that’s why we have accepted that we can’t catch up this year although the goal is still there and we still got to process it ahead of us. And another positive thing out of Tongon is that we’ve now completed the capital project focused on the flotation and throughput upgrade. The last chute to dropping the new quaternary crushing circuit and the various upgrades of material handing around the crushing circuit and the mill circuit. And so, what’s left now, just for the team to bed this additional down and we’ve got as I said earlier significant stockpiles ahead of the plant and so there’s no reason that the operation can’t deliver on its original plan.

Updates on the power, whilst there’s still some challenges in power stability, we’ve made a lot of progress in particular with the CIE, which is the power utility and we’ve settled our disagreements on rates and I think we’re all working together and certainly the government has been extremely helpful in facilitating normalization of those relationships, mindful of the fact that Tongon is now paying tax and it’s paying dividends. It’s paid its first dividend in June, $22 million and so it is a significant source of revenue for the state. We, like all the other mines, are continuing to look at brownfields opportunity to extend the known reserves and in Kibali -- I mean in Tongon, our focus this quarter and the current quarter we are in is around the depth extensions in the middle part of the northern pit where we’ve had some pretty attractive bore haul intersections.

I’ve always said looking at Cote d’Ivoire that this is a country if we were to have one choice to find a new world-class project and bring it to account, we’d like it to be in this country. It’s a very capital friendly government and got great infrastructure and it’s got a reliable and longstanding administrative culture. So we can deal with things. Not everything is driven at the political level. As you know, we’ve been building our portfolio in the country and we continue to do that. We’ve just been informed that we’ve got about four or five new permits coming through the process and we’ve got quite a few more outstanding on the application.

And the focus this last quarter has been on building additional portfolio of early stage targets across Boundiali and within the Fapoha north and southern targets as well as a Mankono and then specifically progressing the surface evaluation of the two main soil anomalies, Kassere and Fonondara in the Boundiali permit as well as a delineation drilling of the Gbongogo sheeted vein currents in the Mankono permits.

So starting with that, this is just a schematic of where we are with that target. We pretty well defined the geometry and the shape of the first and largest of the granitic intrusions which host these sheeted veins mineralization and indications are there’s somewhere between 700 and 1,000 and 1.2 million ounces in this current defined volume and the grades, it’s still early days because we haven’t got a lot of holes, but the indications are that the grades are between 1.5 grams and 2.3 grams and that’s what it’s the grade that pushes the very low strip ratio target and processing is very attractive.

Low work indexed [Indiscernible] and easy 90% recovery on a standard borrower. On the Boundiali permits, Kassere and Fonondara, we’ve now completed the detailed surface work in Kassere over about 1.2 kilometers confirming a continuous shear zone with mineralization confirmed by trenching and we’ve actually made the decision, I’ve just finished a trip through with Joe and the team in West Africa and we made decision to try and get a couple of holes in -- beneath this 1.2 kilometer zone because in Ivory Coast, it’s very important to get a deeper drilled intercept because often you get what we refer to as supergene enrichment ore or surface enrichments of some of these structures.

In Boundiali, we’ve got confirmed mineralization in Fonondara over a distance of just over 1 kilometer. We’ve extended that to 1.5 kilometer and we’ve now been able to delineate the continuation of that structure for 15 kilometers to the north and definitely at its still there to the south. So, the plan is we’re going to do some RC drilling on this structure where we believe we have control of the surface expression also trying to get some of that done before the rain stops us from operating, the reason being that we need some of that at depth information to be able to finalize our planning for the next field season.

Moving across to Kibali, as I said, Kibali as you know had a struggle in quarter one. That was really driven largely by our decision to go 100% sulfide fee for an extended period of time. It certainly showed up some operational challenges and issues and also highlighted the importance for additional expansion on our ultra-fine ground circuit, something we anticipated right on the beginning when we built the processing plant. We do have the foundations already installed. It’s a matter of placing the orders for the Deswik moulds and getting all the other peripheral steel work done. We have done many of those orders and they are on track and we should have the first Deswik on site before the end of the year. Really it is critically important that we get that addressed ahead of continuous sulfide feed. On that, we’ve been able to bring a project called Kombokolo, which was scheduled to come into our ore supply or mining schedule at the end of quarter four forward to quarter three for two reasons. One is after the difficult start and the continued challenges that we’ve been dealing with the Pakaka orebody, we looked to fast track it. So, we increased the pace and allocation of resources for the feasibility and follow-up grade controlled drilling. As I said earlier in this presentation, we’ve now drilled it out to a 50 meter spacing.

We’ve confirmed a mineable reserve of around 200,000 ounces, which is double what we first expected and at very good grade of 3.6 with some upside on that grade, which we’re busy working on at the moment. So with, it’s got a small oxide resource, that’s going to come in early September. We’ve got a plan to put a secondary re-crusher which is ready reallocating crusher -- we already have a hybrid crusher into the second circuit ahead of the mill to ensure that we have maximal flexibility to manage hard rock into the sulfide float circuit and hard rock into the CIL circuit because Kombokolo is free milling.

So that brings it forward and then of course we made very good progress with our work on Gorumbwa, which is a similar ore body to Kombokolo, it’s free milling and so we’re now just about at a point where we can show you that we’ve got enough of a fee to manage the difference sources in a more sort of concerted way without too much multiplicity going forward.

The other big plus is as I’ll show you in a minute, the underground continues to stay ahead of plan which allows us also to look for some additional underground ore feed this year. We’re planning about 100,000 tonnes of additional underground against our original plan this last six months of the year and that comes at a much higher grade, the 3.6 on the Kombokolo and some parts is higher than that. So, looking forward our guidance for the next two quarters is a pickup in grade to 3.3 grams for quarter three and then another step up in grade at 3.8 grams as we get more and more Kombokolo and we pick up the percentage of underground feed to the mill. The important thing to leave with you is that we’re not just trying to do the same old thing. We’ve re-cut the plan and we can deliver the extra ounces because of better metallurgy and more importantly higher grade, which is king in these sort of situations. The numbers really reinforce what I’ve said. You’ll see throughput really didn’t suffer. We’ve certainly haven’t been able to pick it up to our sort of 1.8 million tonne target because of the interruptions that we’ve been dealing with both in quarter one and quarter two, but we are comfortable we’ll get close to that for this quarter and definitely at that point in quarter four. Recoveries was largely driven by the Pakaka variability. I think the teams definitely got better at handling that ore as we work through it this quarter and certainly I can confirm that our revised plan as we call it now, to deliver those plus 600,000 ounces for the year, we were unplanned at the end of July. So that’s -- we had really started showing improvements at the back end of June.

Apart from that, everything else continues as per normal. The next slide is just a summary of the underground production both in ore tonnes and in underground development and as you can see, we continue to keep to our plan there. On the capital projects side, I’ve already touched on the metallurgical facility, the extension of the concentrate handling and additional ultra-fine grind capacity, we’re looking at around $10.5 million. As I say, we’ve placed the long deed items already and we are tidying up on the final engineering. So we’ll reinforce that number once we’ve got it properly engineered. Ambarau our second hydropower station, you will recall that we lost a berm in November in higher river level event in November last year and we’re fully recovered from that now. We’ve now completed that re-build of the berm. We’ve closed off the river, opened up the stop-lock gates and the river is now running through the hydropower station while we complete the wall in the south side. We expect to have that complete towards the end of this quarter and we should be producing power from this installation early in quarter four. We’ve started the construction of the third power station in Azambi and that’s scheduled to generate its first power in the first half of 2018.

Just on power, the next slide, is the summary of the performance that power mix and micro grid management is really improving and you can see that the red line being the cost per kilowatt hour and you have that little hiatus in costs during the dry out season and then back up to the sort of just above $0.10 a kilowatt hour level and that will improve as we increase our demand and our hydropower install capacity going forward. On the exploration side, our pipeline of projects, really a big focus at the moment is the near mine, out of mining schedule targets them being at Agbarabo, Rhino area, it’s a series of targets right near the old Belgian Agbarabo mine. Kombokolo as I say was in the schedule, but not at the sort of size we have now defined it and Kombokolo has still got some significant potential down dip. Sessenge SouthWest is also a project that’s got potential and not in our mine plan. So that’s really our focus as we said earlier this year just to ensure that we build up enough flexibility to ensure that we can manage these tighter years in 2016 and 2017 ahead of the full commissioning of the underground project.

Next slide is just a quick indication of Kombokolo, the deposit that’s really it’s a high grade lens that plunges to the Northeast as you see here and you can see some of the bore-hole results from the last couple of drill sites that are in the down plunge. So significant resource and as I said, the reserve now sits at 3.6 grams at around 200,000 ounces. Staying with the exploration in the DRC, we’ve continued to expand footprint. If you recall, we recently announced the JV on Moku just adjacent to Kibali and a consolidation of ground in the Ngayu Belt as indicated here.

If you go over the page, Moku, we have now mobilized and got a team there. We’re quite far advanced in mapping, doing a big regional map and covering whole permit with stream sediment sampling, we should be complete with that program at the end of this quarter, early into the final quarter of the year. And as far as the Ngayu, the permits that are included in the Ngayu project, we’re busy as we speak with the helicopter electromagnetic survey and that’s a big step. It’s quite a remote area, very inaccessible and it gives us a good reference point to start generating targets through our generative team.

A quick move back to western Mali, eastern Senegal just catch up on some of the permits outside the Loulo-Gounkoto mining permits. We’ve got a new joint venture with Alecto in western Mali, northwest of Loulo and that’s in an early stage doing regional mapping and the regional sampling with the objective of generating the next phase of priority areas within the permit. Bakolobi joint venture with Taurus is producing some interesting numbers and we’ve done a lot of work there in this last quarter and if you move over the page, you’ll see we’ve defined four significant structures, mineralized structures. We’re recently focused in on Dioula and Tintiba has done some trenching defined and confirmed the surface mineralization and continuity and again, we’re planning or we’re busy as we speak putting a couple of holes underneath our surface lineation to test the depth extensions of the targets and allow us to be able to use that third dimension of information to plan for the next field season.

Finishing off on the projects is just an update on the Massawa feasibility, we continue to evaluate the central zone both looking at the geo-statistics and the deportment of gold across the heart of this ore body and also ongoing metallurgical test work. Everything points to the fact that we can achieve 70% recovery on a pure gravity leach flow sheet, which is quite a small operation, relatively low capital and it works and so the challenge now is how can we increase the reserves to meet our filter of 3 million ounces and the current candidate is the Sofia deposit some 10 kilometers away where you’ll recall last quarter, we suddenly latched on to a flat plunging high grade zone pay shoot within the main Sofia shares zone. We’ve done some more drilling. As you can see in this diagram, we’ve got quite a bit more to do. We’re slowly working out this structure and the controls and where you see the arrows are where we’re currently drilling some holes and so we’ve got a bit of the way to really unravel the control and the connection between that northern high grade blob and the long extended plus 5 gram ore body that you see highlighted in red and purple.

I talked a bit about the exploration resource triangle. It’s the tool that we use to drive our business, the whole concept being for our generative team to ensure that we have a constant supply of early stage conceptual targets at the base of the triangle and then our exploration teams diligently focusing on those targets making sure that we test them against our filters as we move them through the triangle. The objective is to pass them to Rod’s team. At top of the triangle, when you talk about reserve definition and ultimately John’s team to deliver the construct and deliver the new mines at the apex of the triangle. When we looked at revising our and refreshing our exploration team two years ago, when you looked at this triangle, it was clear we had an empty hole in the middle. Joe and his team have done an excellent job in filling that triangle and we’ve certainly got lots of exploration targets and follow-up targets that are capable of just on scope size meeting our filters and we are very mindful that as much as it is a scientific and disciplined business exploration, it’s also a numbers game and thus the real focus on expanding our footprints in our areas of interest as the market struggle to stay alive over the last two or three years and now the focus is let’s get those portfolios and the triangles full both on a project or permit scale and also on a corporate scale as you see in this slide.

So, I’ve just been on a trip as I said earlier through the exploration projects with Joe and the team and I feel that no never have we had a better looking portfolio, the key is to turn it into a discovery. On the wrap up, just to remind everyone that we are very focused on being sustainably profitable in the long-term. We’re not a company that sort of knee-jerks on anything. We don’t like retrenching people. We think you should position your business for the long-term at a price and a business frame that survives the cycles and can pull you through some of the challenges that we all have to deal within our industry and at the same time our investment in one of our key stakeholders and that’s the communities around our mines is critical and we continue to do this -- this is the summary of some of the work that we’ve been doing in the DRC more recently.

And then, really finishing off, it’s always a challenge end of a something interesting and I believe that this comparison both long and short-term between our share price and the gold prices is definitely a graph that I don’t believe anyone in our peer group will be able to emulate. It demonstrates our ability to offer the market a real investment in the gold space with a 100% exposure to the gold price in a package that also includes a very sustainably profitable business with operations that all have the quality to be able to manage some of the challenges that are undoubtedly there and as you’ve seen in the last six months and also an excellent prospect pipeline that means that we have the ability to continue to invest and being able to discover another world-class deposit and deliver it to our shareholders internally funded. I think it’s quite an exciting time, very different how things can change looking at backend of last year despite the brilliant performance we put in, a tough market to manage and things are very different today.

I think as I’ve said in the beginning, I’m still not convinced we’re really in a full bull market yet. We’ve got some sort of choppy waters to get through as the Central Banks try and wrestle with this interest rate issue, but having said that, we’re well positioned. We’re really on the charge with our cash flow and with some of the additional brownfield successes of recent times, we’ve got a solid looking business plan out -- certainly banked at five and demonstrable out to 10 years and we’ll share a lot more of that detail with you when we catch-up with you after the next quarter on our Investor Day. That’s really the catch up. Happy to take questions. Thank you very much for making the time to join the call.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen, we will now start our Q&A session. [Operator Instructions] Our first question is from Tanya Jakusconek from Scotia Bank. Please go ahead.

Tanya Jakusconek

I just have a few questions and first of all, thank you very much Mark for all of the details on some of these operations. I think I got how Kibali is going to be ramping up with the introduction of the new pit, just to make sure that the numbers work to over 600,000 ounces given the tonnage and grade you gave, we’re looking at recoveries of about 85%. Is that correct?

Mark Bristow

Correct, on the last quarter. Let me just check, Tanya. Our guidance -- the actual number is December quarter 83.8%.

Tanya Jakusconek

Okay and Q3?

Mark Bristow

Q3 about 84%.

Tanya Jakusconek

And then I think I got everything for Tongon. What I didn’t have was a handle on Gounkoto, Loulo-Gounkoto. I just heard that we are supposed to be doing 50,000 ounces more in Q4 over Q3 and then my line was a bit fuzzy. So could we just review how Loulo-Gounkoto looks like in Q3 and Q4?

Mark Bristow

Okay, so what we’re doing is that if you look, you saw that we mined 390,000 tons and fed over 500,000 tons. So that was Q2 if you look at the results for today and if you look going forward, we got to be -- our feed on Gounkoto is Q3, 535,000 tons, we got to mine about 400,000 tons and we’re going to feed at a lower grade again to this quarter, quarter two we just passed. So that 3.4 grams to 3.5 grams to the mill from Gounkoto this quarter and about 500,000 tons to 530,000 tons. I’ll take you back to the total feed Tanya and then next quarter, we’ll do about 550,000-ish, between 530,000 tons and 550,000 tons at 5.5 and we will be mining more than that, about 590. So that means that we’ve really on top of the strip and we going to have another big strip this quarter as we did last quarter.

So about 23 to 1 as we push back the project and you know, I saw you pick up that as a cost, we don’t defer strip, so when we do a pushback like this, we take it on the nose and that’s what drives the cost on -- it’s not a long-term cost, but it is a cost that we’ve guided the market to, we guided the market to and overall strip ratio of 18 -- I believe 18 was our original number for the year and so we did 15 in quarter one, we’re going to do 20 -- we did 23 in quarter two, and then we come down to around 13,14 in the quarter four. So that’s why the numbers look a lot better going forward. If you look at the total Loulo-Gounkoto feed for the next two quarters, we are looking to feed around 1.2 million tons which is what we did this last quarter, quarter two at around 4.5 grams. So down from this quarter and so our production is about 160, 165 call [ph] for this quarter and then next quarter with the increased grade at both Gounkoto and from the underground we are going to be feeding 5.5 grams to the mill and it’s a simple math, same throughput, same recovery and you have a big step-up just because of that significant improvement in grade.

Tanya Jakusconek

So doing all of the numbers, clearly Q3 should be better than Q2, but the Q4 is going to be the strongest quarter for you?

Mark Bristow

So let me just rephrase that, Q3 is going to be slightly down on plan, but Loulo-Gounkoto has always outperformed. The reason we’re outperforming is not because we’re going to outperform in Q4. So Q4 is as per plan. The reason we are outperforming at Loulo-Gounkoto is Q1 and Q2 was better than planned.

Tanya Jakusconek

No, no, no, sorry Mark. I meant the Company as a whole, so overall Randgold as a whole?

Graham Shuttleworth

Yes, for the Group, you’re right Tanya, it’s a step-up and then another step-up.

Mark Bristow

So it’s really 30,000, you’ve got to get the 60,000 ounces more the two sort of in the six months and 30,000 comes from Loulo-Gounkoto and 30,000 comes from Kibali.

Tanya Jakusconek

Okay, that’s helpful, thank you very much I’m just looking to see if I’ve got all my questions. Sorry, Graham, now that you are there, any change to our capital spend at all. I know you expensed a lot of your stuff through your cash costs. Can you remind me of your capital spend?

Graham Shuttleworth

So the guidance for the year Tanya is $240 million and we think that that’s pretty much where we are going to come out.

Tanya Jakusconek

Okay, so no change in there or on your exploration spend either?

Graham Shuttleworth

No, again, corporate and exploration, we guide between $50 million and $60 million and we still stay on track with that. Obviously, we have alluded to some additional exploration work that the guys are going to be doing, but we’ve got capacity within the budgets elsewhere. So it’ll be a bit of a reallocation, but the total number will come out about the same.

Mark Bristow

The only time we’ll spend more than that Tanya is if Joe can deliver us a really hot and juicy target that -- we never hang back on a new discovery. We’ll put some more in but it needs to be a significant delineated target before -- outside the exploration put into a project.

Tanya Jakusconek

Well, Joe if you are online, we look forward to that hot and juicy target coming to us next quarter.

Mark Bristow

He’s listening.

Tanya Jakusconek

All right Joe, pressure is on

Operator

Our next question is from David Haughton from CIBC. Please go ahead.

David Haughton

Good morning Mark and team. Thanks for going through all of those details. Tanya must have been looking at the notes that I’d been taking because she certainly helped fill in the holes that I had. So, one of the things that you’ve been working on is the Gounkoto superpit and I’m just wondering if you’re in a position that you can talk to us about what that may look like and what implications that could have on future underground, whether it removes the potential for a future underground or how it all fits together?

Mark Bristow

So we’ve quite fired up on that David and we’ve ticked off as I said in the summary, the geotechnical drilling is complete and there are no red flags. The only thing really left is the detailed hydrological study and we’re doing a big study and we’re doing some big drilling too because we’ve got the Faleme River right there and we’ve got some of these unconsolidated gravels on the one side of the pit. The pit goes down to 450 meters. What it does is -- currently, the current plan is a smaller pit with a bigger underground that exploits about 2.6 million ounces. What the superpit does is it takes all that. So, it doesn’t go all the way down to the whole underground, but it captures a lot of additional mineralization you leave behind in an underground and so we get a 450 meter deep pit at 2.6 million ounces and there’s a tail of underground reserve and resource of between 200,000 ounces and 300,000 ounces, it’s quite hard grade, about 6 grams, 7 grams.

And the debate in the team is what we -- we’re very comfortable with our improved mining skills. We can go and take a large portion of that just in a small decline, but definitely the more we learn about Gounkoto and the multiple sort of string is of the main orebody and a pit is much more -- mines in a orebody much more optimally. And again our ounce profile has flattened because we don’t have this sudden drop high grade, but lower tonnage coming out of when we shift to underground. The pit goes out at 2024, just a bit after that. It’s a good grade sort of upper 4s grams per tonne, a reasonable strip ratio. What we’re doing now is we will bank that no matter what. We’re going to show you the two and the trade-off and the decision by year-end and we should be in a good place to update you further with some of the more detailed technical work and maybe a first estimates on the schedule.

David Haughton

And as far as the upfront CapEx goes, is that just additional waste movement, additional stripping or would you put it all as part of the existing operations and just step-up some of your strip ratio to get the pit enlarged?

Mark Bristow

This one we’ll treat as a proper new operation and we will capitalize some of the pre-strip because it’s quite big and so the capital will be some of the strip and the mobile equipment that we’ve got to add to it, Graham, you’ve been working on the capital recently.

Graham Shuttleworth

Yes, that’s right, exactly. It would be a capitalized pushback in terms of the accounting rules. We’d have to follow that treatment and in terms of the fleet, well, we probably do that similar to our old structure, so that would come through cash costs.

David Haughton

Okay, and given your experience of mining so far, have you found that there’s additional stringers that you’re drilling hadn’t picked up and are in addition to what you’re block models are saying, do you have that kind of occurrence?

Mark Bristow

Randgold is very paranoid about detailed grade controlled drilling and Gounkoto is one, the more detailed you get -- can change quite a bit. The high grades are higher and the low grades are lower in Gounkoto. Our view and certainly I know Rod and Joe’s view with the work they’ve done is that our pit is definitely a more efficient way to mine this ore body than underground because your always have to leave something behind.

David Haughton

Okay, so we’ll see some details by year-end and we’ll be able to have the contrast between your existing model and a proposed superpit?

Mark Bristow

Yes, we’ve done that already, David. I think we did that two quarters ago. So it is available on the website on one of our quarterly presentations.

David Haughton

Okay.

Mark Bristow

And all I can say is, it’s not looking different so far, to that initial peeking.

David Haughton

Okay, yes, I do remember that slide. I wasn’t sure of whether with renewed discussion whether you had additional data to go in their full costs or outlook et cetera.

Graham Shuttleworth

It’s looking pretty much locked in.

Operator

Our next question is from Josh Wolfson from Dundee Capital Market. Please go ahead.

Josh Wolfson

On the topic of dividend, it sounds like with the cash balance approaching that $0.5 billion target that’s been talked about for several years now, when do you think the Company would be in a position to really start looking seriously at paying out either special dividends or cash flow linked dividends or whatever you see being I guess the most appropriate option?

Mark Bristow

So Josh, the story hasn’t changed. Let’s get to the 0.5 billion, you know, right now we are in a progressive dividend phase and that’s very clear and we’ve demonstrated that this last quarter and I might add, you know, we paid out a significantly better dividend and still added to our net cash and so if the gold price stays up above the 1,350, we’ll get there this year or very early next year and so we’ll be in line to update you on our sort of revised approach to a progressive dividend when we come to in the AGM. Graham and I and the Board have a long constant discussion on this, and one thing we don’t want is, we don’t want to be become -- we’re not a dividend driven business. We’re a gold business focused on giving our shareholders 100% exposure to the gold price and we look to maximize our total shareholder return all the time. So it makes no sense for us to sit on a lazy balance sheet. At the same time, certainly from where I sit, I don’t believe gold companies should hold large debt at the corporate.

I mean you’ve seen how it can confuse everything and destroy value in the last couple of years. We’ve always been, as you know, a Company that if you take debt on, it should be at the project debt level. It does two things it keeps you focused on -- because the banks lend you money at a project level, you know it’s a viable business and so you know that’s really and the summary of our discussion, we haven’t changed our view, we don’t -- so you can expect an increased dividend payout when we get to that point and we’ve also very clearly said and Graham’s got a good point when we debate it, we’re not going to change our dividend, we’re not looking into the gold price, we are not going to promise you any specific thing but we’ll pay it out in perfect harmony with the cash balance and profitability of our business looking ahead like any other company would do. Certainly we’ve been saying this as you say for five years and so far our outlook and guidance is working out.

Graham Shuttleworth

I mean we -- just to add to that Josh, I mean we have no intention to sit on the money if we’ve got nothing to do with it, but at the same time, we are all optimistic that Joe is going to deliver in other projects and then we are going to need some money to invest into it. So we have to balance all of that up.

Josh Wolfson

I guess just in terms of the scale of the cash that the Company will be generating and given that you’ll already have $0.5 billion in the bank at these gold prices by year-end, on our numbers, we’re looking at something like $600 million of free cash flow a year and compared to the current dividend policy of $50 million, is the Company considering moving to potentially a quarterly dividend or a more frequent special dividends just because I guess the quantity of cash is pretty substantial at these prices and like you said that you’ll already have $0.5 billion on the balance sheet?

Mark Bristow

Yes, I think your point is a very valid observation and your model works because it’s the same as ours. The point here Josh is right now we’ve got enough money. The concept of the $0.5 billion means that we can fund at -- with $0.5 billion head start and the cash flow we’ve got, we can fund just about -- well we can fund any conceptual gold mine that we believe you could find and our sort of areas of focus. So even a big Kibali, we would able to fund internally. So that’s the $0.5 billion logic behind that and we’ve got a revolver to make sure. The one thing I’m absolutely clear about is running a gold business for owners which is what we do rather than traders, you never want to be held to ransom by the market and that’s why I like to have some ability to manage issues and after that as Graham says, there is no more use for that. Let’s get to the $0.5 billion, I mean you’re right, the payments are going to be substantial if we’re not building a new mega mine and we’re absolutely confident we will be, exactly what size it is, I’m not sure, but it’s definitely going to be over 3 million ounces, so more than 300,000 [ph] ounce producer. That’s our objective and we are pretty convinced we’ll get there in some form or another.

At the same time, just to get back to your quarterly’s and all that, we don’t believe in that. So we’ll pay an annual, traditionally -- our shareholders are really keen on delivery of value. They like our dividends. They like the fact that we are disciplined and we definitely are not going to go and blow that on some stupid plan and I think if you speak to any one of our shareholders I’d be happy to wait on an annual basis, make sure that we have the money we need to continue to deliver on our business plan and the rest pass it out to them. So, I think we as a management team are aligned with our Board in the same way and we do talk very regularly to our major shareholders who have been owners for 20 years and I can say that they are of the similar mindset.

Josh Wolfson

So then on the project side, looking at Massawa for a moment, some of the results that were released at Sofia look very prospective and certainly could easily approach well over 1 million ounces of high grade material. When you look at the existing central zone material that would not be refractory, what sort of scale are you looking at right now?

Mark Bristow

It’s somewhere between 1.5 million ounces and probably 2.5 million ounces. What we care about is we need to go and drill that out in some detail because the closer we drill, the better it gets. So that’s the Sofia central zone and some of the extensions to the north and south. The high-grade stuff in Sofia -- we haven’t really seen an orebody like that with just one very high grade zone. We still got some drilling to do and one of the challenges is that a hanging wall area with lesser grade and exactly how you access that orebody. So and again we haven’t drilled that hanging wall out properly down to the north. So we got quite a bit of work to do on that because the new sort of -- those initial bore holes we hit in the beginning of the year already changed our view of this project. So we’ve had three months working on it and we’ve got a bit more work to do on that, but we’ve said to the market, we will present you with a feasibility study. It might be a revised pre-feasibility study by year-end depending on where we are with our test work, but we’ll update you and give you something to model and test, we’ve said that.

Josh Wolfson

But at this point, it sounds like it’s not going to be at a stage where you’ll be able to just sort of make major advancements by year-end, more incremental updates?

Mark Bristow

Yes, I think that’s a good assumption. As I’ve said, this is a possibility for an additional -- we’ve just come from a very constructive meeting with the Senegalese government where we pointed out that it doesn’t makes sense to mine gold deposits that don’t make real value. It’s better to keep them until they do and they are very aware of what happens when you mine an orebody and don’t produce profits and don’t contribute any tax to -- the first gets a mine away, a national asset. They are completely aligned with us. We’re not under pressure. We’ve just recently consolidated those permits into one permit, which gives us out to 2019 to make a decision on this project. And we’ve got lots of other stuff that we’re chasing at the moment. As you know Josh, these big deposits, when you find them, they’re quite short-term. They come quickly and you know, it doesn’t take us 10 years to permit a world-class asset in any of the jurisdictions we operate. It takes more like six to 12 months. So, we’re comfortable with that and as I stated this morning, you don’t see a world-class 5 million ounce deposit sort of walking towards you. When you drill it, you know it’s there.

Josh Wolfson

And one last sort of housekeeping question, in terms of cash taxes, I guess the volume paid so far in the first half year has been, I guess consistent with last year, but relatively low in light of the gold prices and how the operations have been. Are you expecting either cash at payments or substantially higher payments in the second half of this year?

Mark Bristow

Okay, the driver of the tax is Loulo. Gounkoto is in tax. Loulo is paying minimum tax. Am I correct? Loulo?

Graham Shuttleworth

Loulo’s paying tax, yes. The issue, Josh, I mean you’re right. I mean basically, it’s more or less in line. There is a bit of a buildup in tax on the balance sheet, but that’s to do with the timing of the provisional payments. As you know, we make a big provisional payment in April and then we don’t pay again for four months. And in terms of the actual tax, yes, the gold price being lower, production being lower, relative to last year, it’s a little bit lower and yes in the second half of the year, all things being even given what we’re expecting in terms of production, we would expect the taxes to be higher.

Operator

Our next question is from Adrian Hammond from Standard Bank. Please go ahead.

Adrian Hammond

I’ve got two questions, one very quick one and maybe just one on your strategy. Firstly, Kibali, could you just remind us on your expectations for a steady state tonnages and grade for the underground operation please.

Mark Bristow

So it’s a bit of a shifting target, the Kibali target but sort of guidelines are around 6.8 million tons per year. Our total tons processed -- the ratio to that is let me just, I’ll have to look that up.

Adrian Hammond

Just on underground portion, excluding any open pit tonnages, original number I got here was around 3 million tons. Is that still -- and then on the grade side?

Mark Bristow

The Kibali underground -- so we go -- 2018 we’re at from undergrounds at about, it’s consistent out to 2020. So 2018 to 2021, we’re at about 3.5 million tons from underground and then we’re around 3.2 million tons out to 2027.

Adrian Hammond

That’s great, sounds like for the Group for Kibali as a whole, but I’m interested to understand the grade underground?

Mark Bristow

Feed grade, for the combined open cost underground feed grade, we’re sitting at between 3.3, so it goes 3 -- so once we settle 2018, it’s 3.9 then 4, then 4.3 and then this is just a long-term plan and its somewhere between 3.6% and 4% and then at the backend of the mine, back after 10 years we start getting 5s as we get into the higher grade, the higher grade bottom part of the mine and lower tonnage.

Adrian Hammond

That’s interesting. I like your slide on the resource triangle and I think I need to just unpack this a bit for my understanding. With respect to your plans for a new mine and looking at your feasibility projects, does Gounkoto on the ground, the superpit option may -- superpit around Gounkoto would that form one of the options potentially as newer mines?

Mark Bristow


No, no, that’s just that part of our current business plan. It’s just more efficient than doing it in a pit in underground. There’s no new mines in the top part of the triangle, Adrian. When we find one, you’ll be the first to know because you’ll make a lot of noise.

Adrian Hammond

So Massawa is out of the question then you’re saying?

Mark Bristow

No, no, it’s not, it’s work-in-progress that’s, Massawa is like 180,000, 200,000 operation [Multiple Speakers] at this stage.

Adrian Hammond

One of your new mines is sitting below the top portion of that pyramid, which is from getting it to feasibility and into production puts it at a long, long way away.

Mark Bristow

Let me give you some numbers. Morila we discovered in 1997, end of 1996, December was the first trench, first bore hole in 1997 January. Report gold in 2000. So from first bore hole to first production, Gounkoto took us 18 months from first discovery hole to delivery but we already had a plot. Loulo-Gounkoto took us from -- well Yalea was the thing that drove that development, we discovered that in 1997 and we delivered first gold in 2005 and then Tongon, we discovered in also 1998 and we delivered gold in 2009. -- That’s 2010, sorry. So that’s really where we -- those things are variable, but if you find a -- and remember we had a war going on in Ivory Coast. So it’s a little bit of an interruption.

Adrian Hammond

I understand that, but you got to demonstrate your filter system, which is as you repeat at $1,000, 20% IRR, which requires a feasibility level of study. So you need to drive that to illustrate to the market that you’re sticking with your filter systems, so how do you marry those two, how do you marry your filter system with your confidence to develop a mine in light of your [Multiple Speakers]

Mark Bristow

So, Adrian just to point out, I don’t want to sound flippant, but we don’t rely on third parties to decide whether a mine fits our filter or not. We’ve done it enough times and we’re very focused on it and we are very mindful that we’re the guys responsible to pull the trigger and any mine we develop in the near future is not going to require any funding. And we’re very clear about that. We get independent advisors in there to make sure that we’re getting checked, not to give anybody a third-party comfort. And I would just add, remember when we bought Moto, it wasn’t at all bankable and we closed that deal in 2010 and we poured first gold on a $2 billion, 600,000 ounce project in 2013. So, I think we’ve become a lot more skilled at managing these things and if we find that big 5 million ounce project, we’re quite comfortable we’ll get it in production. I mean Ivory Coast, I’ve got no problem. We’ll get it in short [Multiple Speakers] might be a little bit more challenging because of the infrastructure.

Adrian Hammond

Yes, so, it sounds to me that you’re confident that there are projects out there that still meets your filter system and that’s not that -- it’s not the case that Randgold will need to relax that filter system to develop new mines. Is that any -- what do you think of that?

Mark Bristow

I think our point is that we’ve got a very sustainable, highly profitable banked forward-looking business plan that you heard earlier, everyone is now getting their head around the fact that it’s going to continue to generate cash and we’ve got many good examples of people who get persuaded either by themselves, the market or certain investors to change the rules of the game and they end up making a very small fortune out of a much larger one. We’ve been before and I think we’ve demonstrated that this is out -- and certainly where we are in Africa, discounting the risk, we’re playing in relatively under-explored terrains, which have led the new mine discovery now for some 20 years and that’s not a big sort of claim to fame because there haven’t been too many world-class discoveries around the world, but certainly Mali is one of those significant addresses and Ivory Coast is highly prospective, but again I think the key thing that remains is we can talk a lot about it. We need to go out there and continue our work and find one and then everyone will believe us.

Operator

[Operator Instructions] We have a question from Howie Flinker from Flinker and Company. Please go ahead.

Howie Flinker

I might have missed this, did your tax rate rise because the holiday in Cote d’Ivoire expired?

Graham Shuttleworth

Yes, that’s correct. So we are paying tax in Tongon from the start of 2016.

Howie Flinker

And a minor question, I see you produced more ounces at Tongon that you sold. Is that just a function of accounting and delivery dates and things like that?

Graham Shuttleworth

Exactly. It’s just the timing of when we pelt and when we sell.

Mark Bristow

We try and get it reasonably close on a quarterly basis, Howie, but we’re a little bit more focused on getting the gold out at the end of the year.

Howie Flinker

Let me add supportively, you people have run a terrific business till this morning and I don’t believe tomorrow morning you are going to turn dumb and you’ve made appropriate decisions as to when you should spend money to grow your business and when you just send money out of the business to us. So I’m on your side and leaving the judgment up to you people whenever you wish to add to CapEx or hang on to money for tomorrow’s opportunity.

Mark Bristow

Thanks, Howie. We’ll take good care of that responsibility.

Operator

We have no further questions. Back to you, Mr. Bristow for the conclusion.

Mark Bristow

Thank you everyone for your time. I’m sure that going forward in the next couple of days, there’ll be questions. Please feel free to contact Lois or Kathy or directly Graham and I we’ll fit you in. We are busy with just to catch up with our shareholders here in London for the next day or tomorrow and then I’m off with Joe to finish our exploration review of Central Africa. We’re going to go and visit Marco and Gaia and work through the portfolio and the Kibali licenses with the geologists and we’ll be out in the field again by next weekend, but Graham’s always available to take a call. Okay, thank you for your time. Speak to you soon.

Operator

This concludes today’s conference call. Thank you all for your participation. You may now disconnect.

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