3 RD QUARTER 2005 RESULTS CONFERENCE CALL
Host: Randgold Resources CEO Dr Mark Bristow
Good afternoon ladies and gentlemen.
What with the commissioning of Phase 1 at Loulo, the start of serious planning for an underground development at the mine, and a full-scale global equity offering, the past quarter has been very demanding but also highly rewarding. Looking at the numbers first, our profit was up on last quarter as well as year-on-year. In fact, net profit of $28.5 million for the nine months to September was already substantially ahead of last year’s total of $20 million.
The highlight of this hectic quarter was the first gold pour at Loulo, always a moment of great excitement and symbolic significance in the development of a new mine. While the successful commissioning of the mine’s first phase obviously took a lot of effort, we were still able to advance the underground project and to press on with the deep drilling programme, which continues to generate good results. At the Morila joint venture, meanwhile, our intervention has delivered the goods in the form of a pleasing performance on the back of a settled plant. We also continued to stoke the exploration engine that drives the Randgold Resources train, with the new season starting in West Africa after the rains and fieldwork continuing in Tanzania. Finally we went to the market - something we don’t often do - and we did it the old-fashioned way, with full registration and global marketing. I’ll bring you up to date on this exercise, which has been designed to strengthen our balance sheet ahead of a new growth phase, at the end of the presentation.
We poured the first gold at Loulo on 27 September, significantly ahead of our original estimate of January 2006 but about a month behind our fast-tracked target date. We’re still aiming to produce 100 000 ounces by the end of the year but the delay is going to make this a tough call. In any event, we expect to ship our first commercial consignment of bullion within the next 10 days. The mining which started in August is going well, with recoveries in line with expectations at over 90%. The plant has been running for 35 days and is already close to design capacity. The next phase of the development is underway and earlier this week the second mill was brought into the circuit. The immediate focus now is on stabilising this. In the meantime, the manpower build-up is continuing as the mine moves into full production.
With production underway at Loulo advanced grade control in both the Loulo 0 and Yalea pits have better delineated the geometry of the high-grade payshoots at shallow levels within both pits. This information not only helps in the ore mark outs and mining schedules but aids in driving the location of deep drill holes testing the extension to these high grade payshoots.
The decision we made in the previous quarter to proceed with the underground development is being implemented vigorously, with the immediate emphasis on the design of an integrated plan to optimise the value of the combined open-pit and underground operations. We’ve appointed a highly experienced underground manager, Thinus Strydom, and he and our operating team are currently analysing the development options outlined in SRK’s final feasibility study. The issues they’re looking at include the operating policy, the capital requirements and scheduling, the underground access routes and ore transport facilities, and the timing. They’re also initiating the final design and engineering programmes and the tendering process.
The old adage of the more you drill the more you discover is certainly true at Yalea where deep drilling continues to extend the known highgrade payshoots both down dip and along strike, with some particularly good results in the south. From the latest drill holes in the north, we have also started to see a bifurcation of the main orebody into two distinct mineralised structures.
Our focus at present is obviously on Yalea and Loulo, but as this map shows, this is a highly prospective area which hosts a number of other satellites and targets in close proximity to the existing mine. The abundance of additional opportunities confirms our view that this project has legs, and we are optimistic about being able to add to the existing resources.
Turning now to Morila, we were gratified to see it back on track with a sound performance for the quarter. Our intervention earlier this year caused some initial stress between the joint-venture partners but ultimately produced the desired results. There’s a fresh management team both at AngloGold Ashanti and at the mine where we have also appointed a new managing director reporting to the Morila board - in place of a general manager who answered only to the operators - and I think we all now feel that we’re on the same page.
These are the key numbers from Morila. Tonnage and grade were maintained in spite of a strike by the contractor’s workers, and plant throughput exceeded a million tonnes, up 60 000 tonnes on the previous quarter. The consistent plant performance enabled Morila to produce 172 901 ounces, a 7 542-ounce improvement on the June quarter.
One of the issues on which there is now a clear consensus between the partners is the need to up the ante on the exploration drive at Morila. The logic is simple: every additional ounce we find will go straight to the bottom line. A new exploration manager has been appointed and his team’s main goal is to find another Morila within the lease area. A diamond drilling programme is scheduled to start during the last quarter of this year. Its immediate focus is to drill 14 boreholes targeting a selected number of priority anomalies. The Samacline target will also continue to receive our attention as well as follow-up drilling immediately to the south of the pit where recent drilling has yielded some very encouraging results.
Similarly we are stepping up the activity level at our own properties around the Morila lease, where we have been expanding our footprint. The development of a three-dimensional model and the identification of conceptual targets for drilling early in 2006 are well advanced.
INVESTING IN THE FUTURE
I’ve often said that true value is created through discovery and development. In the furtherance of this belief Randgold Resources has from the start continued to invest in its future through a sustained commitment to exploration, and we have done so through the bad times as well as the good. Our readiness to invest during the troughs has enabled us to reap the rewards at the peaks, as is evidenced by Loulo, where we are bringing a new gold business into production in a buoyant gold market. It has also given us an invaluable asset no other gold company possesses: a portfolio entirely discovered and developed by ourselves. Incidentally, Randgold Resources has discovered some 15 million ounces of gold over the past 10 years at a cost of around $6 per ounce.
Let’s look at some other components of that portfolio, starting with the 3 million-ounce Tongon project in Côte d’Ivoire. We’re on the brink of a final feasibility study but we’ve decided to hold back until after the elections, now scheduled for next year. The Côte d’Ivoire has been in turmoil for the past three years but we believe there is a strong local and international will to stabilise it, and we remain confident about the future of the country as well as the Tongon project - the full potential of which still has to be tested.
The Loulo region remains the most prospective in our portfolio, and as I noted earlier, we’re certainly not short of choice there. In line with our policy of dominating our target regions, we have a big footprint there, which includes a 100 km of strike along the main structure. Following a short break during the rainy season, the rigs are now back in the field for follow-up and reconnaissance drilling.
Just 60 kilometres west of Loulo and in the same geological window are our Senegal holdings, where a further four permits have consolidated our position on the Sabodala belt. We continue to develop and evaluate early stage anomalies there, a process which will in due course yield a handful of advanced target for focused attention. This is a good illustration of our resource triangle concept, in which a broad base of prospects are systematically assessed, filtered and developed.
In Burkina Faso, our focus has been on building a country model. We started the year with one permit and now we have eight located on a regional structure which already hosts six known deposits with a combined resource of more than 8 million ounces. Our land packet is concentrated in the southern part of this structure, where the infrastructure is good and the water plentiful. If you move south from Tiakane at the bottom of this map.... ...you enter Ghana from the north. We want to be in Ghana because it’s a world-class gold address, and we plan to be in the field there in the course of this season, as soon as the four applications we have lodged have been approved.
On the other side of the continent, there’s been no hold-up for the rain so we’re in the middle of our field season in Tanzania. We’re drilling up in the Mara region, adjacent to Placer’s Mara mine, but our main focus is on the Musoma belt, and in particular on the area between the old Kiabakari mine and Buhemba. Our recently concluded joint venture with the Tanzanian government includes the Kiabakari and Buhemba South prospecting licences and effectively completes our portfolio in this area. We’ll start reconnaissance drilling around the Kiabakari mine this season. The Kiabakari mine was discovered in 1893 and when the mine was closed in 1966 it was the third-largest in Tanzania.
Our Tanzanian activities nicely balance our portfolio by providing us with an East African counterweight to our West African interests and an element of geological and political diversification. FINANCIAL RESULTS Turning now to the numbers for the past quarter, net profit remains in line with our expectations and is well ahead of the comparative figures for 2004.
Profit from mining activity for the quarter ending September 2005 compared to the corresponding period ending September 2004 improved by 400%. This was mainly as a result of higher throughput, improved grades and improved recoveries at Morila, plus the effect of a higher gold price. Profits were up compared to the second quarter of 2005 also due to the improved throughput at Morila and the higher gold price.
Exploration and corporate expenditure for the 9 months ended September 2005 is up significantly compared to 2004 which reflects the increased exploration activity in 2005. Our exploration expenditure is high for a company our size, and will continue to be so, as we invest in our future.
Changes on the balance sheet mainly relate to Loulo. The increase in property, plant and equipment reflects the development of the mine. The original budget for the capital project was $87 million, including working capital and financing costs but excluding the power plant, pre-production and exploration.
Changes in the scope of the project which included a decision to accelerate the pre-production mining have increased this to some $101 million. In addition actual costs incurred are some 12% in excess of the revised budget as a result of timing and increase in shipping as well as other cost increases. The bulk of the capex has now been completed.
Current assets have increased due to movements in receivables at Loulo and Morila, the details of which are in the quarterly circular.
The decrease in cash and cash equivalents relates to the continued funding of the Loulo project following the $100 million equity raising, we will have a significantly stronger balance sheet. The only debt will be the $60 million Loulo project finance loan. We should have sufficient funding for our pipeline of projects such as the Loulo underground and the Tongon feasibility, without the need to do any hedging. It will also give us some fire power should an opportunity come our way.
The Loulo underground development was the main driver for our equity offering but, as I have indicated today, Randgold Resources has a wealth of growth opportunities within its reach. The underground project is likely to come at a time when the gold price is still robust, so our board took the view that funding it through an equity placement would enable shareholders to benefit fully from the upside, as it would obviate the need for hedging associated with project finance. We also decided not to take the fundraising shortcuts common in the industry these days. The fully marketed global offering was a complex, multi-jurisdictional deal which required a huge effort and great care with documentation, but it enabled us to give all our shareholders, and some new ones, an opportunity to participate.
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