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Randgold Resources Ltd. (NASDAQ:GOLD)

Q4 2007 Earnings Call

February 4, 2008 11 a.m. ET

Executives

Philippe Lietard – Chairman

Mark Bristow – Chief Executive Officer

Graham Shuttleworth – Chief Financial Officer

Paul Harbidge – Exploration Manager

Analysts

David Haughton - BMO Capital Markets

Victor Flores - HSBC

Steven Butler - Canaccord Adams

Operator

Good afternoon, and welcome to the Randgold Resources fourth quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Philippe Lietard. Please go ahead, sir.

Philippe Lietard

Thank you, and good morning and good afternoon everyone in North America, Europe and Africa, and welcome to this presentation of Randgold Resources results. I'm sitting with Mark Bristow and his team to make a presentation in Cape Town, which coincides with the annual Indaba, which as usual is assembling the African mining industry and its partners.

By now, you will have seen our results for the past quarter, and of the year 2007. And I'm sure you will have noted also, two important decisions taken by the Board last Thursday. First, to declare an annual dividend, and second, to proceed with the Tongon project in Cote d'Ivoire.

Some two years ago, in one of its regular strategic review sessions, Randgold Resources management was imagining a few "what if?" economic scenarios to try and frame Randgold's own development strategy and investment choices.

One of these scenarios was a situation in which a high gold price would be accompanied by rising productions costs, an oil price of around $100 per barrel, a weak dollar, the threat of global inflation and a shortage of gold, and of gold projects. They called this scenario, "the Perfect Storm". So, with "the Perfect Storm," now upon us, I don’t need to tell you that fortunately, the measures that Randgold Resources took in good time to prepare for it, and Mark can tell you more about it in a minute, have equipped the company singularly well to take full advantage of the opportunities and to manage the difficulties presented by this challenging environment.

This is why we are able to report today that the company has posted another creditable performance for the past year, and even more importantly, that we are looking forward to, with great confidence, to the years ahead. I will stop here and thank you very much again for your interest in our company. And Mark will now take you through the results and give you the overview of the current developments, and the future prospects. Thank you.

Mark Bristow

Thanks Philippe. Again, good morning and good afternoon to everyone. I think if we start, just building on what Philippe said, and that is looking at our strategy, you'll recall that we have always consistently invested in explorations, with an eye on developing, or creating, our own value through the development of our own discovery. And I think this presentation for 2007, and specifically the quarter, highlights the significance of persevering with that commitment. And it's like any business, if you don’t invest in R&D, you really don’t create new opportunities.

Without a doubt, that investment is now paying off. And in the markets that still seems to be teeming with promises, we offer production, real projects with profits to fund them and particularly people with proven capacity handle the downs as well as the ups of this turbulent industry, and more importantly to be able to manage these assets in a tough environment that's synonymous with operating in emerging markets.

If we look to the first slide after the title slide, for those who are following the slide show, then I'm not planning to re-present the entire speech, or presentation I made at lunchtime. That is available as a webcast on our website. I intend to just go through the highlights.

We'll start with the highlights, slide two, and just run through the year which, as I'm sure you all recall, started off slow, and ended strongly with a very good fourth quarter. This is reflected in net profits which are up 26% on the previous quarter and 34% on the same quarter in 2006. Net profit for the year decreased from $50 million to $45 million but would have also been up on 2006 had it not been for some exceptional items. We include a $3.5 million tax adjustment at Morila, more specifically a significant increase in exploration and corporate, and costs associated with the program of catching up on some mining and increase in the flexibility of the pits at Loulo.

I think it's worth noting that Randgold Resources is one of the few gold companies that files with the clients that are according to the IFRS criteria and we don’t defer stripping. You see, what you see is what you get. We also expense exploration, and as we indicated last quarter, we have been expensing Tongon. We start capitalizing Tongon probably through the next quarter but at this stage we were expensing up until now. So our net profits are real net profits that you would expect in any other business.

Production is in line with forecast thanks to an increased contribution from Loulo quarter-on-quarter and year-on-year, and that contribution pretty well making up for a shortfall from Morila.

On the subject of Morila, it is announced today that Randgold Resources would take over the operational responsibility from our joint venture partner AngloGold Ashanti. And as you will see from the announcements, AngloGold is considering selling its 40% stake in Morila. And in the circumstances, both parties agree that it would be better if Randgold Resources assumes the management of the operation given our position and long-term commitment to the area in the form of expanding Loulo and developing Tongon, and more which I'll touch on later. Details of the change will be communicated over the next week or so.

Back to Loulo, and I have it here reported that the Yalea underground development, which you've heard a lot about, is now moving ahead rapidly. And we've come up with a new design to deal with the ventilation and backfill plans for the mine.

As Philippe mentioned, another highlight was the approval from the Board to progress with the Tongon development. As you are all aware, the funding of Tongon has been secured by a successful $240 million placement which incidentally was fully registered so that all our shareholders, including US shareholders, could participate without restriction.

I would also just pause at that point and highlight the efficiency in which this placement was done. It took us exactly 30 days from the time we got Board approval to completion of the process. And that attributes to both our internal teams and the bankers and advisers that supported that process.

A very busy year, as we can see, but even with all that, we didn’t drop the cash when it came to exploration. Exploration itself producing some significant results over the year and out of all of them, Massawa in Senegal looking very good indeed, and I'll highlight on that one a little more.

Finally, again as Philippe has pointed out, the Board approved a 20% increase in our annual dividend. Details of the dividend and whether you have elections to have it paid up in pounds or dollars is included in the documents that are available on our website.

Moving then to Morila, as our first operational overview, it had a difficult year. Morila not only had to deal with high costs but really the issue is, you may recall, our original production forecast for 2007 was 500,000. We revised it to the beginning of last quarter to 475,000 and the mine eventually came in with 450,000 ounces. And that always impacts on costs when you plan to produce more ounces than you actually do.

As already discussed, details of our takeover of the operatorship are currently being financed. In the meantime, our first priority when we take over operatorship will be to do a thorough due diligence on the whole operation. I think it's important to get a fresh set of eyes to go in there and really we can see everything and have a good look at it. We'll certainly do it in cooperation with the new team and AngloGold Ashanti as well, and we'll report back on that.

Morila operational results pretty much speak for themselves and really it's all in the grades with 3.7 grams a tonne for the year being significantly below the target of 4. It's also worth noting that if we had achieved the extra 25,000 ounces, even to the revised forecast, it would have reduced the cost by $40 an ounce.

At this point, I must however stress that Morila's relative underperformance of the year might be something, but it remains a very substantial generator of cash and profits, debt-free, unhedged and completely exposed to the gold price.

I think one thing we kind of have to again put our minds to, is educating the market on the distinction between accounting profits from cash flow as we get to the end of input mining and move to processing stockpile.

This is the routine, the (source) statement, which is the next one, you'll see that the statement we've released is the statement which AngloGold Ashanti has released. It defines the resources. And the rest of the declarations, reserves, etcetera for both Morila and Loulo will come with our annual report towards the end of this quarter, as is tradition in Randgold Resources.

I think the other point I'd make is that you'll see that we've excluded the underground resources on this statement, something I'm sure the joint venture will continue to monitor as we progress our exploration efforts.

As for the exploration, upside in Morila, we continue to pursue the so-far elusive opportunity to extend the resources at Morila and will do so until or even maybe after the day we finally turn the lights off. The exploration date is scheduled for (early June). It can be one of those that we have a relatively good look at as we take the reins on day to day operations there.

That's Morila. Moving to Loulo where Morila was disappointing, Loulo certainly delivered despite the cost pressure. It had a very good year with annual production of some 265,000 ounces, coming in 10% ahead of the forecast on the back of an increase of 17% for the quarter.

Profits from mining was up 44% quarter-on-quarter and 10% for the year. We did allude to the challenges that we’ve had with our open cost contract. We’ve made good progress in catching up over the last quarter. We’ve got another two quarters to go to really catch up and build back the flexibility of the pit. With that comes some additional costs which again (inaudible) expense. So, as you know we don’t defer strip so there’s nothing in it in our balance sheet when it comes to things like that.

Operating results are a good few numbers, and while the costs look high, if you adjust for the 3.3 million tonnes, which were lined in addition to the last quarter you can see where they come from. It effectively results in the $70 per ounce increase quarter-on-quarter and so the significance of this is that you can explain it, it’s for a valid reason. There is no indication that our cost controls are out of control.

One thing that I’ll explain to you in this table is the low recovery rate for the last quarter. That’s relating to sulfide ore now coming more and more from the Yalea pit. But again I would point out that we’ve now really looked hard at the reagent mix and we’ve got those recoveries back substantially to where they were. That’s very encouraging because Loulo has delivered at above its feasibility study recovery rate since we commissioned it. And we have every expectation that we’re going to get better than full cost recovery out of the sulfide as well.

Moving into Yalea underground, you’ll see that this graph really clearly shows the impact of the weathered zone in slowing down the advance. You’ll see now that we are through the weathered zone, and in fact in January we had record development meters out of the mine. We are now on the critical path to ore production will intersect ore in the development of the main shaft towards the end of this quarter, and we should be stoping by mid-year.

I’m going to talk a little bit more, going on to the next one, additional decline in P125. Originally we had twin raisebore system scheduled to handle ventilation and backfill. When it came to schedule it into the mine plan we really struggled with contractors and availability of equipment, and our team came up with the idea of developing a decline out of the P125. It has a number of benefits. It’s the same cost. We get into ore straight away because the ore at the base of P125 is high grade. We’ve been developing that ore for some way, so we can really add some flexibility to the (feeds) that replaces some of the ore that we’ve delayed out of the main decline. In addition, it gives us a second access to the workings, so it’s a safety benefit. Also, it opens up some higher level panels, mining panels, which we wouldn’t have had access to because it was just too expensive to mine upwards from the main decline. So again, it brings a bit more reserve into the mine plan.

So that’s on its way. In fact, we had a visit out there last week and the analysts that were there it would seem that we’re just about ready to start the portal. Again, some innovative work from the team. I think it’s very significant, as I talked about earlier, that the operating team and the ability to manage mines in remote regions of the world is a significant asset in this current market. It’s not only whether you’ve got a pipeline of projects or you have reserves or you have production, but if you don’t have the quality people that can manage these efforts in these difficult environments then you don’t have a business.

Moving (inaudible) to operations moving to our future, and that’s significant. Tongon, as Philippe said, the Board approved the go-ahead of development. We are subject of course to conclusion of mining convention of the state. The first draft is in with the Department of Mines and Energy. We’ll be meeting with them as a team later this month to start the engagement.

SENET and Epoch have been contracted to complete the final plant and tailings and design. And the tender process will start thereafter and we should have it prepped up to start by mid-year. As part of the routine work to convert feasibility studies in the mines, we’re still very busy with infill drilling and we’ve embarked on environment and social baseline study. A very interesting exercise as we are subscribed to the Equator Principles. We’ve recently embarked on a Public Participation Process which involves consultation with all interested and affected parties, and the villages and regional structures in the area of the project.

And now with the project pretty well getting a life of its own it’s now sitting firmly in Adrian Reynolds’ hands, and then it’ll move on to John Steele in time. He’s our Capital Projects executive. The exploration guys are now bringing up some of the (inaudible) and we’re moving into follow-up on additional satellite projects, in particular the Tongon South and East, and other portfolios that we built in the country.

The next slide is really just quickly reviewing the sensitivity to gold price based on the feasibility parameters, key parameters that we published last quarter. In a higher gold price scenario you can see the significant increase in the value of Tongon, and that’s really what we’re very excited about. There is no doubt that there are definitely significant upsides as there have been and there continues to be in the Tongon region.

For those who are technically minded, the next two slides are just a summary of the latest infill drilling results, just to confirm that we are getting continuity in the infill drill results. And in fact, we’ve now done some deeper drilling, and again we’re seeing the emergence of these high grade pods or trending within the ore body. As we develop them, we’ve got to continue to look at the deeper extensions of this ore body.

As we move on to exploration, and as I pointed out in the introduction, a busy year again this year with some very gratifying results. I’m just going to flick through the highlights quickly. Massawa in Senegal, definitely, rapidly emerging as the new jewel in our exploration crown. It’s early days, of course, but the results from a phased evaluation program involving some diamond drill holes, it’s about 150 meters below surface level. The full 2.8 kilometers of the target have confirmed continuous mineralization. We’ve infilled that with a series of RAB lines, and those are depicted in slide 16 and 17, where we show the previous boreholes and RAB results and then the infill RAB drilling begins.

It’s got everything that you would expect in a significant deposit. Structure, the alteration is significant, where you get the main ore body completely obliterates the original textures, and of course continuity which is a key component of any ore body.

I think the point here is that we’ve been looking for this for some time. It’s a primary discovery. It’s in the (Sabodala) Greenstone Belt and we’ve looked at a number of prospects around this area for some time, and I guess what it really convinces us is that to be successful in exploration you really, apart from the skills, which we’re satisfied we have, you’ve got to be tenacious, you’ve got to have that ability to stay the course and persevere. We’ve consistently said that it’s a great terrain. We should continue to spend money there.

The next step really is to take this to a defined target and we’ll be able to pronounce on its potential size. We’ve already authorized Paul to get on with the drilling, and we’ve agreed that he can go and drill between 7000 and 10,000 meters of diamond drilling, and I know he’s mobilizing the boreholes as we speak. I think the significant thing as well if you look at the RAB lines, particularly the last one on slide 17. Look at the last two RAB lines on the north and the south, and you’ll see that there are some very significant intersections suggesting that the ore body is still open both to the south and to the north, and certainly the latest soil geochemical that’s coming out confirms that.

So "watch this space" is the message I’d like to leave you. It certainly whereas the full geological team and Randgold Resources is super excited about this prospect, at the same time being mindful that we’ve got a bit of work to do before we can actually define a potential.

Faraba target, again, we made good progress there. As we said last quarter, the big focus was to extend, we had a gap, we had some interesting results in Faraba north.

We’ve done some work, we’ve drilled a couple of holes, and we’re definitely following the continuity now across some 1.5 kilometers and the indications are that there’s potentially as much in resources in that zone, that’s a combination of the North and the Gap, as we see in Faraba Main, which we, as you know, declared a 500,000 ounce resource there.

(Baboto and) Loulo, within the, to the north- end, and east of the Loulo assets, or ore deposits, have also got our attention, or received attention from the exploration guys of last quarter and the previous year. Baboto, we continue to add to it, we have the good results and bad results, or disappointing results, and slowly we’re unraveling the structure, and as you know it took us quite a few years to really get our mind around Yalea, and we are committed to sorting that out.

Our Loulo Three was a small target, as you recall last quarter, where we said we want to go drill some holes and check it out as potential for a high grade sweetener in the mine plan. We’ve definitely, initial drilling shows a significant but very limited strike length of high grade, and we’ve budgeted and authorized a drilling program to go and drill that out and try and get it into reserve. It has a potential for around 10 million ounces, and the grade, I mean 10,000 ounces, Larry Paul just had a heart attack, but 10,000 ounces, the attraction is that the grade could be as high as seven grams, and if that’s the case it gives us flexibility in the mine plan as we go through this year.

This year we’re mindful of the tax year, just stopping near, we’ve got a challenging year, we’ve been there before, but the transition in Morila is losing its flexibility as it comes to the end of its money, and Loulo’s going through a change from predominantly open grass to predominantly underground and so where we, as a management team, we’re always looking for ways to build in flexibility in our plans.

I think while we’re on that slide for Baboto - Loulo, I’ll just point out that we’ve recently commissioned a very detailed airborne geophysical survey which includes electromagnetics, and it’s a plus $1 million exercise, it’s covering tenements that we’ve collected over the last while.

Our Senegal-Mali international boundaries, and more importantly the main Senegal-Mali share zone. It’s a total of 1400 square kilometers, approximately, and we believe that this survey is going to really help us figure out the plumbing system, the big structural controls, and give us another round of drill targets based on what we already know in that area.

Ivory Coast, I’ve always been a great supporter of this country, particularly its prospectivity, and as it returns to normality will become more and more bullish about the geological potential. It’s certainly one of the most unexplored country with the most, the largest surface area of West African Birimian rocks, which boasts many of the significant gold deposits in West Africa.

Burkina Faso, quickly, Kiaka target, as you recall is always considered as a low grade target with not much potential. We had, even at one stage muted that we might sell it. Well, geologists have proved us wrong and they’ve continued to add to this resource and right now we’ve just (inaudible) to the North that came back at 166 meters at just under 1.3 grams, which confirms it’s very much open to the North end. So now we’re looking at it, we’ve done the pre-feeds, we’ve done the initial metallurgical work. If we can double this resource it starts looking attractive. So it’s still in the portfolio and receiving attention and some of the budget.

Finally, just looking at the exploration program needs, greenfield initiatives, and our main greenfield initiatives at the moment are in Ghana and Tanzania. Both countries that are claimed to be mature, we don’t believe so, but by the same token they are difficult countries to work in, there’s not much flexibility in accessing permits, there’s not a lot of available data outside of the focused areas in both those countries, so it requires a little bit of some thinking outside the box and we try and do that all the time, as you know me and know the company.

So, that’s certainly getting our attention and will continue to do so and at the same time Rod’s team has been digging out a few more opportunities in some of the other countries surrounding the countries that we are operating in.

Moving to the next slide, financial results aren't great but if you cannot be supported by the numbers then one has a bit of a challenge on one's hands, and we’ve certainly been there in the early times of our business.

This is a summary of our results, very quickly, you can see all the details in the quarterly - and in our quarterly announcements. Really it consolidates the numbers I’ve already taken you through for Loulo and Morila. Gold sales are up, as gold prices, I’ve said, and the increased production from Loulo, which pretty well made up for the shortfall of Morila.

I think cash costs were well in line with, we cautioned about the impact of diesel and specifically, and the Euro-Dollar exchange rate and when you consider how much the price of oil to diesel increased, let me give you a reference. Last year, January, diesel was about 25% of our costs, this year diesel is about 35% of our costs, at Loulo that is, with the cost that we really understand. And so the teams, all in all, have done well to, specifically with some of the disappointing production, as well as the (inaudible) to contain the bottom line type of cash costs.

End of the day, we’re a very profitable. If you adjust it which ever way you look at it, which ever it’s likely to be profitable. Our big focus is that build up in production in the next couple of years, and at the same time if you look at the gold price and where it’s gone and where we believe it’s going to go to, there’s every reason that supports our dividend payment and it’s rewarding we're pointing out that two South African mining companies waived dividends this last time around, and we’re happy to be able to return something to our share holders.

Another point worth highlighting here is that our business model is designed at $5.50 per ounce and so on this basis we are well placed to benefit substantially from the sustained higher gold price, which is what our business is all about, and that’s making real profit out of finding and producing gold.

Our second to last slide is really about our share price, and I thought I’d just show you that compared to our peers and in fact compared to our big brothers, peers being on the right of the slide and big brothers being on the left of the diagram, we’ve done okay in the share price stakes.

There’s an old adage that says that rising tides raises all ships, but from these graphs clearly some rise higher than others. I think, for us, on a serious note, shows that the market likes our pure gold strategy and believes that it offers the traditional leverage one would expect in a rising gold market.

Apart from that, I’m here today to say more that we do not run our business with a focus on a share price, but rather we are all about long term value creation for our shareholders.

So let’s look at that long-term or medium-term outlook on prospects in the next slide.

At the time when the industry’s production is in the decline, we have two very clear targets. Loulo to beat the 400,000 ounces of production in 22, and group attributable production increasing by 50% to 600,000 ounces in four years time. And that was last year, as you recall was a five year, so we’ve keeping the forecast in line, we’re not changing it with the changing years and Tongon is really set to add that growth. Morila or (Tongon), one or the other will replace Morila and the other one will add the growth, and that’s significant in an industry that really is ex-growth.

We need to remind the analysts and all our shareholders that we are acutely aware that we are going to have to work even harder to contain costs. We are very focused on costs, and you know without saying that we’re still estimating probably a 10 to 15% rise again this year.

Finally, we’ve got, as I hope I’ve demonstrated to you, we’ve got a great portfolio of exploration projects, led by Massawa, which could well develop into something very exciting, and perhaps even our fourth project for development in the future. And we’re strong on cash and equity, we’re very capable, not only of funding our own organic growth prospects, but of seizing corporate opportunities should they meet, and I stress, our profitability and pure gold standards.

That’s really it, ladies and gentlemen, we’d be delighted to take any questions. As Philippe mentioned, we have a team around the table, Graham, our CFO, Rod, head of our projects and evaluation, Paul, our head of exploration, and Dave from the corporate side, so over to you Phillip.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from David Haughton of BMO, please go ahead.

David Haughton - BMO Capital Markets

Well thank you very much and good afternoon to you. Just looking at the Morila transfer of operatorship, can you just talk us through that, what’s required there, are you going to keep existing staff, or do you plan to add people? And is there any likelihood of changes to the cost structure as reported by you?

Mark Bristow

I’m going to answer the last question first, the operatorship comes as an operating fee of 1% of our revenue, so that will impact our revenue line. We have a lot of the overheads in place already; we don’t believe that we’re going to putting on a whole lot more costs. We might take on one, or one and a half bodies, or allocate bodies within our organizations.

On the mine, again we’ve worked through this with AngloGold Ashanti and they’ve assured us that there might be one or two potential people that they might be interested in and they will be offering them to us, but at this stage we don’t see anyone leaving the mine. We certainly are very happy to take all the people on, and we’ve counseled all of them, along with AngloGold Ashanti.

I think what we plan to do is once we’re through with all the paperwork, and as we gave you a heads up, we’ll give you some more detail in the next week or so. We’ll then move in to start with some strategic thinking with the senior members of the team and then get into the mine and really complete a thorough due diligence. I think we all agree it’s a good idea because often someone who hasn’t been really submersed in the project has a different view of our things, and we hope that will come with some benefits. You know, it’s a tough call because it is a mine that’s in decline. At the same time we will continue to explore and our real commitment is to see this project through and close it as per our original feasibility study, our relationships are critical in that part of the world and we’ve got a long way to go in continued exploration in other developments.

David Haughton - BMO Capital Markets

So then, can you envisage upside beyond the current plan of mining stopping 2009 and mining stockpile through 2013?

Mark Bristow

No, right now we don’t have any, as we show even in our resources take it out of the underground even at these gold prices, but not withstanding that, we are still exploring. We’re going to have, again, another good look, there’s a lot of data floating around the mine, so again I think we’ll come with a fresh look. I think all the major partners are committed to continue to spend exploration while they are involved, and we will certainly do that.

David Haughton - BMO Capital Markets

On a different topic, thinking about 2008, would you be able to provide us with your expectation of capital expenditure and exploration spend for 2008?

Mark Bristow

2008, with the other capital, I’ll pass you onto Graham to give you the details.

David Haughton - BMO Capital Markets

Thank you.

Graham Shuttleworth

At Morila the total capital will be about $4 million, to our share, less than $2 million. At Loulo you’re looking at total capital of about $47 million, about $41 million directed to the underground projects and the extension of the infrastructure associated with that, and you’ve got about $6 million of sustaining capital in there as well.

Mark Bristow

David, Tom and I will spend 267 at this stage, an estimate, pretty evenly over two years. We are, and that’s the reason the Board brought their approval forward, pushing to spend some of that earlier this year, as I’m being told that into this year, again, we’re not going to do it unless we’re happy about it, and that could be $6 million to $16 million.

We have started spending with auditor Gentex. We got it in just before Eskom, sort of, scrambled the market, and we are doing long lead out and in definitions, and designs at the moment. So we’ll be ordering this equipment throughout this year, and some of it comes with deposits.

David Haughton - BMO Capital Markets

And your thoughts on exploration expenditure for the year?

Mark Bristow

Same as last year. I think that’s really where we’re coming from. It’s going to be a different mix. I think there are still some significant explorations spend in Ivory coast. We’re seeing allocating at this stage, 16% to 18% to Senegal with the Massawa project.

But, I’m not sure you’re familiar with the way we run explorations. We have a core budget and then we have a total number, and then everyone has to compete for the drilling. Right now Massawa is the winner. It’s going to attract more of the drilling budget than less.

At the same time, we’ve still got quite a bit of drilling to complete in Tongon. Some of that will be expensed and as we go down the road some of that will be capitalized. I think that the stuff going forward now will be capitalized as we got the decision from the Board.

David Haughton - BMO Capital Markets

With Massawa, is that a long strike from Sadiola? Sorry…

Mark Bristow

No. Do you know the MDL Project?

David Haughton - BMO Capital Markets

Yes, That’s what I meant. Sorry.

Mark Bristow

Okay, the MDL Project is in the (same) greenstone belt but there’s a main structure, trans-current shear structure, which runs down the whole length of the eastern side of the Gulf. And it’s associated with that the MDL Sabodala deposit is on an offshoot of that. It’s not on the main structure.

David Haughton - BMO Capital Markets

Is there anything else on that main structure, other than…?

Mark Bristow

Right now, David, we’ve got 2.8 kilometers defined and it’s open and Paul we've done some (inaudible).

Paul Harbidge

As Mark said earlier, the last run holes in the North and South have got significant results. (inaudible) 24 meters at 8 grams, but we've stopped the soil (inaudible) and we’ve actually extended the soil anomaly to just over six kilometers. As well as systematically starting the diamond drilling program, we’re also testing that full six kilometers with further RAB drilling.

But we’ve also got a number of other targets along that (inaudible) corridor including (Delau) and the (Bakan) corridor as well. So we’ve got a whole number of targets. Obviously Massawa is the highest priority at this stage.

David Haughton - BMO Capital Markets

Would you envision a (reasonable) statement during the course of 2008?

Mark Bristow

I think, for me, we would envision a good (heads up of the size) as far as (inaudible) continuity and some basic… We have very strict criteria in (inaudible) to talk about (real ounces). It depends how - if we can we’ll drill 10,000 meters before the rains. That should give us a lot to live with David. So, certainly this year we should get to something if it’s there. And that’s the big thing. But we're going to pull out the stops.

David Haughton - BMO Capital Markets

All right. Thank you. I’ll leave the questions there for now.

Mark Bristow

Thanks David

Operator

Thank you very much. Out next question comes from Victor Flores of the HSBC. Please go ahead.

Victor Flores – HSBC

Thank you. Good afternoon Mark. First, a couple of questions about Morila.

It appears to me from the production profile, that you’ve put in the presentation, that Morila’s production is going down a bit more quickly that you had originally anticipated. Is that because the grades have been consistently lower than planned as you got toward the life of the mine?

Mark Bristow

Hi Vic. First of all congratulations on the arrival of your son. Hey, well done.

Victor Flores – HSBC

Thank you.

Mark Bristow

Secondly, Look we’re missing in (Sabodala) And thirdly, your observations are correct that they going down. Exactly what it is and with what - whether it's the ore body or whether we’re just not getting our management right. The one thing that worries us is that Morila mine management have always been bailed out by either the grade or the gold price. And we’ve been consistently warning that as you come to the end your flexibility goes away.

So, we’re not that close to an operation. I mean we’re reasonably close. But we’re certainly not that close. That’s going to be the first job running this team. We’re going go and really work with the management there and try and get they’re mind around it. We’ve said we will do that. And we’d want to be comfortable with having a look at the whole life of the mine. That is the one thing we’re aware of, and if you can find anything, you've pretty much got what you've got at Morila.

Victor Flores - HSBC

Thanks Mark. And then the question as to the profit, if there is going to be one, with respect to AngloGold possibly disposing its stake. What pre-emptive rights do you have and is there an agreement in the joint venture as to the timing of a potential sale?

Graham Shuttleworth

Yeah, it’s very specific. It’s actually available on the website. I’ll quickly run you through it. And AngloGold has indicated that they will follow that process. For us to, the first step is they have to formally furnish us with a first notice which is which is, we want to sell. We then have 20 days. And we have to undertake the two partners to negotiate and search for a solution on price and terms in good faith. If we get to the 20 days and we haven’t been able agree on a price, AngloGold Ashanti have to then furnish us with what they want for a price in US Dollars.

We have 20 days to consider that. And then if we decline it, AngloGold Ashanti has 30 days to go into the market and find a buyer for that price in US Dollars cash or higher.

It also, however, has to get guarantees from the purchaser that finds one which provides for it to have to buy our share at the same price, because we have a tag-along. We don’t have to sell it. But we can elect to tag. After 30 days, if that hasn’t happened, it starts all over again.

Victor Flores - HSBC

Okay. So this may or may not happen, depending on what they decide.

Graham Shuttleworth

Exactly, and that’s, I think that’s been Mark’s consistent comment to me is that they are close to considering the sale of this. They’re not a fire sale company. We've explained to them that we’re not going to buy anything we can’t make a profit out of. So, we can’t see ourselves paying a premium on cash-flow. So, I think that one thing that we’re both committed to is treating this in a responsible way and dealing with the government in all steps and so far we’ve been okay with that.

Victor Flores - HSBC

Great. Thank you. Mark, if I could just ask one final follow-up and that goes to cost. You know that energy costs or fuel costs are still higher, or higher than they were a year ago and that’s going to have a bite on costs this year. Can you just spend a couple of minutes just talking about where you see cost pressures in general in that part of the world for yourself and for other operations.

Mark Bristow

Well Victor. There are three components in cost. Really, essentially, the Euro-Dollar exchange rate which drives, in our area, consumables in general. The higher fuel price, which directly translates into cost because we consume a lot of diesel by power generation. The one thing I might add is that at least we’ve got consistent supply of electricity, although it might be expensive. And then the third thing is grade. People always blame the first two. But the industry’s asset quality is deteriorating and it’s very easy to blame everything on these other two factors – cross factors.

We, as you know, we’ve got a grade profile. The nice thing about the underground at Yalea is that it lifts that grade profile and it will ameliorate their increasing cost per ounce going forward. Really, on fuel costs, there’s still a lot we can do as far as improving our use of it. Efficiency, we've got a SWOT team working on that right now and we've got a long supply chain. Some of it goes missing, some of it gets redistributed out of the mines. There's a whole chain of things that you can improve on. Then it's just mindset. One of the things, as you know, in Randgold Resources is we hammer hard despite the gold price to keep the focus on costs. So, when we look at like our business plan, all our pits were planned at 550 gold this last year, for this year. We used 720 to design our business plans so we tightened up on, and keep the focus on the costs and revenue lines and then once we've settled that then we run (spot).

The other big (inaudible) is he mindset of management. That you've got a high gold price and you've got more flexibility and more money to play with.

Victor Flores - HSBC

Great, thank you so much Mark.

Operator

Our final question comes from Steven Butler of Canaccord Adams. Please go ahead.

Steven Butler - Canaccord Adams

Good morning, Mark. From Toronto here, a question for you. What is roughly the euro denominated cost base for you in Mali? How much percentage of your costs are really linked to euro?

Graham Shuttleworth

Steve, hi, it's Graham here. It depends on how you look at the cost of diesel. We actually pay for our diesel in CFA so nominally it's a Euro based expenditure but obviously ultimately everything is linked back to a dollar based underlying oil price. So but roughly speaking if you take the configuration of about 60% of our costs on euro, 40% dollar. And if you strip that out and you take oil price out of it, about 35% is euro based directly

Steven Butler - Canaccord Adams

Okay.

Mark Bristow

Steve, I think that’s a good question you ask, and I, one of the things, as you know, we really look at our business and try and analyze the cost, make decisions along these decisions. One of the things we do is that, we’ve seen a very extended period of weakening dollar, whether the dollar’s going to weaken to 160 or a little bit more, relatively, it’s not a long way to go. And we’re looking all the time at different ways to manage our costs in dollar terms. And for instance, we’ve place our next two big (end sets) for the Loulo underground expansion which are due in 2009 and 2010. We’ve actually decided to take them in dollars and fix the dollar price. And we’ll manage that.

This is something we’ve managed.

We managed the Euro when it was slipping on the basis that we took a percentage of our dollar earnings and converted it into euros as we sold gold. We don’t. We never play with instruments. We just manage a little bit on cash flow and that’s sort of moves out, the spikes in the exchange rates. And we’ll continue to do that. We’ll look at it carefully.

Steven Butler - Canaccord Adams

Ok. Thank you. The next question. Just two more, I think here. The Tongon project; will you present, the NTV table, or the graph there, with the NT Vs at different discount rates. Are we talking here about 100% of the project after taxes?

Mark Bristow

After taxes…

Steven Butler - Canaccord Adams

Yes. After taxes.

Mark Bristow

And we always, you know we are a company that does pay taxes. Yes, after taxes.

Steven Butler - Canaccord Adams

Ok. That’s fine.

Mark Bristow

After taxes, and everything.

Graham Shuttleworth

Bear in mind that there is a five-yea corporate tax holiday factored in. But it’s according to the convention.

Steven Butler - Canaccord Adams

Ok. A five-year holiday?

Graham Shuttleworth

Yes.

Steven Butler - Canaccord Adams

Then they’re actually how much?

Mark Bristow

35%.

Steven Butler - Canaccord Adams

35% OK. Thank you. Last question. Guys.

Mark Bristow

Sorry Steve. Ivory Cost is slightly different to Mali in 3% Royalty Note and 6% Royalty as well.

Steven Butler - Canaccord Adams

OK. Last question, I hope, would be, you referred to at the outset. A tax hit at Morila. Can you elaborate, was it $3.5 million or some form of tax that hit the cash costs at Morila. Is that right?

Graham Shuttleworth

We have these tax audits that go back in history and it was for the period ending 2005.

Unidentified company officer

Yeah, 2004 and 2005.

Mark Bristow

Steve. It relates to non corporate tax but rather VAT and withholding taxes. And that’s why in the income statement you’ll see it sitting on the other expenses rather than in the corporate tax line.

Steven Butler - Canaccord Adams

Ok. It wasn’t in you cash cost, or was it, at the mine?

Unidentified company officer

I wouldn’t say so.

Graham Shuttleworth

Yes. It’s included in the cash costs.

Steven Butler - Canaccord Adams

At Morila?

Graham Shuttleworth

Yes.

Steven Butler - Canaccord Adams

Ok guys. I thank you very much.

Operator

Gentlemen. We have no further questions. Would you like to make some closing comments?

Mark Bristow

Again I’ll just end up by saying that if any of you guys want follow-up questions, you’re welcome to give us a call. You’ve got our contacts. If you don’t have them, just give Kathy a call or drop a note on the website. We’ll pick it up and we’ll react to it straight away. Thank you very much.

Operator

On behalf of Randgold Resources, that concludes conference. You may now disconnect your lines.

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Source: Randgold Resources Ltd. Q4 2007 Earnings Call Transcript
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