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Randgold Resources Limited (NASDAQ:GOLD)

Q2 2012 Earnings Call

August 9, 2012 11:00 AM ET

Executives

Philippe Liétard – Managing Director

Mark Bristow – CEO

Analysts

Josh Wolfson

Patrick Chidley

Martin Welsh

James Bender

Operator

Ladies and gentlemen, we’re at the Randgold Quarter Two Results International Investment Call. My name is Jane and I’ll be your coordinator today. (Operator Instructions) You may begin.

Philippe Liétard

Thank you, and hi, everyone, and welcome to you all to the quarterly review of our results. I speak to you today having just returned from a visit to MALI. Our Board meeting was held at Loulo, which it is from time to time and this was a great opportunity for the board to review in greater details the progress made at Randgold’s mentobaton center of the vast new Loulo Gounkoto complex.

On Monday we had the official opening of the Gounkoto mine in the presence of the government allegation led by the minister economy and finance. We used this occasion to have in depth discussions over several days with the senior government of ministers about the state of affairs in MALI and about the difficult situation in Northern MALI.

While we still expect the transition government to be reorganized shortly to provide a stronger unified approach to the return of democracy and to tackle the complicated northern problem, one message is very clear. The priority is not to reverse the economic progress of the past decade and to preserve the investment climate for the investors. In this context, it is a true pleasure to introduce a sparkling set of reserves to you today. Martin will shortly take you through the details of our performance in the quarter and the half-year when the sovereign state of and the group did well across the board.

This has been a time in which Randgold has had to contend with many challenges, operational, developmental, and at least, political. We are in reference with which the team has dealt firstly with the fallout from the CÔTE D’IVOIRE disputed elections and then with the MALI coup and its aftermath is a tribute to the expertise in managing risk in Africa.

And also to Randgold’s partnership philosophy, which again proved its worth. If there was one thing that the conflicting parties in both situations could agree on, it was that Randgold’s operation where key national assets we truly protected and that Randgold was a valuable partner who could be trusted to act in the best interests of the country and in an open and even handed manner.

This colial relationship was demonstrated publicly again on Monday during the Gounkoto opening. Martin remains in close touch with MALI’s interim government as well as the West African Union Ecovas. And while the country is still by no means out of the woods yet, it is definitely on the right track. We believe if people have the will and the ability to restore full stability and reinstate their democratic institutions. Continuing to foster good relations, Martin is in recent weeks also address a Democratic Republic of Congo government forum on the country’s mining code and it has also productive discussions with the newly elected and impressive-looking government in Senegal.

The latter was on the itinerary of his latest motorbike marathon for charity, which took him and his two sons through 17 countries, from Beschoff, in England, to Abidjian in CÔTE D’IVOIRE, and raised almost $600,000 for charity. Randgold’s exploration executive team joined the ride in Senegal and together, they visited all our West African operations, projects and metal targets. You can’t manage mines in Africa from the comfort of a distant head office and the result before you again attest to the effectiveness of Randgold’s policy of engagement and commitment.

I will now pass it on Mark for small but good developments. Thank you.

Mark Bristow

Thanks very much Philippe and good morning and afternoon ladies and gentlemen. We’re in London, we’ve got Graham our CFO and Paul, at Exploration relative of Communications with us and Citi partner Nicole from Europe.

Again, as usual I gave a presentation mid-day at the London Stock Exchange. It was I must say extremely well attended. We had standing reminding, to start CNGB performance in the Olympic. And we – as you can see, we had a stereotypical results a little bit, I mean, I guess reflect on these results is what’s reflecting first on the market. And one thing we have been saying for some time is, the industry is certainly struggling with trying to keep up with the latest demands from the market in our inverted commerce.

We’re seeing new flavor of the market rather the courses, the last four or five courses where we can move from the demands from the market of being large and liquid and then growth and then everything is all about producing answers. And then for a while we’ve been looking at cash cost and we’re seeing to change how we calculated and recently this being the year with all the dividend and then we’re suddenly all affect from capital discipline.

I think that – the thing that differentiates us from many of these sort of single focused events or fans is that we’ve always – and we feel that we haven’t allowed ourselves to be seduced by these demands. But rather kept our focus on performing against what we believe is a clear destination and under the guidance of a simple sustainable strategy. And that’s really kept our business.

And so, when you look at the score, I would submit to you that yet the numbers are important and as you will see and probably have seen are well in line with our guidance. And we did warn them off that these were coming. So, there shouldn’t be any surprise.

At the same time, the most important thing is this is about the trend, the way the numbers are coming out and the big driver of that is management.

Moving on to the second slide after the opening slide and I would point out that there is a detailed recording of our presentation on our website for those who want to pick it up and follow what we said in the middle of the day.

Starting out just before we get to the real numbers, we’ve worked and we’ve guided the market that we – the sustainability has always been very important to our business. And we believe that all these assets or building blocks of one’s business are coal, they’re not things we do, because we want to be complied. What we embarked down in the last couple of quarters is to take what we do and put it into the market and sign up for scrutiny from our investors on what we do.

And so, recently and now just to start with safety, we had a very good quarter on safety all our mining operations no loss from injuries. Even Kabali which is growing furiously and the growth in labor is really at the bottom end at the moment as we start project. And we could record a lower frequency rates as far as loss and injuries go. We got a bit of work to do at – we employed 3,800 people on site at the moment and loaded as it never worked before. But again the team has done extremely well.

On the environment side, we’ve – as we’ve said we were, we’ve filed with the GRI our sustainability report. We achieved a C+ plus for the first filing, which we feel is a good place to start.

We also updated our CO2 emissions through the carbon disclosure project – thanks, Graham – and with the key for that is that you’ll see that we can now bring our carbon emissions down, or at least report them, and those – we’ve recorded them over the last number of years now and we’ve – and we expect to continue with that trend over the period, as we bring in more hydrocar and we also upgrade our car plant in Loulo to heavy fuel from diesel and that also has a lower emission footprint or carbon footprint.

On the committees side, I’ve always said, the biggest single risk we manage in Africa is the social side of things and we continue to invest in our relationships and Kibali’s been a big learning curve for us and we’ve really, we’ve done well. I think the team’s done exceptionally well and it’s also our capacity to be able to manage these complex social issues on the ground. And then of course, our agricultural initiative designed around leaving a large thing negative of the mining is starting to get traction and we’ve made some excellent progress and Morila, which is going to be our mine closure in the history of the company.

Maybe on the next slide, Philips researcher nouvion patage trio routing through west Africa, through the great part of the ingrey sun, and we’re able to greatly impact a lot of special people’s lives. It also was an opportunity to showcase west Africa and remind people that you don’t always believe what you see on CNN. And that’s again, I think that for me it was an enriching experience in many ways.

If we move on to the quarter in one page, really profits up based on improved throughput in our operations and then upgrades, which drove higher profits and earnings per share. At the end of the day, it’s the ultimate run-on and that’s what it’s all about. I’ve always taken any way you measure shareholder value as on a per share basis. We cash in line quarter-on-quarter and if you look six months to date, it’s up $15 million despite our spending over the last six months, $250 million in capital. Very clearly, we are in a position where we are profitable enough to invest in our own future. Relative on quarter complex rarely one quarter for the year – for the quarter, a great achievement. And really, as in most entrances in mining, the big issue is on delivery, always management-related. And what we see in the foregone quarter is a product of the management team getting it right and us getting it right with the management team.

Tongon showed some encouraging progress. We’re a lot more comfortable with the Tongon management team. We’ve made some changes over the last quarter, again. But we believe that, that management team is on-track. And of course there are the next big step in production is our schedule for 2014 after bringing Kibali into production. And we’re happy to let you know that we’re still well on track with that project.

And then finally, we’ll touch on the expiration as we go. My intention is not to spend too much time on this but rather open it up for questions as soon as possible. These are the summary financials. They speak for themselves. I’ve been through them with you already. And the opening slide on there is really – there’s nothing there that goes against what I’ve just explained. Throughput up, production up, gold production up, cash under control and costs are starting to come down which is exactly what we forecast and the earnings per share, healthy increase quarter-over-quarter.

Looking to the operations now starting with the combined Loulo/Gounkoto complex, record quarter on a complex basis in all ways. We’ve seen a million tons processed under the mole, the new third mole came up very quickly. It’s already above design or hit nameplate. We increased the range of our forecast, recoveries were much better. We’ll net or have ups and downs on the recoveries over the next couple of quarters as we process the Yalea stuff open for all which is going to put a coffer in it, but we’ll hang around that range. Total cash cost done and I think we were – other encouraging thing is we continue to increase the resolution of our (inaudible) address in detail and also we’ve been able to expand the purple patch from some infill ground redrilling.

These are the numbers, again very clear the gray coming up nicely as you see in the three columns to the left and even six months and six months, that reinforces that recoveries improved and basically this is moving away from the deep open pits into higher quality underground. These push-backs that I referred to is a short-term push-back, it’ll be ready – it’ll be complete by early next year and – but it’s high grade and it just gives a little bit of extra flexibility.

Philippe Liétard

Yeah, push backs, that completes it (inaudible)

Mark Bristow

Yeah, production, it will all come out in the next year’s figures. So again, very good, very significant improvement in cash cost of the period, which is again what we forecast based on just improving grade.

Big – the big driver behind the Loulo improvements and thus the combined complex is the underground improvement, and that’s all around as we all know, when it’s underground mining it’s all in the development meters. And we’ve now got the development meters up to our planned rate of 1,000 meters a month at Yalea and 800 meters a month at Gara. And with that comes an opening, record opening of the ore body multiple extraction and so we’re very comfortable that we’re on track to meet our two milestones: 180,000 tons from underground by the end of the quarter, and 200,000 ton run rate by the end of the year.

And in fact, to support that July we hoisted 100,000 tons out of Yalea alone. So that’s – next slide will show you, we’ve got now really opening up the oil body but multiple available faces. We’ve even got – as we speak today we’ve got about – nearly a month of drilled reserve available. So we just need to step back into the subset and blast it. So that is way ahead of where we were just a year ago.

We’ve also worked our teams very well in delivering on our Paste Fill strategy or backfill strategy. We are scheduled to bring in the new integrated backfill plant in both operations during next year but in the meantime we’ve also developed an interim solution where we will be able to backfill some of the high grade stokes in the Yalea section vertical patch from September onwards. And that’s going to last – to be able to mine not at a full pace but actually exit some of the upper high grade stokes in the purple patch early on and not have to wait for the final backfill plot.

Moving to Gara, this is again more of the same. Gara’s a few steps behind Yalea in its development but again, we’ve now got multiple stokes open and we’ll, over the next three months, start picking up the production to be able to meet those time lines.

And this is the Loulo standalone set of numbers, again you can see very clearly that its driven by grade, the throughput is dictated by our mining rates and everything else flows through. Better recoveries, lower cash costs and overall profit from mining improving substantially.

On the exploration side we continue to explore within the Loulo permit and across the river there in the Bandeat joint venture. Looking from Kentar we’ve said over the last quarter we’ve got two that are started, looking quite interesting: one the Yalea Ridge South and the other the Iron Hill target. At the same time we continue to expand the drilling detail under the old pitched shale of Loulo 3. We’re also drilling out the Bubuto Resource and converting it to reserves. So a lot on the plate and still lots of prospectivity within the Loulo lease.

On Gounkoto another really a big difference to this time last year. Mining really we’re on top of it. The mining team has done such a good job and all around just – and I think the take away from this is it’s really – it sort of epitomizes the Randgold story in that we poured first gold in June, we paid off the capital in quarter one of this year and we passed its first maiden dividend in quarter two of $65 million. And so – and that’s what the government signed up for and that’s what we certainly signed up for. So there’s no doubt about the profitability of this project. And these are the numbers again, very clearly speak for themselves. It’s a classic set of numbers. Can’t get much better than that for a startup and ramp up in any mining company.

And still some upside in what we call a jobs done under the pits. We’ve got about a million ounce targets sitting immediately under the $1,000 pits. High grade as you see from these bore holes. We’ve got a bit of work to do beyond put it into our reserve statements. It’s all around geo tech and there’s a share zone that’s in the hanging wall and getting the grade and dilution around that and then we’ll make that decision. But the grades are between five and ten grams and the contained gold is around a million ounce.

And on the exploration side, surface exploration, again, we’re not short of targets and follow up brownfield extensions unknown – numbers – and this is a quick summary. And again, across the river and run by Gveos and we’re following (inaudible) across the river as well.

Morila, more of the same except we are starting to see that Morila is the clann and although we slowed down the operation we’ve still got about 18 months to run on the dumps, but the dumps become lower grade and then in fact we start mining mineralized waste soon. A big decision on – still paid a healthy dividend. Big decision is the final sign off on the tannings retreatment strategy. We drew up some final test work and a bit of engineering and then we should be there. And we’ve also been looking at the push back.

It’s just about 100,000 ounces, 22 month project and we’ve asked the government to look at ways where we can split the revenues because at the moment under the current legislation is heavily in favor of the government and we carry all the risk and we’ve predicted a 49/51 split of the main revenue if the government takes into thinks it’s a good idea and they’ll waive the royalties and other managed. With the finding of the preserk without us having to put money in, and there’s been a working on that. The Ministry of Mines is taking it through the CapEx and then particularly dealing with the Ministry of Finance and then we’ll see, and everyone’s aware that this is time-constrained decision.

Another sequence I’ll begin, there’s nothing new. I just pointed out there. There’s still a strong cash flow because we’ve started adjustments of $330 an hour and as we go into mining more and more we minimalize our asset and more will drop down substantially.

In Tongon, it’s a rewarding and comforting improvement of 20% quarter by quarter as far as ounces go and clear increase in three-fourths consequential decrease in total cash costs. Now mining is rarely improved, as Philippe has pointed out earlier. Last year at this time we had a real issue with the put down. We’re not quite at the level I’d like it to be, but it’s a whole lot better and managing the rain better this year. A significant improvement and more through puts. One thing we’re sure of, is that there’s still upside, significant upside, and through put and in recovery and we’ve got the plan to get it. The rate, the through put rate, (inaudible) we’ve far exceeded the nameplate. The challenge is to get the viabilities up from this charge 82s to the 90s.

And likewise with the recovery, we’ve got two steps to deal with on the recovery, additional lishilie lost, which is the (inaudible) submission this quarter-end and then just stabilizing the flashrightthens which you can see in the picture instead. And that’s sort of liking the froth layout steady. And as we get this and this upside into the circuit so that prices will stabilize and we can see the improvement as you move to the next slide.

It really is getting improvements on returns. You expect to see about 2% abosev improvements on recoveries. Going up in the next couple of months up to 90% and only viability similar line we’re currently sitting about 82, similar to the recovery. So over the next quarter and into the last quarter, we should see stepwise and prudence in the whole profitability of Tongon.

On exploration, again, we are now back in the saddle across-the-board in exploration in the Ivory Coast focusing both in some very interesting new targets around the known Tongon deposits as well as extensions to the Tongon South main ore body and in – we’ve developed some interesting targets in Boundiali. And really over the next – once we get through the rainy season, you’ll start seeing those targets being addressed and highlighted and some will make it and some won’t.

Leaving Southwest Africa across to Central Africa and Kibali, absolutely amazing achievement from the team mobilizing such a big project, keeping it on track. There’s so many things happening and we’re able to tick all the boxes as shown in this slide.

And just to make sure that you can see with your own eyes this is the sort of activity and you know whatever acts as the – more foundations going in and we should be pouring them all concretes. They already planned it. In the top left, you can see that CIL rings things fit and we have got the first terraces going on for the lay down areas and the power generation and of course the box cut and the sort of right top you’ll see the layout of the box cut.

And if you roll that up this is how we’re doing. And all I can say is that the development schedule hasn’t changed and we’re on track to be able to report our first call in 2013.

And on the exploration side, we’ve got three legacy explorations as I touched on last quarter. First one continued infill drilling and drag control drilling of the main ore body of KCD and the other reserve ore body. The ongoing inventory assessment to make sure we sign-off on the quality and quality control of the inventory of resources and reserves we bought from MOTO. And then of course the ongoing greenfield exploration, which again we’ve made some progress this quarter.

Just to wrap up, another project that’s in the evaluation stage is Massawa. You’ll see we’ve done some significant work around and on schedule as we continue to believe that this is a significant opportunity. To put it in perspective, we are the largest landholder on the crimean in Senegal. We also have the biggest resources, or the largest resources out of everyone. The big thing is we’ve got to get this project to meet our 20% internal real-rate of return at $1,000 gold. And we’ve got a bit of a way to do that.

So we need – we’ve been rating it on four fronts. First one is we’ve continued with our power initiatives. We’ve certainly got traction with the new government as Philippe alluded to. Secondly, we’ve got to spend a bit of time really understanding all what we want to bank it so that once and if we get claws on any power position, we are fully comfortable with our greater panage profile.

So we’re going to be drilling that out in a patent and testing the earth, variography of the whole body of main so that we understand and are more comfortable with the growth. And we’re going to be doing some continued metallurgical tests, particularly taking cognizance of the price and the processing parameters of the Russian-Chinese recent cost of projects as against a more North American one, which we view in our feasibility studies. And then finally of course, we continue to explore in Massawa and our other surrounding sentiments.

As usual, I sum up with a comparative against the guerillas of our industry. And I just take you back to a point in history of the start of the crisis. And you can see that we’ve certainly out-performed the majors substantially, despite some of the challenges we’ve had. And if you take out the blips for CÔTE D’IVOIRE process and the MALI process, you’re on a very healthy train. And if you compare it to the spot price out of this paradigm company that out of the big guys that have out-performed the spot gold price. And just to show you we didn’t brag, first about any time-line.

If you go just the last 12 months, again we’re the only one that’s up there with the spot gold price, despite again our challenges. And the rates of industry is a negative territory. And one always asks why. And well, I thought I’d point to the bar charts at the bottom, which is any for share normalized to quarter one, and again you’ll see we stand head and shoulders above the industry, which is comforting. And one thing I can tell you is if we do this on earnings per share or reserves per share or production per share, a similar looking number.

Already, ladies and gentlemen, that’s the game that we’re a long-term business, and management is still very committed to this business as you’ve seen. We’re passionate about what we do, and we’d be delighted to answer any questions if there are any.

Thank you very much. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Josh Wolfson. Please go ahead.

Josh Wolfson

Hey. Good morning, Mark. Congratulations on the quarter. I have a small question first. I’ll start off with that. For Morila, what are your expectations for the stockpile adjustments for the remainder of the year?

Mark Bristow

Zero. So the cash cost should stay around 800, because of the grade. But we don’t have any more stock adjustments, cause we’re moving into what we call mineralized waste, which doesn’t carry any value in our balance sheet.

Josh Wolfson

Okay. And then there were some comments about discussions with the DLC government on unifying the mining code. From your perspective at this point any changes that you see that will be forthcoming for new mining codes that’s decided upon?

Mark Bristow

Josh, again the DLC continues to surprise, certainly me. It’s 10 years on since the first mining code was signed off by the various stakeholders in the transitional initiative with the DLC. It’s a good code. It doesn’t really favor – it’s more in favor of the industry, sorry, in favor of the government. If you stack it up against the top-20 country codes that are from the countries that are endowed with natural resources or minerals. Rightfully have put us on notice to say they’re going to review us now. I think everyone says when they see a government reviews, they assume it’s going to all be negative, but they’re very open-minded.

They’re saying, can it be better? What do we need? Where are we? And we had a three-day workshop in Kinshasa. I think we’re one of the few industry players that actually made the effort to go and engage. They took us very seriously and our advice to them is we’ve seen it all around, these countries run out of chainencde. They’re all – the previous codes are grandfathered because of conventions and stability clauses and you end up with a myriad of legislation that the bureaucrats and departments can’t understand and are difficult to apply.

So our strong advice was even if it was better or worse, we would recommend that stay as it is and make sure that we improve the effectiveness of it and make it work. Because it is invaritone better written codes. There’s very little gray area. The regulations are good and it works well. So that was our advice. We spent a lot of time with the DLC players where there’s elected parliamentary groups or the cabinet itself. So we’ve got traction because we’ve actually done something that a lot of people talked about but never got round to doing.

Josh Wolfson

Okay. Well, hopefully it works out in your favor.

Mark Bristow

Josh, I’ll just point out that we have a protection in our convention, which and in fact it’s in the legislation, where we protect it for ten years after any approved legislation changes. So whatever comes out we have an opportunity to grandfather for at least 10 years.

Josh Wolfson

Okay. Moving on to Loulo for a minute. For the underground there, I guess grades were a bit lower than what we would have expected if you were mining fully from the purple patch. Is that still expected this year? Or is there some blending or sequencing that’s being done before that?

Mark Bristow

We stayed on target for our guidance is that we grow into the purple patch, we’ve cautioned the market that we won’t mine it 100%. One, it’s bad practice because you’ll rip the heart out of the ore body. And two, we wanted – we’ll only get deep into the meat of it as we have enough back fill, otherwise you’ve got to mine it in a way that we leave parts behind and we want to extract as close to 100% as possible. I think I’ll just give you a heads up. We’re guiding 4.2 for the Loulo/Guonkoto complex this year. So we’ll see a continued improvement in grade and then the upper 4 next year, lower 5 of the following year and then the upper 5s in 2015 and into the 6 or just on 6 in 2016. So you’ll see a steady improvement in the grades going forward and accurate.

Josh Wolfson

Okay. That’s it for my questions. Thanks, Mark.

Mark Bristow

Thank you, Josh.

Operator

Thank you. The next question comes from the line of Patrick Chidley. Please go ahead.

Patrick Chidley

Hello, Mark; everybody. The number was pleasing, certainly were very attractive. I think good numbers this quarter. Going forward, though, I just wanted to, the Tongon still expecting funding improvements and recovery and the plant availability to determine 70,000-ounce targets still there at the Tongon?

Mark Bristow

Probably a little below the 270, but it’s going to be I think what we’re looking at we’ll continue to beat our plans going forward. It’s just trying to catch up the first quarter is going to be a little difficult. But the flip side is we’ve got more upside on Loulo/Gounkoto then our guidance, and we’re saying a little bit with Morila. So on balance we’re sitting at mid-range of our range, as we were in the beginning of the year, and we’re comfortable with the cash guidance of 650. So a bit of strings in a roundabouts, but nothing – as far as we’re concerned in turn we’re paying on what we call projects you know?

Patrick Chidley

And in total, just to remember it’s 830? Is it 35 now?

Mark Bristow

A little higher than that. The mid-range is – the range is 825 to 865. In fact the midpoint.

Patrick Chidley

Got it. Okay. And then I guess the question that was asked your feelings on the status of the MALI government and what might happen in terms of dealing with the problems in the North? And also whether they’ve an election due at some point so to kind of bed down what is now the government?

Mark Bristow

Yeah, I think Philippe touched on it very clearly, and I think our view, the market sees Fox and MALI and we work very hard to try and take it away. We get a lot of credit for sometimes things we don’t do. The market, there’s no conflict in MALI as far as industry and the government, or the authorities and the population.

The fact of the matter in quick summary is in March we saw the previous government that was in power lose its political mandates. You can – people are always quick to say CÔTE D’IVOIRE but it was – the bottom line is it lost its mandate. And the consequence of that was – and there was a void there and you – if you look across the globe, there’s no other better example of how a country dealt with such a significant loss of mandates. And very quickly it was restored to constitutional rule with an interim government with the help of ecoices put in place. I mean the United Nations and African Union were far away. Right.

And so it happened very quickly and then there was a rethink because the people on reflection started feeling that, that interim government wasn’t representative enough to establish a new political mandate, which would be the elections that have to be done in the next year or so. So there’s a lot of attention put into broadening the base of the interim government and making it more representative, but I must say that ecoices played a big role in it. That’s one side of the problem.

The other side of the problem is the military issue that Philippe referred to and that’s a direct result of the international community and certainly an unintended results, but it’s a direct result of the international community running over Saddam Hussein. I mean stop telling his name there – Gaddafi. And that disposed a whole lot of fighters and radical people who were tied up in that conflict into the sort of Saharan box, which is the sandpit for drugs and thugs and bandits. It’s always been. And they – and so consequently, unfortunately, there was this constitutional crisis in the country and so they’ve tallied up with the Tuories who have always had a beef with wanting to be on their own. But very quickly, the Tuories may well have distanced themselves from these people who are ill, radicals.

There’s been significant progress on a diplomatic solution to bring the Tuories into the MALI structure and perhaps create a sort of Quebec solution for them so they have some identify. That’s already freed up the opportunity to use military force to deal with the other guys, and you can see that the French Minister of Defense recently said they’re up for the job; the Americans have made all the right noises. The Malians really want to lead us, so they understand they don’t have the capacity to really run the whole show, but they feel that as MALI is a MALI issue, if some strangers with weird ideas encroaching on their sovereign territory and they don’t want to deal with us.

So I think once we – and we expecting the interim government, the new interim government sort of settlements to be announced in days and then once that’s happened, we’ll see people focus in on the military issue. But I think certainly the Western commentary gets those two confused and they’re one, very far apart. And when only – in fact, we see of the Northern conflicts in where we operate is the rabble of refugees in some of the villages in this. So no, there’s certainly no – we haven’t seen any hardened risk. People talk about risk. I’m not sure I describe that as risk.

Patrick Chidley

Right, right. So...

Mark Bristow

I believe that working in Tanzania with the hostility we see between government and industry is a lot more risky than working in MALI, where we’re completely aligned with the people in what we do.

Patrick Chidley

Oh, okay. You’re working in Tanzania now?

Mark Bristow

I’m just making a point.

Patrick Chidley

Oh, okay. Just – so there is a fair chance in the next sort of few months or the next 12 months, we could see some headbands, military action out there in the North?

Mark Bristow

I think everyone’s saying that, the Americans, the French and the Malians themselves.

Patrick Chidley

Okay. (inaudible) And then a quick operating question going to the second half, I know you’ve been a couple of questions of rather, but what going to be the mix in the second half at Loulo in terms of production from Guonkoto, Yalea cut back into that?

Mark Bristow

Yeah, we’re looking at – we’re going to grow – if you look at our guidance, there’s 500,000 ounces, so do the math. As a mine, we’ll – we’ve got much better throughput, as you’ve seen in this quarter. We’re going to improve on our grades, and so if you look – looking quarterly, quarter 1, quarter 2, we all continue – we’re going to average out at 4.2 grams for the year, so again we had – started off on low grade in the first quarter, so I think – and the back of that is going to be continued improvements of tons out of the underground.

We’ve got the flexibility that this Yalea South brings as far as the push back goes and as Graham says, next three quarters or four quarters. And then I’ve got CÔTE D’IVOIRE, a little skinny patch at the moment with a penso and then we get back into higher grades and quick tonnage. So as we stand at the moment, we’re looking okay to get to our guidance by year-end, and in fact, if it all works out, we could beat it.

Martin Welsh

I mean, on balance, Patrick here, we said we thought it would be about 50/50 on Guonkoto. It might be slightly more Guonkoto and in that mix.

Mark Bristow

60/40 at the moment. We’d like to get back to sort of the 50/50s and then eventually by year-end next year sort of two-thirds/a third, which is line with the way the reserves balance. But we say on Guonkoto without running it into the ground because we’re in this tax holiday, and it’s good for us and good for the government because they get better preferred dividends.

Patrick Chidley

So it’s one year for Guonkoto and then next year maybe back to Loulo and...

Mark Bristow

If we’re going to have product good back in from Loulo as well. The Loulo guys aren’t going to let Guonkoto beat them.

Patrick Chidley

And the material from the actual – the contract at Yalea, is that going to go through as planned in the second half?

Mark Bristow

It started already a little bit. We’re still struggling a bit. It’s very oxidized. It’s the rainy season. So we’ll feed it as best we can as we go, and we’ve got to also manage the quantity we put in the plant because it’s high copper oxide, which sucks our cyanide. So we can’t put too much of it. We have to blend it slowly to keep our recoveries up but sort of up in the 80s.

Patrick Chidley

Got it. Okay. Good enough. Thanks very much.

Operator

Your next question comes from the line of Howie. Please go ahead.

Unidentified Analyst

Hi, Mark.

Mark Bristow

How’s it going?

Unidentified Analyst

I’ve got two balance sheet questions and then two arithmetic questions, which I don’t understand. On your balance sheet year-over-year your gross plant is up about $400 million. Is that all Kibali?

Mark Bristow

Say that again, Howie ? Up, what?

Unidentified Analyst

Your gross plant and equipment.

Mark Bristow

Yes.

Unidentified Analyst

Is $400 million bigger now than it was 12 months ago. Is that all Kibali?

Mark Bristow

No. It’s Kibali and the development in the underground mines at Guonkoto and Yalea but those make up the majority.

Unidentified Analyst

Okay. And the large receivable at the end of the quarter, is that just cause you had some sales near quarter end?

Mark Bristow

Absolutely.

Martin Welsh

Yeah.

Mark Bristow

Clearly, we had some.

Martin Welsh

And we will discuss this – there’s a new accounting entry there, Howie, related to this priority dividend at Guonkoto where we raise a receivable and a corresponding liability in respect of the government’s 10% share. So there’s $27million on both sides of the balance sheet there, which when we pay the dividend and that reduces by the amount we pay out, so in July we paid a $65 million dividend $13 million of that related to the state. So that $27 million reduces by $13 million, and then builds up as we accrue profits at Guonkoto.

Unidentified Analyst

Okay. The only thing I don’t understand is at Loulo, or Guonkoto, either one, if one takes tons times grade, the change in production year-over-year is substantially different, one favorably, one unfavorably. What am I missing?

Mark Bristow

If there is any slight variation, it’s lockup, because we don’t try and boast production of gold in the lockup.

Unidentified Analyst

No. It’s not slide-in. It’s my referencing. For example, in Loulo your tons increased by about 25% and your grade increased by about 50%. But your ounces produced dropped by 40%. So what am I missing year-against-year, 38,000 against 66,000?

Mark Bristow

Yeah, but your terms struck from 870,000 tons to 296,000 tons.

Unidentified Analyst

I was looking at mining, tons mined.

Mark Bristow

Then you’ve got to go to tons processed. You’ve got to go tons grade, tons recovery, Howie. We’re not in university to do that to grade.

Unidentified Analyst

That’s where I errored in both cases. Okay. Thanks.

Mark Bristow

Okay. You had me worried for a moment there, Howie.

Unidentified Analyst

No. We’re done. I’ll go back to grade one.

Mark Bristow

Just ask somebody else to do it for you. You’ve got lots of bankers in New York.

Unidentified Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of James Bender. Please go ahead.

James Bender

Hello, everyone. I just have a quick question. Most of my other questions have been answered. It’s for the CapEx guidance, does that maintain for the year?

Mark Bristow

Yes. It’s maintained for the year, and we’re working on improving the underground capital profile as we really get stuck in the development. What we’ve agreed on the first year is that we’ve got to develop every level as strike draws and purple and restraw. But as we get comfortable with the mining, we’ll start looking at dropping the footwell draws every couple of levels. So there’s some flexibility on the capital. But at this stage, we’re playing on target. And most important, the Kibali capital-spend is exactly on budget. So we expect to spend at our full cost.

James Bender

Perfect. And just to confirm, for the Loulo-Guonkoto complex for 2012, you had a 60/40 split on Guonkoto, 60% and Loulo, 40% in by next year. Around 50/50?

Mark Bristow

Yeah, next year – well, we’re going 60/40 this year. We’ll probably just end up somewhere between that.

James Bender

Okay.

Mark Bristow

And then next year we’ll do similar in the first half and it will flip in the second half. And then we’ll be down to two-thirds, Loulo, one-third, Guonkoto. That’s the ratio of the reserves going forward.

James Bender

Okay. Okay. That’s it for me.

Mark Bristow

I think I’ll just add to that, that we’ve come to the end of the capital. So we’ve put a line under construction capital at both Tongon and at Guonkoto. So we’ve closed off the capital program. Any capital going forward is now sustaining capital. So for the people’s record.

James Bender

Thanks.

Operator

Thank you. (Operator Instructions) There are no more questions coming through.

Mark Bristow

Thanks, guys, and thank you, everyone. Thanks again for your time. And again, as usual we’re always on the end of a phone or e-mail should there be additional questions or requests for more clarification. We’re available to have a chat with you or just follow up telephonically. Thanks very much.

Operator

Thank you for joining today’s call. You may now replace your handset.

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