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Randgold Resources Limited (NASDAQ:GOLD)

Q3 2012 Earnings Call

November 7, 2012 11:00 AM ET

Executives

Philippe Liétard – Managing Director

Mark Bristow – CEO

Analysts

Patrick Chidley – HSBC

Martin – Westwood Investment Advisors

James Bender – Scotiabank

Operator

Good day, ladies and gentlemen, and welcome to the Randgold Q3 Results International Investment Call. My name is James, and I will be your coordinator for today’s conference. For the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. (Operator Instructions)

I will now hand over to Mr. Philippe Liétard to begin today’s conference. Thank you.

Philippe Liétard

Thank you, James, and good day, everyone, and welcome again to our quarterly presentation. And a special good morning to our U.S.-based participants, who may have been spending a good part of the night in front of their television set.

It has been another very busy quarter for Randgold Resources. And one of many challenges is the team not only developing the largest project it has ever undertaken, at Kibali, but also continuing to implement the actions undertaken in the previous quarters to address the challenges presented by a multi-mine business operating in emerging countries.

Despite these calls on management time and attention, Randgold remains very conscious of its duty to keep the market fully informed of the company’s progress, prospects and problems. We have a very comprehensive investor relations program based on the timely and full and transparent communication of all relevant information.

And as you know, Mark and his team talk to shareholders on a regular basis and are always available to answer their questions. We are now expanding that program through the introduction in this fall quarter of a series of investor days in New York, Toronto and London.

At these events, Mark and senior members of management will make in-depth presentation of each aspect of Randgold’s business, providing an insight into how the company is run, updates on the operations and a look at the roll ahead.

The New York investor day will be held on Wednesday, November 28, followed by Toronto on Friday, November 30th, and London on Monday, December 3rd. Please get in touch with us, if you would like to attend any of these. And I look forward to meeting some of you, again, in New York later this month.

And, with that, I will thank you again for your interest in our company. And I will hand you over to Mark for his review of the third quarter. Thank you.

Mark Bristow

Thanks, Philippe, and good morning and good afternoon, ladies and gentlemen. As you know, we gave a presentation at the London Stock Exchange at lunchtime. And so the objective of this is to quickly run through our presentation. It’s – for those of you who are logged in, it’s on the screen. And then the full webcast is available on our website for those who want to replay it or follow the detail that was presented.

I’ll kick it off – I just thought I’d start by reinforcing the fact that Randgold’s core principles on – should benefit from its activities and belief that this applies specifically to developing and mining assets in Africa and, more generally, in fact, it’s applicable to emerging markets across the globe.

I think, as Philippe has alluded to, Randgold has always had its thoughts clearly focused on value creation and to build a sustainably profitable business. And I think that again, this quarter, you will see very specific progress with that plan. While the quarter itself was something of a mixed bag, I think without a doubt, we intend to share with you the positives outweigh the negatives. And as I pointed out, we continue to lay the foundations for our further growth.

We are very well placed to end the year strongly as we forecast. And again, I’ll take you through the fact that despite for some of the analysts this result is a surprise as we’ve heard through the last couple of hours.

We just guide much of this last quarter and then, the other point that we’ve decided on the back of various criticisms with various management teams. And to ensure that we are well prepared for our events today is that we’ve with the U.S. budgeting at the moment.

And we’re very committed to ensure that our shareholders as we’ve always got have the full information. And so we’ve decided today to guide the market with an update looking out to 2016, just to put it in perspective. And I’ll say the better time on that as we go forward.

The next slide is really a reference to our EHS reporting. I think I need to reinforce that we see this as an integral part of our business. We believe if you work safely and you pay attention to your environmental impact at least a better business. And we made a lot of progress in many fronts on our initiatives. I’ll start with the negatives and that the lost-time injury frequency, lost-time injuries at Kibali and we had three – two at Loulo and one at Gounkoto. And it’s worth pointing out that most of it was not directly related to our business, although they were incidental to our business.

Kibali is a key focus site for us and we now have about 4500 people working on sites and lot of them have never worked before and we are experiencing this program on a very big safety and this program is going – so the frequency rate is not bad but the number of frequencies is what we focus on. Why, because if you look at the performance again at Morila and Tongon, we now have three successive quarters without any lost-time injury and that’s our target. And those two operations prove that it can be done.

On the positive side, the Tongon achieved its OHSAS18001 certification and we also were able to reduce our malaria incident rates, which is key for us, both as community project and also directly impacting on our worker absenteeism. And at the same time there were no major environmental incidents. Tongon were certified with its environment ISO14001 and Morila re-certified, achieved a re-certification as well.

Improved water management at Tongon and Loulo resulted in a 41% and 84% reduction in fresh water abstraction, which is also important growth as far as environmental, and water permits go and also just being more efficient with – in our business.

A quick summary of the highlights on the quarter in the slide three and that is, I think we spent a large part today dealing with the explaining the difference between the results and certainly coming off a very strong quarter of last quarter where we broke all records. This quarter we suffered a bit from that comparison.

So, all profits and production were up were in line with the comparable quarter in 2011, they were down on the second quarter of this year. I need to explain why and I will do that in the numbers in the next slide.

I think the key one is that we had launched all the gold by the end of the quarter. Our refinery was busy with the big orders and ask for a delay in the last ownership hence towards the end of the quarter. And that is in and up was about $33 million of gold being left in the gold bar across the group.

On operational highlight side, a very strong performance by Loulo underground mines, both of them, which we are now very comfortable with and we’ve seen a steady progress at the Kibali project, which remains on track for its first gold in 2011. And – sorry – 2013 that was a slip – to repot gold in December 2013. Gounkoto declared its second dividend and MALI also declared another dividend. And realistically gets some color and make progress on the Gounkoto underground, which I’ll cover and then the lower light of course was Congo underperformance as we continue to address the power of availability issues of the miners we did share with the market last quarter.

These are the numbers which as I indicated are generally flat. If you look at the numbers that they are and I’ll take you through them quickly. If you look at – if you just look at the gold sales and in going on to the gold on hand normally we have about $78 million of gold on hand at the end of the quarter as you can see on those numbers.

So about $28 million, $27 million of extra revenue on the gold sale side if we have shipped the gold and $8 million of net earnings deferred. So that’s the first pay change which should make the numbers look a lot different.

Same is if you look at our income statement, there was an extra 10 million depreciation charge this quarter that’s part of the left out push back and that is we disclosed in some detail last quarter and its – and again, we’ve done the same calculation this quarter and its – it will be amortized over last quarter this quarter and for the one of next year.

And then there was an increase in $3 million in tax which is a product of Gounkoto’s performance I mean recreation product of Loulo’s excellent performance and the balancing between Gounkoto and Loulo’s production ways. Gounkoto is in tax holiday and Loulo is in tax. So if you add those numbers obviously you see a slightly different picture. Of course, then we have the impact of the higher costs really driven by lower grade proceeds at Gounkoto and being that we really achieved a significantly more than our nameplate design in the move expansion.

And we set a medium price about 180,000 tons of it during the quarter. We still met our budget of 130,000 ounces. And but the grades with a low medium grade ore play does came down at 3.5 grams. And that of course has an impact on cash cost. As I will tell you lighter key per ounces that you actually know we’ve processed all the ore mines at Loulo and we were able to make sure that we continue to catch up on this strip at Gounkoto.

The other key points that – we view as this point you to the nine months and nine months which really hardens the growth and keep and reinforces the delivery that we’ve promised in folding our production profile and delivering on our profitability promise.

I’m turning now specifically to operations, as I pointed out Loulo/Gounkoto complex – had a very strong operational performance this quarter, further increase in plant throughput, we now – we average 385,000 tons a month for the quarter, substantially above our targets.

If you will recall, we talked about spending two additional phases of capital to lift it first to the 375 and then again to the 420 level. We are already there with two years ahead of that plan and the big fact of ours to make sure that we can keep that product – that throughput and also look at improving on the efficiencies around that. The right action and rate I will cover and I will pick it up again and cutter and the shipments, a large part of the shipment, gold shipment that missed the end of the quarter was at Loulo.

This is just the graph I was sharing with you earlier that is if you look at the mould blue and gold in your graph, you will see that over the three quarters we’ve pretty well processed all the times that we’ve mined and that is key for us.

We did again guide the market last quarter that that’s our intention. Our intention is where we can avoid if we don’t want to build significant stock piles that will only process later and it has a positive impact on cash cost but it really ties up capital and we are very focused in making sure that we are freeing up our capital at all times. And the last graph and a good quarter really illustrates they are catching up on the tonnes mines through the prices by processing of a large amount of tonnage from the medium grade stockpiled we’ve built up through the quarter.

Moving to the next slide, these are the numbers. Again I pretty well explained all of them some moved over them to the detail and so next slide really moving on to Loulo mines specifically that’s really I just say that’s the introduction Loulo a very good quarter, 78% increased in production quarter-on-quarter, total cash cost down. We hit all our targets for development both at Gara and at Yalea this quarter and tonnes processed from the Loulo mine in the complex increase by some 84%, a large amount of that was from the underground mines.

Moving on to the next slide, again we made very good progress as I pointed out from the underground development. We’ve also have finalized our final mine plan design and so you will recall it after unexpected, we have increased it, we expand – we would put in maximum capital for the next 18 months as we, you know, developed the Paste backfill strategy. We’re not comfortable. In fact, we’ve started backfill infill the stopes using cap which is a – it is a truck transported backfill. It’s good practice for us. And we’re scheduled to complete the tight backfill installations towards the end of next year.

So we will be the planers that once we’ve got the backfill commissioned we will move from twin development drafts of ore and footwell to every 25 meters to a – every level of ore draft and then every fourth level and footwell draft. And the spiral declines allow us to limit the back to 200 meters and we will develop out 200 meters and then we’ll treat mine. And particularly in the purple patch we developed to extract most of the orebody which is objective.

The net result of this design is over the long term the mine will see a reduction in capital developments all those footwell or weight development. A lot more development in the ore and although, that will have an impact on our operating cost it will reduce the overall capital costs on a local mine basis.

If we move to the next slide, Gara, the same – Gara is slightly behind Yalea which is now achieved for two months in a row 120,000 tons a month and the first month and we had another good month in October. Gara, we’ve now – the bottleneck was cleaning up on the ventilation and also finalizing the design for the flatter dips, the flatter recoveries. We’ve done that and with the increased development rates, we’re still comfortable that we’ll achieve our target of delivering 200,000 tons a month of ore from the two mines. And we’re not far off that really as we speak.

And the layout, Gara will follow the same as what I’ve just explained for Yalea. On a standalone basis, all this summary is – summarized in a numbers that I’ve explained. If you look at these results all the arrows in the right direction. It in line with our strategy again, which we shared with you last quarter of growing the contribution of Loulo in the complex with a target of getting off to this – the right ratios between that was set by the reserves of Gounkoto and Loulo. And with that throughout 60-40 by year-end next year.

We’ll still continue to prefer Gounkoto slightly, as we mine out the tax holiday, which ends in June. At the same time, we’re cognizant of the fact that we also need to continue to build the – and capital development of the underground at Loulo. And also to start paying back the capital, which is really sets in the Loulo structure.

So we’re just waiting for the slide to move on, but I’ll start talking anyway. The next slide is all about the Loulo Yalea underground upside. We’ve done a lot more work on the detailed infill drilling as part of our grade control drilling in the underground and particularly around the purple patch, as we start to exit this.

And we – there is every indication that we’re going to be able to add some extensions to the purple patch, which is good for ounces, as we get to the point where we start making our annual reserve statements.

Furthermore, deep hole drilled below the current and this was a block model and intersected a high grade zone in the whole structure. This again is a target that we’ll be following up over the next couple of quarters.

On the Greater Loulo permit area, in addition to the known deposits, a number of targets have been progressed. You know we’ve been talking a lot about the Loulo 3 project and, notably, Baboto South that we’ve recently completed indicated drilling program.

We’ve got 150,000 ounces at about 3.4 grams in the $1,000 an ounce pit shell. And there is plenty of opportunity along the stock as well as in that particular structure that hosts the Baboto North and the Central deposits as well.

Moving south, Gounkoto also had a solid quarter. As I explained earlier, the flexibility of the multi-mine operation allowed us to reduce the tonnes mined and supplement this with stockpile material, which obviously impacted on production but was replaced by the higher ore out of Yalea and Gara and that have an impact on the Gounkoto granite costs. Notwithstanding that, we were able to pay our second dividend out of Gounkoto, which effectively covered all the profits that we declared in 2011. And which is – but good for us and also the Gounkoto body has 20% shareholder in the mine, which is, as you know, we have been going through a tough time off late. And that’s the whole rationale for our negotiations with Gounkoto trading of the two year tax holiday for the quarter and put the capital into Loulo because we got quick returns. We all benefit from cash there at the same time we had a tax holiday.

And the standalone results really bear what I have been saying and clearly show the effect of blending the stockpile material at 2.8 grams.

On the next slide, I think one thing I wanted to share with you that we proud ourselves as – operation and every three years we have them independently reviewed and this is the result of our reconciliation of the actuals with the original resource model and the grade control block model, which build on our business plan on for the quarter.

And you will see that recons are very close within the couple of percent, which is extremely good when you reconcile it back all the way back to the original resource model. And so – and that’s key for us in all our assets and again we recently done the similar job at Kibali and again that work with sign off with the lot of credit I might add to Rod Quick and his team, who control our grand and delineation work on the mine.

Moving on then, we also make good progress with – as I mentioned with Gounkoto underground and we’ve comfortable about the million ounce plus targets. It’s – we’re also completed all the preliminary geo tech work, which confirm no fatal flaws, which allows us to get ahead. We are a bit worry about one of the same old structures, so we had worked on it and everyone feels that we’ll be able to design a mining extraction strategy that will stand up, very similar to the mine design – to some of the design at Kibali.

It’s just relatively small volume with lot of gold – not dissimilar, I don’t know it’s small count is a terrible attraction and the plan is that we’ll complete the three feasibility strategy along with install drilling to convert the reserve before we go out to say, the annual report in March and we’ll follow that with the final feasibility by the end of year, it’s subject to results of course will be ready to start the declines in 2014.

Moving on then around the Gounkoto furnace, we’ve got a slot of inferred materials in settled out pits so almost 400,000 ounces of inferred material and a number of 85 at various levels at our resource triangle and what we’ve been working on again as we talk last quarter we’ve not started the program of conducting a grand IP survey with the objective of mapping out the structural corridor from Gounkoto, Yalea and Gara.

This major structural continuity is covered in many places by lithium and aluminum from the Falémé Rive and again we’ve seen was some detail geophysics we are not only able to pick up the structure but also isolate the left hand flexures in the host structures which is you know, and of which we are able to model to take some tracks for gold mineralization. So that’s our focus in this particular area for the next field season.

As I pointed out earlier, we are currently working on our budgets for 2013 and we’ll definitely be publishing in details updates of our annual five year guidance earlier in 2013 as discussed.

But we have the preliminary look at the gaze we plan to do that for each project have been consolidated with the hands up on cost and grade at the end of this presentation and I think and sure completing improvements in the production profile. We expect that this will be offset slightly by higher cost in 2013 whereas I have mentioned earlier we’ll be moving some, the relevant cost into the operating category, also we have a delay of the heavy fuel power projects, which is not only expected to be commissioned in the second half of next year and of course the general input cost variations particularly cyanide that we’ve experienced in recent times, all that adding – will add to the cost.

But on the production side, a much smoother build-up than we’ve previously guided and also slightly better production growth over that period.

Over now to Morila, which certainly just keeps going beating its plan by a significant margin last quarter. We’ve started mining mineralized waste material that the gray still is reasonably half of mineralized rates and it just points to the point I made earlier and that we can start trying to split high grade and medium and lower grade from an oil body and you always get it wrong on the bottom end of the split and that’s what we are living on today.

We are punching ahead with the push back we’ve talked about a couple of quarters ago and we’ve now at a point where we’ve engaged with governments on looking at ways to deliver on this plan and the plan is that we are working with government to get sing off from them and then we will be seeking approval from the Morila performance with the plan of getting that done before the end of the year, so we can include it in our guidance.

These are the results for Morila. Again they speak for themselves and despite the lower grade, we’ve been able to post a lower cost of mix, point of more as pointed you to and Morila. And we that is and the reason to lower cost is that we no longer put through stockpile adjustments as we start mining the mineralized waste, waste which is not accounted for in our balance sheet.

This is the five year full cost for Morila and the blue bars and trading 14 and 15 are showed impact of the pit 4 pushback. You will see that Morila like here the Loulo on presentation is full costing to beat its guidance for trading 12. And then it will be on guidance for the rest that the lastly or slightly Bandeat as we – if we bringing in the pushback.

Cost got similar to previous guidance. So maybe on then to Tongon Ivory Coast, we talked about Loulo and Tongon that they were some hard the most important thing and improvement in plant availability. We’ve picked the plant availability up from 80 to 85 and throughput is now significantly above design and we still got 5% availability to capitalize us.

This enables us to maintain the gold production in line with last quarter. This bought the construction cost by the frequent and the good cost supply and the commensurate impact on our ability to keep the plant steady and deliver on the full results of the work we’ve been doing on the plate circuit. We have about just on the recovery – just recently commissioned the oxygen plant as started last quarter so we’re going to see an improvement in the oxygenation. And at the same time, we’ve been busy with commissioning the five sandpits that we talked about as I told you that we’ve ordered last quarter with the primary objective of be able to oscillate the key gold producing parts of the circuit put it on diesel power. So that we can really start working on settling it down because these constant production is not only affecting the stability of the products but also start damaging some of the more delicate equipment.

And what we’ve gotten at the mine is then that happens and certainly we’ve seen a lot of return when you get behind on these things and then you start losing focus on maintenance you can really start sort of fighting fires. And what we’ve done to stabilize the operation and we’ve been doing this for the last 2.5 months is very setting we have changed a few managers out to make sure we’ve got some additional West African experience in the team. And we’ve allocated some of our coal Coucal versus to the mine to support the re-planning and management of the dynamics in the operations.

These are the numbers from Tongon which as I pointed out it could have been better but should be seen in the context of challenging circumstances. The lower grades is part of the mining plant we’re just getting into the higher grade ore and this is a result of the delays we had experienced in mining. Last rainy reason, we’ve been catching up on that. I think costs are impacted by one, the lower grades exasperated by the poor recovery. And then we’ve affected we’ve burnt more diesel running our backup car plant.

None of these things are material to our valuation or our longer plan and we’re pretty comfortable we understand what needs to be done. We are working with our board in electricity supply commission as well as the government the ministry of mines and energy to address some of the shortcomings in the grid.

We’re not really suffering from capacity in the grid, what we’re suffering from is distribution and infrastructure limitations. One can understand as the result of four or five years of no investments in the infrastructure. And we noted, you don’t see the impact of these counter-options when it’s domestic demand and certainly industrial demand highlights the shortcoming.

The governments of Cote d’Ivoire also investing in this fairly significant investment plan of $800 million to both upgrade the infrastructure and also to expand the gas turbine capacity in the main power units. So – and we’re in conversation with them. We’re pretty comfortable that we’ll be able to get to the point where we back on the plan of drawing 98% of our power from the grid around mid-year next year.

Moving on to the next slide, story of Tongon infill drilling and converting, we talked drilling out in third resources for conversion to reserve within the $1000 pet shell of the Tongon south project and we are quite far advanced in this in every indication we are about to contribute to additional reserves. And at the same time we also picked up some additional mineralization in the South of (inaudible) in the red circle. You can see that we had a number of significant interactions. And we are quite excited, big truck zone not protected in the original exploration drilling. And so we’ve got a fair work to do, prove continuity and be absolutely sure that it’s a potential extension and we plan to do that after this current quarter.

Obviously on the purpose, we are really focused on validating a number of field observations during the rainy season and in particular focusing in on some of the near mine targets, particularly Coucal and Coucal South to sign on this plan and you will see that we’ve recently got – we still got some outstanding drill core data coming in but we’ve certainly thought gained first lot of results and we have shown that, interesting numbers coming out at an early time – at an early stage.

The production for Tongon, as you will see if you read our quarterly for today, we have guided the market toward the bottom end of our guidance and this is largely a product of the underperformance of Tongon as shown here for 2012 ameliorated by a full cost beat on both the other – all three of the other operations.

Looking further ahead, however, we’re confident that as we bend down the operation Tongon will get back to our plan certainly by year end and we’ll be able to deliver on the full cost going forward. With some impact on cost as we discussed earlier, the biggest one being, we got a – still we’ve invest a little bit more on the strip in 2013 just to make sure we remain flexible, because we are acutely aware that the processing plant once they settle, it’ll be demanding more ore, certainly have capacity to process more ore.

And so we’re – the big thing is to get the power settled and also to ensure that we fixed all the availabilities and addressed all the impacts of some of the last three months of power interruption.

With cost bar returning to normality, we – as you know we went into the fields just before the rainy season on our projects across the country. We’ve had a good three months of reflection and re-prioritization of the targets that we got a good plan to begin and geologist are moving back into the field now to – for the first field season since the crisis.

On to Kibali and the DRC, and also the updates on the project, as I pointed out in my introduction we continue steady progress, all key contracts have now been awarded, the bulk for the plants are in place. We are very busy with matt contracting, the concrete foundations for the first GIO fence have been completed and steel works begun and as we speak, you would have seen also in the press that two big moulds are on their way from us.

The revamp program is making good progress with 1,000 family marks during the quarter and we are currently completing about 45 houses a week which is what we plan to do. Capital expenditure for the project remains in line with previous guidance. These is slight skidding of the cash flows which we did indicate to the market and our shareholders when we first pointed out as we’ve got comfortable with our cash flowing of the expenditure, plus the quantum remains within guidance.

And we are nine months into the project now and we are – there is lot of critical part analysis, but I am particularly proud of the performance of our capital team, which as you know has got quite a lot of experience in dealing with this.

Just some pictures for you, the top left being the box cut which we started now. We’ve awarded the development project to being cut out of Australia. On the right, the foundations for the MOTO, on the bottom right are the steel work for the first line of conveyers and connection to the crushes and on the left bottom is the steel work coming up for the first number of CIL things.

While our capital team is – as value demand, we have Kibali, we have an importance of adding more value to our capital and what – when we launched Kibali, we were pointing the fact that, this project is a big capital project but at the same time there are lots of potential. And recent work has really highlighted the opportunity to covert about 1 million ounces, we believe, for inferred to indicated resources and ultimately reserves, 0.5 million on the extension of the 5,000 level, we’ve got good mineralization down there, we need always fullest. And 0.5 million ounce from a gap in the drilling right in the middle of the 9,000 level where we’re mining above, we’ve got lots of data in the gap that we need to inform and convert into indicated.

We’re also making steady progress in reviewing the inventory we acquired from Moto with Kibali and we expect to complete this, this year as planned. And at the same time the work on our greenfields – with our – of our greenfields teams is looking at targets further fueled and particularly in the eastern part of the lead area.

And we’re going to that – we’ve got opportunity to covert inventory from resources to reserves. We’re all on the western side. We already – you see all the stars and drive extensions to the current deposits that where we’re going to find the big ones is out there where very little exploration has happened certainly since the Belgium tops.

Staying with project, so let me just update you on Senegal. Massawa still is one of Africa’s biggest undeveloped gold projects. We are now implementing what we guided to last quarter. That’s we’ve got a number of new targets that we’re following up.

We also have implemented a very detailed grade evaluating drilling program on the orebody itself to ensure that we can model the barrier grams of the hard grade lenses in the orebody properly and accurately. Then we’ve launched further metallurgical test work with the indication of going to a planned scale test during 2013.

We believe that we will be able to complete a feasibility level study on the project by the middle of 2014. And we believe that whichever way you look at it, we are going to be continuing to add value on core Massawa, and also any additional exploration success would just add significant value to the work that we’ve done.

Completing the operational overview at this preliminary update, as I mentioned, our five-year forecast, as I’ve already indicated, will be further refined before we publish the official forecast in January. But we’ve done this to ensure we keep the market appraised of how we’re managing our business.

You’ll see that there is a general increase in the gold production profile. We’re still well on track to achieve the 1.2 million ounce milestone in 2015. We still show the growth being driven by increase in grades going forward. And despite a slightly softer decrease in the cost but still targeting make some current input costs $550 around 2013 or at 2013 when we break out our target of 1.2 million ounces.

I think that’s important to put this in context with new gold supply versus the gold price on the next slide. And this is worlds gold supply mining and recycle gold and mining being the gold bars.

And as I’ve pointed out before to the market the industry is effectively has crossed and certainly the stress we see coming out of South Africa is not going to help this profile and also we’re noting that we have seen a reduction in production out of the USA, Peru, Argentina and Indonesia on a year-over-year basis.

And I’ve taken the chance to point out that if you had Ghana close to MALI, Tanzania DRC’s production going forward, in a couple of years they are going to be producing significantly more than South Africa and that really highlights the significance of where we invented in the – and the phosphate utility that of the regions we’ve selected to operate in.

As its customary the next slide is really – is our customary conversion of our share price and see that we continue to retain our plate uptake with the leaders of the pack in the industry.

In conclusion, I thought it would be worth while spending a little time reflecting on the latest debate around the Municipal African Government to change mining curves and consider intuitive additional taxes. I think key to this debate is the risk to the long-term sustainability of the resource industry and its ability to contribute to job creation and economic development in the countries. And it’s only taking us the mine intention that there are many strength orders with interest in the countries natural resources. But it’s really the key stakeholders are that partnership between industry government and labor.

And that really decides the difference between success or failures we’ve seen so explicitly in the latest development in the South Africa. It’s no doubt a complex issue and we have and we will continue to engage in the debate both directly with governments and other stakeholders and you will see that we are very committed to that. And it’s being able to ensure that we as an industry and Randgold in particular continue to be able to convince the politicians of the merits and benefits of this partnership commitment and our commitment to delivering value for all the stakeholders that will infringe our operating losses.

And so far our engagements that I can assure you have been robust but constructive and they made a really appreciation of the importance of the mining industry in the respective countries economies. And we’ve recently been reassured by all the country governments that we operate in that our agreements in place will be respected and so the principle of this debate is really shifted to the future, which is critical to get drive both in the interest of Africa’s at emerging continent and our industries future. And what I can say is that certainly as far as we’ve got you today in the debate. We’ve got every reason t believe that as we’ve done in the past is this will, you know, largely can, common states will prevail and the desire to attract capital and serious invasive’s will win that day.

Ladies and gentlemen, that’s really completes our overview and trust me we’d only be too delighted to take questions. I’ve brought a short team here today, lots of people are still out of the operations but this driving on us and we’re – and I am sure between (inaudible), questions you might ask.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Patrick Chidley from HSBC. Please go ahead.

Patrick Chidley – HSBC

Hello, Mark; everybody.

Mark Bristow

How’s you, Patrick.

Patrick Chidley – HSBC

Not too bad. Thank you. Just to give you really from the store model here.

Mark Bristow

Well, really.

Patrick Chidley – HSBC

Yeah. Just not that as a last one. John, just two couple of questions and on what you expect in Q4 in terms of where will the big increase come from in terms of production. Can you maybe break it down a little bit more in terms of ore sources in terms of Gounkoto, the underground Yalea and Gara and also a bit push back at Yalea.

Mark Bristow

Yeah, I think we’ve been looking ahead. We’re guiding – we want to beat 150,000 ounces out of Loulo and Gounkoto combined. Some of it will come out of the – and the Yalea south pushed back a lot of it will come out of that. And then...

Philippe Liétard

Two-thirds, maybe one-third...

Mark Bristow

So that will add to the underground plans and we’ve got lots of plans for underground. And so two-thirds Loulo, one-third Gounkoto for this quarter.

Patrick Chidley – HSBC

Okay. And will the Gounkoto grades be back up to their average grade.

Mark Bristow

Patrick, we’re not going to pull the ring out of grades. We’ve got the comfort of additional capacity and we’re not going to blow that quarter away. We’d be happy with 150 to 155000 ounce that’s the way we’re going to manage it.

Patrick Chidley – HSBC

Okay. And then Tongon slight increase for higher cost, is that what we’re hearing?

Mark Bristow

Yeah, Tongon the teams target is close to 70 as we can. And if we get that we’ll start making a positive impact on the costs. But again, we’re running extra benefits to keep the plants steady. We’re building what the final burst for our change over this week. And that will add a bit more, we average about $0.17 a kilowatt hour last quarter we’ll be a little ahead of that, probably around 20 this quarter. So it will add to, of course, not blow anything out of context. And we just started seeing the first signs of better gain and that’s because we slowly got there with our mining secrets.

Patrick Chidley – HSBC

Okay, great. Thanks.

Mark Bristow

And we learn to handle our plan.

Patrick Chidley – HSBC

Right.

Mark Bristow

And that’s where shoot most, because we are mining mineralized waste now.

Patrick Chidley – HSBC

Right. So that is the expedition. And just a couple of quick question on your long-term profile, it looks like you’re heading to 1.5 million ounces a year. But does that include the Morila tailings project?

Mark Bristow

Yes. I think, I just point out that 2016 that includes the first bud from Massawa.

Patrick Chidley – HSBC

Right. Is there anything you want to talk?

Mark Bristow

Yeah. So, we’re still very clearly pointing that our first target is to beat 1.2 million ounces till 2015, and if we get there ahead of time that will be great.

Patrick Chidley – HSBC

Right. And then on the Massawa by 2016, is that something that’s definitely needs an autoclave, or you thinking of other solutions...?

Mark Bristow

No, it needs an autoclave. That’s why we pushed it out.

Patrick Chidley – HSBC

Can you...

Mark Bristow

All operation as it fits now, it doesn’t fit our criteria on size. So, I’ll be with that we’ll work on it and if it doesn’t fit there is other ways to bring it to account. We don’t have to develop it.

Patrick Chidley – HSBC

Right. Is it feasible to truck and ship the concentrate?

Mark Bristow

It is. But we wouldn’t do that. I don’t think that’s our business. But it is possible. Certainly in our summary, I’ll said that the project, we can get it done and the best is pretty good, we could possibly do that.

Patrick Chidley – HSBC

Okay. Good. Well, thanks very much, Mark.

Mark Bristow

Okay.

Operator

And our next question comes from the line of Martin from Westwood Investment Advisors. Please go ahead. Hello Martin, your line is open, please go ahead.

Martin – Westwood Investment Advisors

Yes. Thanks for taking the question. My question is in terms of the grid, I have seen the grid changing for Tongon, what is the expectation for the fourth quarter? I know that you are in a transition zone? What is your model saying for the fourth quarter in terms of grid for Tongon?

Mark Bristow

Yes. Okay. Tongon, we are not in a transitional zone anymore. We are of it. So we are in solid ore and we can upgrade – it’s around 2.7.

Philippe Liétard

Which is in line with the long term average.

Mark Bristow

The long term average the deposit.

Martin – Westwood Investment Advisors

Okay. And in Morila the expectations is something similar to the last quarter in terms of the production.

Philippe Liétard

Slightly below.

Martin – Westwood Investment Advisors

Okay. Great. Thanks.

Mark Bristow

But as I pointed out, Martin, Morila is one that’s full of pleasant surprises and that it brings me back to that debate or that point I made early is when you start splitting all by these upfront stock pile load rate ore and take the high grade or you navigate it right. So this is I think some of the people on the call will remember that debate and arguments we had early on, in the project about doing just that and benefiting it from it now, that it should have come out earlier.

Martin – Westwood Investment Advisors

And just the last question on the CÔTE D’IVOIRE, is the stripping phase completed or, you know, where are you there? How many more quarters you have for stripping?

Mark Bristow

The quarter strip ratio of Loulo mine is about 8.0 to 1 and we have got – it’s all in our profile. We have built up the strip. We have got an increase in strip this year and in the following year and if flattens out then we start reducing the strip. And we are clearly managing the pit and the push backs. We have already done that in the profile.

Martin – Westwood Investment Advisors

No, but I am saying in the quarter it was abnormally high?

Mark Bristow

They have no more high quarters of past. We build some flexibility, which gives us that ability to keep on the plan but this quarter and going forward into the next year.

Martin – Westwood Investment Advisors

Okay. So in the fourth quarter you wouldn’t have that abnormally high stripping.

Mark Bristow

We are forecasting sort of 11 to 1 for next year, for this year as well, for this last quarter as well.

Martin – Westwood Investment Advisors

Okay, great. Thanks.

Operator

And we have another question now, it comes from the line of James Bender from Scotiabank. Please go ahead.

James Bender – Scotiabank

Thank you. I have a question related to the DRC articles that we have been seeing about their – that they are looking for 35% stake in projects. And my question is whether that will impact Kibali at all or if you are grandfathered for that.

Mark Bristow

Yes. James, first of all, this noise that you are referring to coming out is based on a leaked document that came out quite a few – over a month ago. And suddenly Bloomberg’s and Reuters have picked up on this again last week. We’ve long had that conversation, and the Congolese government are running a review process. It’s a long, well structured process.

There are lots of views about what should happen. But the one thing certainly after our first engagement with the government, as you saw – you would have probably missed the minister’s statement last week that this is a forward-looking project, and all agreements of the past will be respected. And we’re quite absolute confident that that will be the case.

The 35% free-rider in a project is – it doesn’t make any sense at all when it comes to new projects. It might be possible to negotiate that on some of the known copper projects that have got to be redeveloped because there is inherent value in those assets.

I think the – I’m not sure you’d appreciate that a large number of the mining projects in Congo are rehabilitated, older but quality assets, particularly in the base metals, whereas in the Kibali sense and Banro sense, these are new investments based on exploration success.

James Bender – Scotiabank

Okay.

Mark Bristow

And I think – and certainly, our engagement with the government is an appreciation of that.

James Bender – Scotiabank

Great. Thank you.

Operator

And we now have no further questions coming through. (Operator Instructions) We now have no further questions coming through. So I’ll hand you back to your host for any concluding comments.

Mark Bristow

Okay. Thank you, ladies and gentlemen, again for coming on to the call. As you’re seeing we’ve made a conscious effort to update our guidance. I am on the road as off tomorrow and so I’ll no doubt be touching sides in all of you over the next couple of weeks and certainly, if I got miss you up we’ll catch you on the 27 in New York. And we’ll be able to work through the detail of how we’re thinking and the numbers that company’s guidance.

Again if anyone has a specific question then I went happy what closing on this call where (inaudible) I available at any time right now on our mobiles. And again, once again thank you very much for making the time to call in. Cheers.

Operator

Ladies and gentlemen, thank you for joining today’s conference. You may now replace your handsets.

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