Update on Africa’s biggest gold mine

Randgold Resources, the biggest London listed gold miner by market capitalisation and the 14th largest gold producing company in the world, currently operates the two biggest gold mines in Africa according to consultancy Metals Focus – the Loulo-Gounkoto complex in Mali and Kibali in the DRC – and both are among the world’s Top 20 gold producing operations – See: World Top 20 Gold Miners and Mines.

Last year Loulo-Gounkoto, at No. 13 on the global list, was the bigger producer, but Kibali was experiencing some technical and operational  difficulties which reduced its output a little, but still came in as the world’s 16th largest gold mine by production.  It is currently  putting the problems behind it as its underground operations build up to full output and it should regain its top spot among African gold mines by the end of the current year.

The mine is owned 45% by Randgold, 45% by Anglogold Ashanti, with the remaining 10% by DRC parastatal, Sokimo.  Randgold built the mine – located in one of the most remote areas of the African continent close to the DRC’s north eastern border with South Sudan – and operates it.

The company’s latest statement on the mine and its progress is published here in full, but note CEO Mark Bristow’s warning about possible DRC governmental goalpost-moving on the country’s mining code:

KIBALI HEADS FOR FULL PRODUCTION AS UNDERGROUND MINE NEARS COMPLETION AND SECOND HYDROPOWER STATION IS COMMISSIONED
The Kibali gold mine’s underground operation, which will significantly increase production, is on track to start commissioning in the third quarter of this year, Randgold Resources chief executive Mark Bristow said at a media briefing.

The mine is forecast to deliver approximately 610,000 ounces of gold this year, up from 585,000 ounces in 2016, but annual production is scheduled to rise to around 750,000 ounces from 2018, when the underground operation will make it fully functional.

Bristow noted that Kibali ended 2016 with a creditable performance after having to contend with a range of operational challenges as well as the constraints imposed by limited open pit mining flexibility.  In addition to dealing with these issues, the Kibali team succeeded in keeping the underground development on track, successfully constructing and commissioning four ultrafine grind mills in the metallurgy circuit, as well as progressing work on the mine’s second new hydropower station which was commissioned in February this year.  The third and last of the new hydropower stations is currently being built by an all-Congolese contracting group.

“Kibali has stayed on course to become one of the world’s great gold mines despite the challenges of last year and the volatile political climate in the DRC at present,” he said.

“Randgold remains committed to the DRC and is confident that its government, politicians and civil society have the will as well as the capacity to work together to secure the country’s future.  We therefore continue to invest in exploration here and to lead the way in developing the north eastern DRC as a major new gold mining region.  Our engagement with the country and its people is also evident in our substantial investment in local economic development and community upliftment programmes.  These include macro and micro agribusinesses designed not only to provide regional food security but to generate surplus produce for export.”

It was a source of concern, however, that the DRC government had once again signalled its intention of reviewing the country’s 2002 mining code with the clear intention of maximising state revenue, Bristow said.  This could have a very negative impact not only on the mining industry but also on the economy.

“Now more than ever the DRC should be focused on retaining its existing investors and attracting new ones.  It’s certainly not the time to harvest more from less for short term gain.  It’s my sincere hope that this time round the government will engage the mining sector fully in the proposed review to achieve an outcome that will be in the best interests of the Congolese economy as well as the country’s mining sector,” he said.

“The existing code is in fact a good one but it is not always being applied effectively and there are still many mining operations that do not operate under the code.  There are also a number of issues and challenges which mining companies are having to face which make operating in the DRC more challenging.  In Kibali’s case, these issues include more than $200 million in unpaid TVA and duty refunds.”

Randgold’s gold mining success story. Dividend increases while its peers are cutting

“Randgold Resources’ (LSE: RRS, NASDAQ: GOLD) operations are strongly placed to generate robust cash flows even at gold prices below current levels and to continue delivering value to all stakeholders”, so says chief executive Mark Bristow in a release on the company’s 2015 annual report published today.

Randgold has arguably been the biggest gold mining success story of the past two decades (It was only established back in 1995 and was first listed in 1997).  It has increased gold production from tiny beginnings to become the world’s 15th largest gold producer (according to consultancy Metals Focus) with an attributable output now of comfortably over 1 million ounces a year.  It now numbers Africa’s two biggest gold mines – Kibali in the DRC and the Loulo-Gounkoto complex in Mali, both of which it built from scratch – among its operations,  All this has been accomplished in a part of the world which some of its major gold mining peers feel is too risky in which to manage significant operations.

At Kibali in particular it succeeded in building a huge gold mine in one of the most remote parts of Africa, close to the DRC’s border with South Sudan, hundreds of miles from both Africa’s east and west coasts and with virtually no local infrastructure – a major logistical exercise in its own right.  And yet it succeeded in bringing the mine on stream ahead of schedule.  It is notable here that although it is in equal partnership with the world’s third largest gold miner, AngloGold Ashanti (both have 45% stakes), the latter ceded construction and operational control to its much smaller partner, presumably because of Randgold’s unparalleled record of building and operating mines in West Africa and its skills in navigating the often troubled political waters of the region.

What the gold mining industry needs, says Bristow, is to make new discoveries, as even a significant rise in the gold price and an injection of fresh capital will at best enable it to clear its debt, but will provide little scope for adding any value or reversing the production decline.  Through its consistent investment in exploration and development Randgold, in contrast, was projecting sustained growth from a solid foundation.

“Our mines have been modelled to generate cash flows at gold prices well below the $1,000/oz level.  Our positive production and cost profiles extend to a 10-year horizon, we have had no impairments or write-downs, and have substantial cash resources.  Our exploration teams are not only replacing the ounces we deplete but are making significant progress in the hunt for our next big discovery.  In fact, we are in a unique position to continue delivering value to all our stakeholders,” he says.

Randgold set a new annual production record of more than 1.2 million ounces in 2015, up 6% on the previous year, while reducing group total cash cost per ounce by 3% to $679.  Strong cash flows from the operations boosted cash on hand by 158% to $213.4 million.  However profit for the year was $212.8 million against the previous year’s $271.1 million, reflecting the decline in the gold price.  The board has nevertheless still recommended a 10% increase in the annual dividend.

Also in the annual report, chairman Christopher Coleman reports that even in the current challenging market, Randgold is not reducing its investment in corporate and social programmes, in line with its philosophy that sustainability is central to all its activities.

“Randgold’s social initiatives extend far beyond the life of its mines.  At all its operations, it is developing ambitious legacy projects designed to provide a permanent source of employment and economic opportunity to these communities.  Based on agriculture, the primary building block of any developing economy, these range from training and funding would-be commercial farmers to a wide spectrum of agribusiness initiatives, many of which are already supplying local markets.  The company is equally mindful of the health and safety of its employees, and it strives constantly to improve an already exemplary record in this regard,” he says.

Contrary to the position of many of its peers, Randgold, as noted above, also reaffirmed its intention to continue to pay a progressive ordinary dividend that will increase or at least be maintained annually.  The board thus proposed the 10% increase in the 2015 dividend to $0.66 per share for approval at its annual general meeting on 3 May 2016.  This is almost unique among major gold miners, most of which have been having to take big impairments in their balance sheets, have been having to cut debt and have been sharply reducing their dividend payments.  Randgold has taken no impairments, has no debt and is raising dividends year on year.

Commenting on this statement, financial director Graham Shuttleworth said that at a time when the gold mining industry was focused on survival, Randgold was able to maintain its dividend policy on the back of last year’s strong performance.  He confirmed that the company still intended to build its net cash position to approximately $500 million to provide financing flexibility for future new mine developments and other growth opportunities.

Randgold walks away from Obuasi

In separate announcements issued today Randgold Resouces and AngloGold Ashanti have both stated that Randgold has decided not to proceed with the proposed joint venture to redevelop AngloGold’s Obuasi gold mine – the original Ashanti gold mine – in Ghana.

To recap, on 16 September this year, the two companies had announced their intention to form a joint venture to rebuild the mine, which still has a very substantial good grade gold resource, despite its 118 year mining history.  However, the proposal to undertake this would be, subject among other things to the completion of satisfactory due diligence by Randgold and the agreement of a revised development plan.

Randgold comments that after undertaking its own due diligence exercise into the mine and the redevelopment opportunity the mine affords, and following the work undertaken on the revised development plan, the company has determined that the development plan will not satisfy its own internal investment requirements.  Accordingly, Randgold has decided to terminate the investment agreement entered into with AngloGold Ashanti, with immediate effect.

Randgold and AngloGold have a good history of working together on gold mining projects – initially in Mali – and most recently in what appears to be the very successful building of the totally new Kibali mine in the DRC which is now probably the most productive gold mine in the whole of Africa.  There is a strong synergy between the two companies but obviously this was not strong enough to overcome the Randgold ethos of only developing projects in which it sees a strong return, and obviously Obuasi, with some significant ongoing social and technical problems, did not meet Randgold’s investment criteria, which have meant it has consistently outperformed its peers among the major and mid tier gold miners globally.

Randgold Chief Executive Mark Bristow commented that Randgold remained committed to creating real value for all its stakeholders by continuing to invest substantially in its exploration programmes with their proven record of success as well as by investigating potential growth opportunities presented by the market.

AngloGold noted in its statement that it remains committed to continue with its Limited Operating Phaseat the mine designed to resurrectoperations there at a smaller scale and at  lower cost

AngloGold goesd on to note that this decision follows concerted efforts by both companies to improve the project’s returns and also to secure an appropriate set of consents from the Government of Ghana, within an ambitious timeframe that would have allowed for a feasibility decision on the redevelopment of the mine in early 2016.  Although improvements have been identified, these have not been sufficient to commit to a substantial investment under the prevailing conditions.

The Minister of Lands and Natural Resources of Ghana has approved continuation of Obuasi’s limited operating phase during Q1 2016.  Limited operations will be undertaken at reduced cost, compared to 2015, including  maintaining  the operations, security, environmental management, optimising the feasibility study,  as well as ongoing sustainability work.

“We have made a concerted effort to unlock a new opportunity for Obuasi, and the work we have done lays a good foundation for the operation in the long term,” AngloGold Ashanti Chief Executive Officer Srinivasan Venkatakrishnan said. “But in the current environment, we believe it is prudent to conserve our resources and to revisit this opportunity when market conditions improve.”

Seeking Alpha: DRC’s big Kibali gold mine sustains momentum

Randgold/Anglogold/Sokimo Kibali gold mine is progressing well and is now expected to exceed this year’s planned gold output level of 600,000 ounces – which would make it Africa’s largest gold mine in gold production terms.  To read full article on Seeking Alpha click on:

Big Randgold/AngloGold Kibali Gold Mine Sustains Momentum

Kibali – already one of Africa’s largest gold mines – going strong

The ongoing search for additional reserve ounces at Kibali will secure its future as a long-life mine and one of Africa’s largest gold producers, Randgold Resources chief executive Mark Bristow said in a speech in Kinshasa, DRC.  Randgold develops and operates the mine and has a 45% stake, which it owns in partnership with AngloGold Ashanti (also 45% owners)  and the Congolese parastatal SOKIMO which holds the 10% balance.

In 2014, its first full year of operation, Kibali produced 526,627 ounces of gold at a total cash cost of $573/oz and Bristow told a media briefing here that production and cost for the first quarter of 2015 were likely to be within guidance.

“When you’re producing gold at the rate of around 600,000 ounces per year, the need to replace the reserves that are consumed is of critical importance,” he said.  “We believe Kibali’s KZ structure hosts significant additional resources, and our continuing exploration is confirming this potential.  A number of targets have been identified and the Kalimva-Ikamva and Kanga sud targets have been prioritised for in-depth investigation.”  One suspects that the promising geology around the mine should host sufficient gold resources to keep it in operation well beyond its initial 18 year mine life.

Kibali is still a work in progress, with its third open pit now operational and the development of its underground mine ahead of schedule.  Ore from its stopes is already being delivered to the plant but the underground mine is only expected to be in full production by 2018.  The first of the mine’s three hydropower plants was commissioned last year and work on the second is well underway.  The metallurgical plant is operating at its design capacity and construction of the paste plant is nearing completion.  Despite the high level of production and development activity  –  some 5,000 people are currently employed on site  –  Kibali is maintaining a good safety record, with the lost-time injury rate reduced by 16% last year.

Kibali represents an initial investment of more than US$2 billion and at a gold price of $1,200/oz and its current mine plan is only expected to repay its funding after 2024.  Thanks to its strong cash flow, however, it has already been able to repay the first tranche of its debt in March.  The whole project has been a remarkable success to date, particularly given its location – almost right in the geographical centre of the African continent, close to the South Sudan and Ugnadan borders which necessitated the bulk of the supplies and equipment having to be delivered from the African east coast rather than through the DRC itself.

Bristow said Kibali was continuing to invest in the development of the regional economy by using local contractors and suppliers wherever possible.  A prefeasibility study on a palm oil project, designed to provide a sustainable source of post-mining economic activity for the region, has been completed and work on a bankable feasibility study has started.

On the issue of the DRC’s proposed new mining code, Bristow said he welcomed Prime Minister Augustin Matata Ponyo’s recent statement that the government was ready to re-engage with the mining industry with the intention to review the draft submitted to parliament and was open to further discussions with the sector.

“We were surprised and disappointed when the ministry of mines presented a draft code to parliament without taking the industry’s comments on board and which departed radically from the common ground we thought had been established.  As the DRC Chamber of Mines warned at the time, enactment of the code in this investment-hostile form will have a catastrophic effect not only on the mining sector but on the Congolese economy generally.  It was therefore very heartening to learn from the prime minister that the government has recommitted itself to negotiation,” he said.