Ever wondered what impact a low gold price is really having on the industry? Mark Bristow, CE of RandGold Resources chats to Alec Hogg about how he sees the gold mining landscape as well as unpacking Randgold Resources third-quarter production numbers. – CP
ALEC HOGG: Welcome back to Power Lunch. Randgold Resources reported an eight percent rise in third-quarter production, driven by contributions from its new Kibali Gold Mine in the DRC. The company’s Chief Executive Mark Bristow, joins us from the London Stock Exchange to unpack the results. Mark, we had a bit of confusion here a little earlier because we do of course have a Randgold listed on the Johannesburg Stock Exchange. Why did you never bring Randgold Resources to the JSE?
MARK BRISTOW: We’ve spent a lot of time building international business, Alec. When I parted company with the Kebbles and formed Randgold Resources. We agreed that Brett and his dad would focus on the Rand region and I would have the rest of the world, and that’s how we cut the name up. My focus was to go and build an international business rather than try and drag a South African business into the international arena.
ALEC HOGG: Well, you’ve made a spectacular success of your company – focusing primarily (to start with) on West Africa, and then moving a little bit further south into the DRC. Mark, just to, maybe give us some insights… Ebola is a big story all around the world. Has it been affecting Randgold Resources at all?
MARK BRISTOW: Alec, if you’ll just allow me to point out… The Ebola crisis really rests with the attitude that the international community have towards this disease. It was allowed to get out of hand in Guinea, Sierra Leone, and Liberia and that’s been dealt with. The risk that Ebola has as an imported infection in the rest of Africa is minimal. It’s manageable. We are managing it and it’s certainly not impacting on our operations.
ALEC HOGG: As far as your operations are concerned, you’ve always gone for lower cost businesses. With the gold price now below 1150, are you still comfortable there?
MARK BRISTOW: It’s been four years now that we’ve been running our business plans at $1000.00. We continue to do that. This quarter Alec is probably, in the history of our company, the best quarter we’ve had. Many stars aligned. Kibali really coming on its own. Loulo-Gounkoto – record production. We pay back our RCF in a quarter. We’re building cash. We have no debt. It’s a great place to be, given where the market is. At these gold prices, but we should be making money and we are because we designed our business to do so.
ALEC HOGG: What about the rest of the industry, though? You talk about lots of stress. Are you expecting that there will be
MARK BRISTOW: …promise reparation of crippled balance sheets and these are balance sheets that got into that position after a ten-year bull market. The industry’s really, not in a good shape and right now everyone’s promising steadiness, cost cutting, and return to profitability. It’s impossible to keep the industry as it was at a $1500.00 gold price, at 1150 or even 1200, and so we’re going to have to see material changes to the structure of the industry if you want to deliver a profitable industry across the board. Right now, I think that what you’re seeing is everyone denying the facts, and so I’m sure we’re already causing damage to the long-term viability of our industry.
GUGULETHU MFUPHI: Mark, it’s Gugu here with Alec. The stress in the industry that you refer to: does this create acquisitive opportunities for you?
MARK BRISTOW: Absolutely. The key for us is the first phase in an industry that’s very stressed is people look to sell their non-core assets. The problem is that those assets don’t have value in a declining price regime. I think a bit more time is still needed before people really take the challenge of restructuring their businesses seriously and are prepared to relinquish some of the better assets. That’s what we’re after…we’re definitely after the ice-cream assets, Alec.
ALEC HOGG: How much smaller do you think the market might become as a consequence of these gold prices when that denial is finally relinquished?
MARK BRISTOW: I think that on a cash basis, probably over half of the industry is not currently profitable. Certainly, at an all-in return on capital, it’s probably more of that, than 50 percent isn’t viable at these gold prices. If you look at the gold industry of 80-million (plus or minus three or four percent) over the last 13 years; there’s been no real growth in production. The gold production has been kept up there by increasing throughput and dropping grades, and that’s not sustainable when you have a significant fall-off of the gold price. Your capital costs are under pressure, so it’s hard to see how the industry can just keep going without some significant change. I have no doubt Alec, that if you take ten or 15-million ounces out of supply, you’ll tighten the market and it will be good for the price and good for the industry.
ALEC HOGG: Well, they do say that the best cure for a high oil price is a high oil price. Maybe the best cure for a low gold price is a low gold price. That was the Chief Executive of Randgold Resources and Estcourt’s finest, Mark Bristow.
