By Ted Black*
The last measure we used to look at Randgold Resources (RRL) was “economic profit”. A tough measure, it’s the cash profit after tax less a 20% cost of equity charge. We saw that its cumulative economic loss was about US$ 600 million over a five year period.
However, there is good reason for this “loss”. It was the only firm to grow its equity and equity is not “free” money. It costs at least 20% if you look at the best of other options.
While “The Rest’s” equity fell by 40% RRL grew its own by 50% over the same period. Since 2007 it has grown 500% with no debt. That truly is wealth creation and when you link it to market cap, this is how RRL – the “Best” – compares with “Average” and “Worst”.
It has led the field consistently for the past five years and still does after the latest boost in the gold price.
So what is it that Mark Bristow and his team understand and do that others don’t?
The first thing they know is that if you want to do business in high-risk Africa you have to link closely to national strategy. Often that means dealing with revolutionary, socialist regimes that distrust business people.
Miners have tended to exploit countries but RRL operates with the belief that a business has to benefit everyone – not just shareholders. As part of its clear strategy RRL set out to build relationships at the highest levels of government and develop productive working partnerships with local business firms and communities.
Today it demonstrates its commitment with measurable results. In Mali, 100% of its senior management is Malian and 92% of all employees and contractors are host country nationals.
Bristow believes in growing people. He might chuck them into the deep end – but would never let them drown: “Wear a Velcro glove so you can pluck them out before they sink!” is how he colourfully describes it.
That’s the kind of approach to people development South Africa needs. As Bristow has found, there is huge talent in Africa. In one interview he referred to the Bell Curve in terms of potential.
If you assume that say 10% of our population has superior potential, it means there are more Blacks here with high potential than the entire White population. The same will apply within any firms that reflect the nation’s demographics. But how many have systematically looked for them and put accelerated development programmes in place instead of ticking off government’s bureaucratic checklists to “keep out of sh-t”?
Couple RRL’s success in growing local management just-in-time, on-the-job, with business development and multi-pronged sustainability programmes that aim to build a long-lasting legacy in host countries, and you also have a different relationship with government.
Unlike our business leaders here – with one or two notable exceptions like Johann Rupert – Bristow is not lily-livered in his approach to Panjandrums who are not only self-important, but suffer from the Dunning-Kruger effect. Its premise is that if you are stupid, not only do you do things stupidly, but you are most likely too stupid to see how stupidly you are doing them.
Bristow and his team, because of achieving a lasting legacy wherever they operate have moral power. They are doing the right things effectively. That changes relationships with government. RRL will be first in line to readily get permission to perform with mineral rights.
This may be apocryphal, but highly likely true. Bristow, much to the embarrassment of the colleague with him, once started a meeting with a senior official by saying something like, “You are either lying or incompetent. Which is it? Once we know we can take the best, next step!” You can do that when you have not only moral power, but the most important one of all for any manager – performance power.
During the early 1990s, Bristow set out to do a few things better than anyone else. The first was to explore and find rich gold deposits. To pull off this critical task, he set out to attract and build one of the best teams of geologists in the world – certainly the best in Africa.
It is one of the key drivers of its value as you can see in the next chart.
RRL has more gold below ground per share than the rest and the gap has widened. This also explains its high relative value – a function of expectations, not only today’s results.
The second critical task was to design and bench-test low cost mine methods to recover, rich gold deposits. The third was to run the mines better than anyone else at lowest cost.
The best way to build a nation is to liberate its people with meaningful work – not just a job. That’s what Bristow’s company does and why it uses its expatriates to transfer skills and technology. Because it makes money, it pays taxes, and supports local communities in many different, meaningful ways.
Lastly, with another nod to Aesop, there’s a fable about the dog sleeping on hay in the manger. He wouldn’t allow the cows to feed even though it was of no use to him.
In this country, we have four things in abundance – beauty, people, poverty and minerals. Isn’t it time our once inclusive, but now revanchist government stopped sitting on the hay and encouraged exploration and development by enlightened firms like RRL who know how to find and maximise opportunity?
- Ted Black runs workshops, and coaches and mentors using the ROAM model to pinpoint opportunities for measurable, bottom-line, team-driven projects. He is also a freelance writer with several books published. Contact him at [email protected].
