Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
* Earnings per share higher than consensus
* Cash costs fall
* Share price up 3.4 pct (Adds detail, CEO quotes)
African gold miner Randgold on Thursday reported a 53 percent rise in half-year profit and a mounting cash pile, and said it was well on the way to developing projects that will position it for an eventual increase in demand.
The company, with operations in Cote d’Ivoire, Democratic Republic of Congo, Mali and Senegal, has stood out for its lack of debt and continued strength even when other miners struggled during the commodities downturn of 2015-16.
It says it is still ahead of the pack because its share price has consistently risen and it has carried on investing. The share prices of many peers are higher than at the start of last year, but have yet to match their peaks before the crash.
“The industry is facing lower grades because it isn’t replacing. We’ve discovered our own mines and built them,” CEO Mark Bristow told Reuters in an interview.
He cited forecasts for a 30 percent reduction in new gold supply by around 2025, a shortfall he predicts will eventually push prices higher, although in the medium term gold prices would be range-bound as populist politics, led by the United States, capped gains.
“We see a narrow gold price band for quite a while,” he said. “Ultimately the shrinkage in supply will drive the gold price.”
Randgold’s investment criteria are that a project should yield a 20 percent return at a $1,000 gold price, compared with just above $1,200 now.
Bristow said exploration work had made progress in prioritising targets that could meet its investment criteria and the company should deliver on an aim of defining three new projects in the next five years.
For the first half of 2017, based on existing operations, net cash of $572.8 million was up 11 percent during the first six months of the year and total cash costs per ounce fell by 13 percent from a year earlier.
“At this stage the outlook is positive, and Randgold is trending towards the top end of its 2017 production guidance range at a total cash cost below $600 per ounce,” Bristow said.
Challenges include a tax dispute in Mali, where Bristow said negotiations were making progress.
Analysts praised the results, which drove the share price 3.4 percent higher on Thursday.
The results highlighted the company’s ability “to deliver incremental production and cost improvements, supporting further dividend growth”, BMO Capital Markets said in a note. It holds an “outperform” rating on Randgold.
By Barbara Lewis
(Additional reporting by Sanjeeban Sarkar in Bengaluru; editing by Jason Neely and Susan Thomas)
