New discovery boosts Randgold optimism despite dipping profit
May 8, 2009
By Julie Crust London
West Africa-focused Randgold Resources' first-quarter net profit dropped 28 percent as cash costs rose and gold prices dipped, but news of a new discovery helped lift shares.
Randgold said yesterday that the expansion of its Loulo complex in Mali was on track. It announced the first results from the Gounkoto discovery, showing high grades, that confirmed its status as a new discovery south of Loulo.
"We haven't seen drill results like that since we started and we've had a number of stellar discoveries," said chief executive Mark Bristow.
At mid-morning the shares were up 4.4 percent, slightly ahead of the 3.9 percent gain in the UK mining index .
Randgold's net profit fell to $13.1 million (R110.6m) from $18.2m in the same quarter a year ago, but jumped 41 percent quarter on quarter.
"We believe this morning's results, in particular the new discovery at Gounkoto, will see the share price strengthen," said Arbuthnot Securities in a research note.
Arbuthnot said the initial results from Gounkoto could put all of the other projects in the shade, with all the holes to date indicating a potential ore body at more than 10 grams a ton over an average thickness in excess of 20m.
Randgold's attributable production climbed to 110 313 ounces from 103 649 ounces, in the same quarter a year ago, while total cash costs rose to $461 an ounce from $440.
"We are still coming off those heady input costs of the third quarter of last year," said Bristow.
Total cash costs hit $513 an ounce in the third quarter.
Arbuthnot said the production and cash cost figures were better than anticipated.
Randgold kept its attributable production target for this year of about 132 000 ounces from its Morila mine and about 288 000 ounces from Luolo.
Investec Securities said the company would have to significantly increase the grade at Loulo for the rest of this year if it was to hit production targets.
"I believe the second quarter is going to be the toughest quarter in our year," said Bristow. "But we are still very comfortable about being able to grow gold production at Luolu this quarter."
Production at Morila, where the open pit was closed last month, is expected to continue to decline as stockpiles are depleted. The operation is set to close in 2013.
"Morila is all about being a cash cow. We have to really manage the costs," said Bristow.
Randgold's diesel costs, which account for almost a third of costs, lag oil prices.
"We are just starting to really feel the effect of lower oil prices now. And you'll start to see that during this quarter," said Bristow.
Numis, a UK banking and stock broking company, said it had expected to see some decrease in cash costs in the first quarter as declining input costs - especially diesel - fed through to operations.
Randgold was confident on the gold price outlook.
"The exploding deficits are massive drivers of inflation and you can't get away from that," Bristow said. "Gold is a hedge against that." Bristow sees gold prices rising as high as $1 200 an ounce in the next 12 months.
"It's a good time to be in the gold business and producing gold at a profit," Bristow said. - Reuters
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