Production downtime hits Randgold second quarter

Randgold Resources posted its second quarter production results on Thursday, and said production and costs were hit in the three months to June by a long mill downtime at Tongon and the Kibali plant's continuing transition to a mixed-ore feed, but added the improvement expected in the second half of the year should boost its 2016 results to within its market guidance.

The FTSE 100 firm said the flagship Loulo-Gounkoto complex ended the quarter ahead of target. but with one of Tongon's two milling circuits losing 46 days after a breakdown and Kibali still dealing with throughput, recovery and dilution challenges presented by multiple ore feeds, group production was down 4% quarter on quarter at 281,494 ounces while total cash cost per ounce rose 12% to $727 per ounce.

With the higher gold price only partly buffering the impact on the bottom line, the board said profit was down 8% at $58.7m.

Compared to 2015's record interim results, however, profit for the six months to June was up 11%, production was steady and total cash cost was 1% lower.

Net cash generated increased by 6% quarter on quarter and cash holdings rose by 7% to $272.7m.

Chief executive Mark Bristow described the quarter as one of the toughest in years but said in June and July both Tongon and Kibali had made significant progress, with Tongon fixing the mill and completing the commissioning of its new quaternary circuit, and the new Kombokolo satellite pit at Kibali expected to improve its feed flexibility and grades.

The development of Kibali as a complete project remains ahead of schedule, he confirmed.

“Looking ahead at the rest of the year, all our teams have been reworking and optimising their mine plans to ensure that we end 2016 within guidance.

“In addition, we're intensifying our focus on critical operational issues to ensure that we deliver a substantial second-half improvement," he said.

Bristow said in addition to another strong performance by the Loulo-Gounkoto complex, the quarter's highlight was the significant advances made by its exploration teams.

“The quality and scope of our exploration portfolio continues to grow and there is a solid pipeline of projects being developed through our resource triangle, from grassroots and generative work to resource definition.

“I believe we have at least three advanced targets, already scheduled for drill test campaigns, with real potential to become important assets," he said.

The advanced targets include Fonondara and Kassere on the Boundiali permit in northern Côte d'Ivoire and Sofia in Senegal, which Randgold said looks likely to provide a high grade, free-leaching satellite resource for the feasibility study-stage Massawa project.

In Mali, the greenfields target Bakolobi is currently being drilled while drilling at Loulo's Gara underground mine has identified “significant potential” to extend its life and replace this year's depletion at Loulo.

At neighbouring Gounkoto, the feasibility study on the super pit option will be concluded by the end of this year.

In the Democratic Republic of Congo, the discovery and rapid development of the Kombokolo satellite illustrates the continued prospectivity of the Kibali permit area and augurs well for the Moku joint venture west of Kibali.

"While the more advanced work is ongoing, our greenfields team is also feeding the base of the resource triangle with new ground.

“The Bambadji joint venture with Iamgold has recently been renewed, we are applying for new permits in southern and western Mali as well as in southern Côte d'Ivoire, where we are also negotiating a new joint venture," Bristow said.

He asserted that the rest of the gold mining industry was continuing to shy away from exploration and there was now a consensus that new gold production will consequently continue to decline.

“This, in combination with growing global geopolitical and economic jitters, must be good for the gold price, at least in the long run.

“That's where Randgold's focus has always been fixed.

“We're building a sustainably profitable business on a very solid foundation, but considering the internal and external challenges ahead, our teams will have to test and, if necessary, re-invent the way they operate on a continuous basis.”