LSE-listed gold miner Randgold Resources expects to produce 1.2-million ounces of gold this year, the company said on Monday.

Reporting on its results for the 2014 financial year, the company noted that its output had increased by 26% to 1.1-million ounces, while total cash costs were down 2% to $698/oz.

Randgold ended the year with no borrowings and more than $100-million in cash, cash equivalents and gold on hand.

However, the company’s profit was down 17% year-on-year to $271.2-million, mainly owing to a drop in the gold price.

“Profit was inevitably impacted by the lower gold price but, considering our strong cash flow and balance sheet, the board was able to propose a 20% increase in the dividend,” CE Mark Bristow said.

He added that this was the fifth successive year of production growth and the eighth year in a row that the numbers have justified an increase in dividends to shareholders.

Further, he pointed out that Randgold’s early recognition of a fundamental change in the gold market had enabled it to take prompt and effective action to align its business with a lower gold price. 

“While the gold mining industry as a whole was struggling to maintain its medium-term viability in the face of multiple challenges, Randgold was in good shape to manage these and to sustain the profitability of its operations at a $1 000/oz gold price level.

“To put this into context – shares outstanding have grown by less than 3%. Randgold’s performance . . . is all the more impressive if it is assessed in context of a period when the gold price has been in a three-year bear market. Extractive industries are generally floundering and the global economy remains jittery,” he added.

The company's operations all performed robustly, with its flagship Loulo-Gounkoto complex in Mali increasing production, in line with guidance, by 10% to 639 219 oz and reducing total cash cost by 4% to $672/oz.

In its first full year of operation, Kibali in the Democratic Republic of Congo (DRC) continued to ramp up production, delivering 526 627 oz at a total cash cost of $573/oz.  Tongon, in Côte d'Ivoire, was still in the final stages of a crusher and flotation circuit upgrade programme at year-end, but its production of 227 103 oz, at a total cash cost of $872/oz, was within 3% of its revised guidance.

"Our long-standing goal of reaching [1.2-million ounces] annual production is now comfortably within reach and we are already looking beyond that to our next big step forward.

Randgold also reported that it had completed the feasibility study on the development of an underground mine below the Gounkoto openpit, which had identified 4.7-million tonnes at 6 g/t reserve yielding 900 000 oz. 

Development of the mine, which would be Randgold's fourth underground operation, would start in 2018, ramping up to full production in 2020. The capital cost was estimated at $137.5-million. “This showed an operation that met our investment criteria – we look to make 20% internal rate of return on a $1 000 long-term gold price,” Bristow noted.

“This is before we entered into discussions with the Malian authorities on tax holidays as we still have some remaining facilities in that convention because we didn't use the whole five years when we developed Gounkoto in the first place,” he added.

Gold sales for the fourth quarter of $339.9-million decreased by 10% from $376.8-million in the previous quarter, as a result of a 4% decrease in ounces sold and a 6% decrease in the average gold price received of $1 195/oz.

Group gold production for the quarter decreased by 4% owing to lower production at the Loulo-Gounkoto complex and Tongon, offset by an increase in production at both Kibali and Morila. The group had 12 471 oz of gold on hand at the end of the quarter.

PROJECT DEVELOPMENT
The company would continue to commit significant expenditure to exploration, with corporate and exploration expenses of about $60-million anticipated in the year ahead.

Total group capital expenditure, including attributable share of expenditure at joint venture projects, was expected to be about $330-million. At Kibali, about $280-million would be spent, mostly relating to the underground shaft developments and hydropower project. The mine’s production was up by 22% quarter-on-quarter to 177 789 oz, from 145 152 oz in the prior quarter.

Ongoing development of the underground mines at Loulo, as well as other projects, was planned to cost $150-million, while Gounkoto was forecasting $5-million, mostly on the underground mine development project. Production at the mine stood at 136 130 oz, 15% lower quarter-on-quarter.

About $20-million would be spent at Tongon – which recorded yearly gold production of 227 103 oz – to complete the flotation circuit expansion, while $12-million would be invested at the Morila operation. Work would also continue on the Massawa feasibility project at a cost of $10-million.
 
Randgold also continued to maintain its focus on organic growth through the discovery and development of world-class orebodies, and it had a pipeline of high-quality projects and exploration targets.

“We remain strongly committed to exploration and our geologists continue to scour the goldfields of West and Central Africa for multimillion-ounce deposits. The current stress in the gold mining industry is also generating what may well prove to be transformational growth opportunities and we are closely monitoring this situation," he said.

Asked whether he expected the gold price to drop further and what impact this would have, Bristow told Mining Weekly Online that the industry was “broke” at current gold prices. “If it goes down any further, it can’t stay down there too long. In a way, that would be good for the industry, as it will force companies to make the right decisions to stop producing unprofitable gold.

“I think it will affect everyone, from the biggest to the smallest [companies],” he added, noting that the industry would see a long, slow emergence from the bear market, as was seen in the early-2000s.

However, he remained optimistic, stating that continuous organic growth and exploration of the company’s brownfield reserves would bolster its position. “The big focus now is to broaden our [operations] into the north-eastern DRC and surrounding countries, with equally prospective geology, [such as] Cameroon, South Sudan, Kenya and Tanzania,” he said.

Asked whether the company would look to Southern Africa for further exploration, Bristow noted that it was unlikely. “The problem with Southern Africa is that there is no real destination that can [deliver the same profit]. South Africa used to be in that [space], but it is really . . . a mature mining destination with respect to gold.

“Our real focus is the emerging sub-Saharan Africa region,” he said.