London - Randgold Resources had to haul heavy equipment
more than 1 000 miles to build the roads and hydropower plants needed to
construct its Kibali gold mine, the biggest in Democratic Republic of Congo.
The sprawling facility in a remote corner of a country
the size of Western Europe is a high-tech operation. In one tunnel deep
underground, a $1.3 million, 68-metric-ton remote-controlled digger heaves ore
out of a cavernous blast hole. The ventilation system hums as 50-ton loads are
slowly humped along the 3 kilometre track back to the surface.
The best-performing gold miner of the past decade,
Randgold has built its success on getting complicated projects like Kibali into
production on time and within budget. It’s the third major mine the company has
brought on stream in five years, and it has indeed been a gold mine: It
accounts for about a fifth of the company’s production, which tripled between
2010 and 2015 as revenue doubled to more than $1 billion.
Now, with Kibali nearing full production and no new
discoveries since 2011, the miner needs to find guaranteed output growth to
impress investors wary of the shrinking pool of large-scale deposits.
“They’ve done this a long time and they know they need to
re-shine the halo,” said Clive Burstow, who helps manage about $475 million of
natural-resource assets at London’s Baring Asset Management, including
Randgold shares. “I certainly wouldn’t bet against them finding something, but
don’t forget it’s getting harder to find these big elephant-sized deposits they
talk about.”
Dinner plates
The key to making Kibali work: The company and its
partners built everything in sight, including housing for more than 4 000
resettled families and an international airport where personnel fly in and gold
bars fly out. At the high point of construction, Kibali received as many as 400
40-foot containers a week across the border from Uganda.
Everything from the plates and cutlery in the large
canteen to a plant that processes as much as 7 million tons of ore a year has
been driven in across more than 1 120 miles of road from either Mombasa, Kenya,
or Dar es Salaam, Tanzania. Three hydropower projects will ultimately provide
42 megawatts of electricity to the mine.
Read also: Randgold in Congo gold venture
One of the company’s new mines will be in Senegal, according
to Randgold CEO Mark Bristow, who has promised the company, which is also
exploring in Ivory Coast, will define three new projects in the next five
years. Another may be in Congo, in an area next to Kibali: The Moku-Beverendi
gold project, a joint venture with Moku Goldmines controlled by Israeli
billionaire Dan Gertler.
We are looking for “world class 10-plus-million-ounce
deposits,” Bristow said in Cape Town in February. “We think Moku has that
potential.”
Four ventures
Moku is one of four joint ventures Randgold has signed in
Congo in the past 18 months as it looks to replicate Kibali’s success.
A partnership between Randgold, AngloGold Ashanti and
state-owned Sokimo, Kibali shipped 642 720 ounces of gold worth more than $700
million in 2015. That helped increase production of the precious metal in the
country from almost nothing in 2011 to more than 25 tons a year.
Production last year fell to 585 946 ounces after
technical challenges in the first six months, but output is scheduled to peak at
750 000 ounces in 2018 as the underground operation reaches full capacity,
Randgold says.
Other miners have been less successful in Congo.
Randgold’s partner, AngloGold, suspended operations in 2013 at the Mongbwalu
project, also in northeastern Congo, saying that it couldn’t make the economics
of the project work. In the past decade, mining majors Rio Tinto Group, BHP
Billiton, Vale and De Beers have all held and abandoned mining licenses in
Congo for different minerals without making headway.
Doing business
Congo was ranked 184th out of 190 countries on the World
Bank’s ease-of-doing business survey in 2016, but Randgold was able to bring
Kibali from feasibility in 2010 to first gold less than four years later.
“It’s been way more successful than most people thought,”
said Hunter Hillcoat, an analyst at Investec in London. “They operate their own
little, dare I say, sovereign state, far removed from regional issues.”
Randgold began due diligence on Kibali in 2006, months
after historic elections brought a final conclusion to a violent civil war that
left millions of Congolese dead. It acquired the asset in 2009 through a
purchase of Moto Goldmines.
“Before Moto every major gold company in the world had
this asset and did nothing,” Willem Jacobs, chief operating officer for central
and east Africa, said at the site in November. “It is very hard for big
companies to do what we have done here.”
Negotiation possible
A new project would benefit from the infrastructure
Randgold has built and the lessons the company has learned since 2009, making
it easier to replicate Kibali’s success, Jacobs said. "Every country has
its own challenges, but the Congolese government is enormously
commercial," he said of the complicated operating environment that many
miners have failed to overcome. "You can always talk, you can always
negotiate."
Gold prices hit $1 257 on February 27, well below a
record high of $1 921.17 an ounce in 2011. Randgold, which says all of its
mines make a profit at a price of $1 000, has avoided the worst of the slump so
far: It has returned more than 500 percent to shareholders in the past decade.
That’s more than double the second-best performer on the Bloomberg senior gold
miner index and one of only six out of the 16 biggest gold members to have
given shareholders positive returns over the period. Competitors AngloGold
Ashanti, Barrick Gold, Newmont Mining and Kinross Gold have all lost money for
shareholders.
Its shares are up 14 percent this year alone.
“For a long time they were realistically one of the only
invest-able gold names listed in London if you were a large-scale investor,”
said Baring’s Burstow. That’s a title slowly coming under pressure from miners
such as Acacia Mining and Centamin, Burstow says. “People have confidence that
they can deliver. We just have to watch them carefully.”