The gold mining industry was “bust” at $1 300 (R14 000) an ounce and could not make returns at that price, Mark Bristow, the chief executive of London-listed Randgold Resources, said yesterday.
“It means you will have a reduction in supply,” Bristow told journalists during a lunch in Johannesburg.
The industry was under pressure and it had been difficult to make profits, Bristow said.
“The crystal ball you need to study is how much damage does industry need to experience to drive down supply in order to drive up the gold price… We are in a small trough.”
Randgold had decided to make a 20 percent return when the gold price was $1 000 an ounce. This had given it an advantage with the rise of the price to a record $1 900 an ounce in 2011. As a result Randgold had outperformed the market in the past 10 years, and had continued to pay better dividends than its peers.
“Forcing margins in your business ensures profitability.”
Bristow said Randgold had had no massive write-downs, and had been able to pay dividends despite the difficult period. “The big challenge is for the company to stay up with the leaders in the pack,” he explained.
The company produced a record 283 763 ounces in the quarter to March, and its basic earnings a share had risen to 80 US cents from 76 cents in the previous quarter.
Bristow lamented the lack of investment in the gold mining sector and said that stability was key for attracting investment in South Africa.
“Right now in South Africa you have all sorts of rules. People make rules as they go, [first] they are not law, [then] they are law.”
He was referring to the legislation review in the mining sector.
The company operates mines in Mali, the Democratic Republic of Congo and Ivory Coast.
“We are invested in all the risky countries… when you tell people the countries we are invested in, they roll their eyes. Look at returns made and taxes we paid. I am bullish about central Africa.”
Randgold could not invest in South Africa because there was nothing to invest in.
“My frustration with South Africa is that it should be a leader in the emergence of Africa, but it is not. It spends so much time decrying opportunities instead of exploiting them. I have worked with governments with a fraction of what South Africa has but they have done so much.”
Bristow added that the big challenge in Africa was how to attract investment. He said there was no long-term investment in Africa because the political dispensation was not sophisticated. South Africa’s infrastructure gave it a competitive advantage compared with peers on the continent.
“We don’t need economic empowerment to develop skills, you need a mindset change. There is still lots of resistance to all sort of things.”
South African-born Bristow said it did not make sense for gold producers to operate platinum mines as the two metals were mined differently.
Sibanye Gold, South Africa’s second-biggest gold producer, has hinted that it was contemplating acquiring platinum assets that may be sold off.