London - The biggest gold miners, weighed down by record debt and prices near a five-year low, will have to merge with others to survive, according to Randgold Resources, the best-performing producer of the metal in the past decade.
“The big producers have the biggest challenges of all,” Randgold’s Chief Executive Officer Mark Bristow said in a Bloomberg Television interview in London on Thursday. “Eventually, you’re going to see survival mergers.”
Gold’s 42 percent slump from a record set four years ago is cutting profits and stressing balance sheets for mining companies, with the largest producers weighed down by debt loads totalling almost $35 billion. The benchmark 30-member Philadelphia Stock Exchange Gold and Silver Index, which includes Barrick Gold and Newmont Mining, fell to the lowest since 2000 in September.
Barrick, which is seeking to sell mines to cut its debt, and Newmont have discussed the possibility of combining their operations several times over the past two decades. The latest merger talks ended in April last year, when both companies blamed each other for the breakdown.
Randgold, which has advanced more than fourfold in London trading over the past 10 years, has so far avoided the worst of the turmoil that’s forced producers to reduce asset values and raise cash. The company says all it mines make a profit at $1 000 an ounce. The metal has fallen 4.1 percent this year to $1 109.25.
Industry survival
“The industry can’t survive at the current spot,” Bristow said. “It will look very different in two years times.”
The company, based in Jersey in the Channel Islands, owns mines in Mali, Ivory Coast and the Democratic Republic of Congo. It’s examining AngloGold Ashanti’s Obuasi mine in Ghana, with the option to revive the century-old deposit if the company thinks it can become profitable. The redevelopment would cost Randgold about $500 million, which Bristow said could be paid for without raising debt or selling shares.
“We can build our next mine on our own quite comfortably,” Bristow said. “It’s completely affordable.”
Randgold has continues to look for other projects to buy, but has been frustrated by companies excessively pricing assets, he said. The producer will still be able to pursue other deals even if it commits to Obuasi, he said.
The company earlier on Thursday reported third-quarter profit fell 27 percent from a year earlier to $42.3 million. The company sales totalled $340.7 million and produced a record 305 288 ounces of gold. The shares declined 2.4 percent by 8.52am in London.
BLOOMBERG