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Randgold faces down turbulence

A stand-off with union members at the Tongon mine is now arguably the biggest issue for the FTSE 100 gold giant
August 10, 2018

Can Randgold Resources (RRS) meet its full-year production and cost guidance? Thanks to a strong showing from the Kibali mine, chief executive Mark Bristow still thinks so, though little else in the first six months of 2018 would have enhanced his confidence.

IC TIP: Hold at 5,436p

The biggest headache has been Tongon, in the Ivory Coast. One of last year’s star performers, the mine exceeded production forecasts and generated $171m (£133m) of profit in 2017, but has since suffered a series of on-and-off strikes. The result has been a series of work stoppages, the latest of which has halted production since mid-July, and a reduction in full-year guidance to 250,000oz.

A recovery plan is being devised, but the challenges might be compounded by erratic electricity supply from the Ivorian grid, which has left Randgold increasingly reliant on expensive diesel-generated power, and helped push Tongon’s total cash costs up 23.5 per cent to $783 an ounce.

The Loulo-Gounkoto complex in Mali fared better, although a fall in head grades and a planned decrease in tonnes processed caused costs at Gounkoto to rise. Good news for the complex arrived post-period, in the shape of a 50 per cent corporate tax cut designed to encourage development of a super pit at Gounkoto. While the effect will be a reduction in Randgold’s in-country tax rate to 15 per cent this year, a permitting delay at a satellite of Morila highlights the risks of assuming mine-building is ever a smooth process.

Still, the transition to underground mining at Kibali in the Democratic Republic of Congo (DRC) has been almost seamless. Higher grades helped to both push second quarter output up by 17 per cent to 202,000oz, and reduce a per-ounce total cash cost figure already flattered by higher use of cheaper hydropower. The mine generated $240m in profits in the period, of which $108m is attributable to Randgold.

The day before these results, a spokesperson for Joseph Kabila said the DRC president would not be seeking a third term. What effect, if any, this will have on the enforcement of a new mining code is hard to say, though a reference to international arbitration is buried in these results like a stick of dynamite in a rockface.

On average, analysts expect adjusted pre-tax profit of $480m and EPS of $3.15 this year, rising to $557m and $3.70 in 2019.

RANDGOLD RESOURCES (RRS)  
ORD PRICE:5,436pMARKET VALUE:£ 5.13bn
TOUCH:5,434-5,438p12-MONTH HIGH:8,255pLOW: 5,320p
DIVIDEND YIELD:2.9%PE RATIO:28
NET ASSET VALUE:3,858¢NET CASH:$604m
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)*
2017655270164nil
2018603162116nil
% change-8-40-29-
Ex-div:na   
Payment:na   
£1=$1.29. *Randgold only pays a full-year dividend (200¢ paid in May 2018).