The gold sector according to Randgold’s CEO
Randgold Resources CEO, Mark Bristow, has never been short of an opinion, especially regarding the gold sector’s ability to blow itself up. He thinks reluctance to close loss-making mines is another tap on the self-destruct button. “The industry is long past the point where it could have reinvented itself.
“The industry is now struggling with survival. It can’t get out of its own debt because it doesn’t have enough quality reserves. Banks too are too scared to pull the plug. […] It isn’t pleasant,” he said in an interview with Finweek.
If that sounds like morbidity, it’s worth ref lecting that Randgold is one of only a handful of gold mining firms that has its head clearly above water. Debt-free, and generating profits from its West African mines, the company is keeping a close eye on merger and acquisition opportunities, although Bristow’s preference is for organic growth.
That’s the model the company has pursued since inception 20 years ago on 7 August 1995. Born in the teeth of the last gold price depression, when the metal was priced at $252/oz, Bristow’s Randgold almost went out of business. Having come through near extinction just after inception is perhaps why Bristow is an arch-conservative when it comes to planning around the gold price.
The declines in the gold price and gold producer share prices today are well documented. AngloGold Ashanti has lost 61% of its value in the past 12 months and has surrendered three-quarters of its total value – equal to R100bn – in the past five.
Oddly enough, the gold price was trading at only $100 more per ounce in August 2010 than today’s level, but the trajectory was upwards. The gold price subsequently climbed to $1 420/oz by mid-December in 2010.
What’s changed is investors have become disillusioned with the sector’s inability to capitalise on those good times, providing precious little in returns and spending a wealth in development which accounts for the debt pressure today.
“The last drop in the gold price brought the cliff everyone is talking about into focus,” said Bristow. “It’s almost like the industry wants to self-destruct. Companies are just mining gold now in order to cover their debt,” he added.
Randgold’s Tongon mine is located in the north of Ivory Coast.