Top Performing Gold Miner Readies War Chest in Bust IndustryThomas Biesheuvel
The gold industry is a “busted flush,” said Mark Bristow, surveying the ruin wrought by a 38 percent slump in the bullion price from a 2011 peak. For the Randgold Resources Ltd. chief executive officer, that’s an opportunity.
“This is an exciting time,” Bristow said in an interview at his London office near the Savoy Hotel. “The industry blows it’s brains out every time. The reason we’re still in the industry is because the competition isn’t that sharp.”
The world’s biggest gold miners racked up $30 billion of debt during a 12-year-bull run for the precious metal that spurred acquisitions and new mines. That has become a millstone as costs escalate and gold tumbled from a record $1,921.17 an ounce in September 2011 to $1,189.62 in London today.
Randgold, the best performing gold miner in the past decade, is debt free and profitable at current gold prices, said Bristow, who has a war chest of $500 million to $700 million to acquire assets from floundering rivals.
“We have facilities already in place,” he said. “If you look at our history, we have never gone to a gun fight with a knife. We’re getting ready and we’ll go to the gunfight with a bazooka.”
Under Bristow, a geologist by training, Randgold has generally shied away from doing deals. The gold producer built its business by finding its own mines, making discoveries in Mali, Senegal and Ivory Coast. The exception was the 2009 acquisition of Moto Goldmines Ltd. with AngloGold Ashanti Ltd. for about $500 million.
“With no debt and good cash generation going ahead, even at low gold prices, Randgold is well positioned to be a predator,” Investec Plc said today in a note. “It may still take a little more pain before Randgold makes acquisitions.”
Bristow said the company would be willing to repeat the Moto model by buying with a partner, meaning it could look at assets that cost as much as $1.4 billion. The CEO said the company’s equity was “super powerful” in the current market.
While Randgold hunts for new mines, many of its rivals are mired in debt and some are producing gold at a loss.
AngloGold, the world’s third-biggest producer, is implementing a range of “self-help measures” to cut its $3 billion debt by a third over the next three years. Shareholders including hedge-fund billionaire John Paulson rejected a $2.1 billion share sale in September, which would have cut borrowings as it split the company up. The miner said earlier this month it was putting mines up for sale to cut debt.
Barrick Gold Corp., the biggest producer, is trying to cut costs and is considering asset sales. Talks to combine with Newmont Mining Corp., the biggest U.S. gold producer, broke down in April amid recriminations from both sides.
Nick Holland, CEO of Gold Fields Ltd., said yesterday that across the industry, costs are about $1,300 an ounce including debt repayments. That’s more than $100 above the spot price.
Randgold, which has risen almost sixfold in the last 10 years, operates four mines and plans to produce as much as 1.2 million ounces of gold this year. The company will post a 2014 profit of $259 million, according to the average of nine analyst estimates compiled by Bloomberg.
“The industry right now is owned by the creditors not the shareholders,” Bristow said. “The big question here is ‘Are the gold miners going to go bust?’”