Randgold Says Century-Old Mine's Reserves May Rise Fourfold

  • World-class ore body may contain 20 million ounces, CEO says
  • Company working with AngloGold to rebuild Obuasi project

The amount of gold buried at Ghana’s Obuasi mine, an operation dating back to 1897, is so vast the site may hold four times current declared reserves, said Randgold Resources Ltd., the London-listed producer that’s agreed to help turn the project around.

Randgold, working on plans to rebuild the AngloGold Ashanti Ltd. mine, identified 6 million ounces of reserves at 8 to 12 grams a metric ton, Chief Executive Officer Mark Bristow said, compared with the estimate now of 5.6 million ounces at 6 grams of gold a ton.

"It’s still early days but the potential is probably 20 million ounces," Bristow said. “The problem with Obuasi is 100 years of legacy all round. Can you convert this world class ore body into a world class mine?"

Randgold signed a deal last month to work on the revival plans. It rejected a proposal during months of talks to partner on all of AngloGold’s African operations, Bristow said.

Randgold’s shares have climbed 0.7 percent this year, compared with a 13 percent decline in the 15-member Bloomberg Intelligence Senior Gold Valuation Peers gauge.

Costs Spiraled

AngloGold fired most of the mine’s workers and placed it on limited operations after costs spiraled to more than $1,500 an ounce and output shrank. The two companies want to rebuild the mine as a mechanized operation, producing as many as 550,000 ounces of gold a year. Gold added 0.3 percent to $1,172 an ounce by 7:45 a.m. in London.

Randgold relocated workers from its Kibali joint-venture with AngloGold in the Democratic Republic of Congo to produce the mine plan, Bristow said. The operation will have to give Randgold a 20 percent return with gold at $1,000 an ounce and pay for historic environmental liabilities. The company will finish the plan or walk away by Feb. 18.

It will get a 50 percent stake in the future operation, fund half its capital expenditure and take on environmental liabilities if the plan is agreed by AngloGold and the Ghanaian government, Bristow said.

"For us to do it, we’re going to have to create so much value," he said. “We don’t want to pay for the value we’re going to create.” Capital expenditure won’t exceed $1 billion, split 60-40 between investment on building and sustaining the operation, Bristow said.

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