Barrick Gold Corporation
Q3 2016 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Ladies and gentlemen, welcome to Randgold Resources Third Quarter Results Conference Call. I’ll now handover to your host, Randgold’s CEO, Mr. Mark Bristow. Sir, please go ahead.

[Mark Bristow:]

Thank you. And good afternoon and good morning, ladies and gentlemen. Thank you for making the time to join our quarter three update. As is usual, we’ll point you to our webcast on our website which is the detailed presentation that we gave at the London Stock Exchange at noon today. And we’ll -- I’ll walk through the presentation, which you have in front of you and just give you the highlights. So, starting with the core part of our strategy and that’s our people, employees, communities and partners, and most importantly our governments. We had a very good safety quarter this year -- this quarter; first time that the whole Group has posted no -- zero lost time injuries across the Group. So that’s a really big feather in the operators’ cap; and we’re very committed to continuing to deliver on those lost time injury free achievements. And I think it’s particularly important when you look at we employ some 11,000 people across the group. We have again continued to improve our malaria incident rate dropping at substantially again 18% quarter-on-quarter; and again our whole environmental management program continues with -- we’ve just given you one of the GRI measurements that we do in managing our environment, in the slide, which is the amount of water we recycle. So, moving onto the next, as you know, we’re not a short-term sort of company. We’ve always managed for the long-term. And as you know and those who’ve been following us for the life of our business, now you’ll see we’ve certainly had during our last 20 years, had to deal with short term challenges. And the first half of this year had a number of those challenges, which we’re pleased to demonstrate to you today the fact that we’ve made a great progress in attending to those operational issues that impacted our first half of the year. And so, after a tough first half, we bounced back as promised with a much improved third quarter. And you can see from this long list, there were big upticks in every part of the performance. And whilst we’re mindful that we’ve a lot to do in the fourth quarter, our guidance for 2016 and our longer term plans remain intact, and I’ll show in the quarterly presentation that we’re very well-positioned to continue to create additional value and build on this improvement that we share with you today. These are the numbers that speak for themselves. And certainly compared to this time last year, profits up, cash cost down and production up, our net cash grew substantially, and it really sets us up nicely for a very strong quarter in the fourth quarter to finish the year. Turning to operations specifically, our Loulo-Gounkoto operation remained on track to beat its production guidance. We’re looking for about close to 30,000 ounces over the two -- 670 guidance and a solid all round important performance. The lower grade that you see in the complex driven by Gounkoto, still dealing with the pushback as we guided last time, and feeding more of the medium grade stockpile. But that’s -- the pushback has got to a point where we are accessing the main orebody again. And so, we’ll see a reduced feed going forward from the stockpile and a higher grade, and that’s really the driver for quarter four. Looking at -- moving now to the underground Loulo operations, on a standalone basis, you’ll see slightly lower grade partly offset by better throughputs, keeping production in line with previous quarter. What’s encouraging is the cash costs still in line with last quarter, thanks to improved efficiencies in both the underground operations. Development projects are on track and within budget. And in particular if you move to the next slide, the underground development slightly less than last quarter but that’s because of the over delivery last quarter, quarter two. And we’re really getting to that steady state rate that will continue quarter-on-quarter going forward. The results for Loulo underground speak for themselves, showing a team which has hit its stride and certainly keeping up to the pace, and really feather in the cap of the Mali underground team, which we introduced you to in quarter four last year. Turning now to some of the Brownfield’s updates, really this quarter has been a very significant quarter as we deliver an additional 0.5 million ounces of reserves at Gara. We now really are seeing the color of another 0.5 million ounces, which we’re busy drilling out on the further southern Deeps extension of Gara. And likewise, we’ve shown a significant improvement in grades out of the higher grade zone in Yalea and an additional high grade shoot that we’ve identified and currently drilling out. And just the main higher grade, change in grade that we added another 350,000 ounces at 12 grams, as you can see in that solid circle in the slide for Loulo. And this along with the Super Pit, that I’ll talk about just now, has -- when we look at it, we really are able to now bank a 10-year business plan, plus 600,000 ounces around $600 an ounce, and that’s something that we shared as objective two years ago at our investor day. And we’ve got still more to come, certainly as far as Brownfield’s opportunities at the Loulo-Gounkoto complex. Moving to Gounkoto on standalone basis, as I pointed out, softer quarter on the back of lower grades because as we supplemented the reduced main full grade ore mining with lower grade stockpile ore as we dealt with the pushback. The mine still delivered a good performance, in line with plan, I would add, and a significant was the declines costs again, both due to improved efficiencies and also a deferred strip that we capitalized as part of the pushback to reduce the costs. Getting back to the Super Pit. Again, we’re just shy of finalizing the feasibility ahead of plan. We’re expecting to be able to present some of these business plans to you in some detail at the investor day. And what left in the process is some fine tuning on the optimizing of the mining schedule and the pumping design which is, you can imagine water management is going to be critical factor with this very large pit, given the closeness of the Faleme River. The Super Pit is scheduled to produce around 2.4 million ounces and that’s really one of the key contributors to a much less complex and robust long-term profile, which I referred to earlier. In addition to the Brownfield’s work, we’ve just finished the review period which we always do traditionally during the rainy season, which is coming to an end now. And as you can see here, a lot of targets have been generated and additional and prioritized ready for the next field season. And on top that we really made progress, another level of understanding as far as geological controls and styles of mineralization in the area. And this work is part of a larger regional exploration strategy, which is shown on the next slide, which really focuses on the Kedougou Kenieba Inlier. And we’ve added in this inlier an additional 500,000 ounces of resources, largely driven by our ongoing work at Massawa and Sofia. And I think focusing in on the Massawa-Sofia complex, it’s a good example of how diligent research and analysis can steadily convert a problematic orebody into a viable prospect. We certainly are much better disposed to the project today after the work and the ongoing test work, and we’re starting to get those results. We believe we’ve gotten a flow sheet now that works without the requirement of pressure oxidation for most of the resources within the Massawa -- extended Massawa project, largely focused on the central zone. And at the same time, work on Sofia continued. And in the next slide you’ll see the significant improvement in the modeling from the old block model to the new block model shown on the slide. And still quite a few gaps, we’ve got about a 1 million ounces to fund in resources. And within our -- with the current $1,000 pit, we’re 660,000 ounces at about 3 grams., This orebody is a free milling orebody. And really with the combination of the two where we’re now, although not all of it is in reserve, it’s -- we’re sitting with about 2.5 million ounces of estimated potentially minable resource, and the preliminary economic assessments are showing sort of IRRs in the mid teens. There’s still quite a bit of work to do but with more and more as a team we’re becoming confident that these projects starting to show the potential to pass our investment focus. And just to remind you, they are $1,000 gold price long term and IRR 20% at that gold price, and we need at least 3 million ounces of minable gold. The growing feasibility of the Massawa-Sofia project has confirmed to us the prospectivity of Senegal and in particular has heightened our interest in the Mako Belt. And we’ve developed a new regional prospectivity map shown here and it integrates all our historical data and points to again a number of new targets for follow-up work this field season. Back to Mali and Morila, which as you all know is the mine which Randgold was built on. And this grand old lady is now heading into the sunset but still a few years of life left. During the past quarter, Morila transitioned to a full tailings retreatment operation where the process tailings will be returned to the pit as part of the rehab program. And if you look at the next -- we also by the way have delayed the Domba satellite pit as we deal with the community on getting its -- buy in to the exploitation of that small resource. At the same time, we recently announced the signature of an option with Birimian Gold to evaluate two small deposits, located about 25 kilometers from Morila amounting to a potential 60,000 ounce resource that could be processed through the Morila plant, which will also add to the ability for Morila to fund its own closure. Moving then to -- these are the results of Morila, you’ll see costs are a little higher this quarter, largely because as we switched over to the full scale tailing getting the ramping up the throughput, making sure we get the flow sheet properly optimized to be able to take very different material to what we were doing in the past. But we’re comfortable that as we settle down the recoveries, we will be able to pull, pick the grades up as we get to the basin of the tailings dam, we will be able to bring those cost down to below the $1,000 ounces which is in line with the original feasibility work. Moving then to the Côte d’Ivoire, where Tongon has come back strongly after particularly difficult first half of the year, where we as you’ll recall, suffered some long mill breakdown time and at the same time we are still getting to grips with commissioning the plant upgrade and the extension program. But very substantial improvements in production, profit and cash costs, and certainly the mine is now getting back to its original plan. And as you see our results show, all the arrows heading in the right direction, reflecting a praiseworthy all-round performance by the team. It’s worth also nothing by the way that Tongon remained profitable even in its most challenging quarters during the early part of this year. During Q3, Tongon also made real progress in developing a more cooperative approach towards its power management with the Ivorian power utility. You see the percentage of generated decreased again. And I would just point out that big drop in the unit cost of power is because of rebase after the overcharging of fees and tariffs from the utility which is part of our standoff with them in the previous quarter. As I’ve pointed out, many times before, Côte d’Ivoire is our proffered destination of Greenfield’s exploration; it’s very prospective, yet still relatively unexplored and probably as the best mining code in Africa and a well developed infrastructure. So, a good place to build mines. And also, we have no risk in that country as Tongon has paid back its capital. And so, you can see, we’ve got lot of appetite to continue to aggressively develop opportunities in our pipeline of projects in that country. At Tongon as in other operations, we continue to look for ways to extend the life of the mine and we’ve got ongoing drilling below the north pit, particularly at the moment. And we’ve come up with some pretty interesting facies changes with substantial increase in the amount of silica flooding and visible gold, which we’re evaluating; it’s outlined in that red block. And also we’ve intersected much thicker ore under the pit in the western end. And we believe that that will help take that part of the pit down deeper when we come to running the new optimized pit shells. And of course another option of extending lives is through the development and banking of the satellite pits within trucking distance of the mine. And this is a quick update of where we’re. And as part of our focus of developing particular projects driving our exploration as a business, you will see we’ve put some ounces to these prospects. And so, the focus now is to convert them into minable reserves and so that they can be put into our schedule. On Boundiali, this permit, which is host to multiple targets, we’re again starting to put numbers to our work. We’ve defined our resource of 500,000 ounces in Fonondara and 250,000 ounces at Kassere. Still got a lot of work to really understand the full opportunity spectrum within this belt, but we’re making good progress, big focus now, as you can see a whole lot of new targets to evaluate, we need to get a handle on the quality of these targets so that we can start managing the priority and the sort of phased evaluation of this belt, which is a substantially big piece of ground to evaluate. On the Mankono permit, you would have heard already that we’ve launched today our -- specifically our three and five strategy as far as the exportation goes, clearly putting the challenge to those geologists of developing these three projects over the next five years, really made; the logic is driven by the fact that all our business units have specific targets to meet, and there should be no difference with geological division or business units. And so, they’ve had two years to get to reinvent themselves and reenergize that business. They’ve done a great job under the leadership of Joel Holliday. And really, we are at the stage now we’ve built a solid inventory and we should be able to be setting ourselves more definitive goals. And the first one of those three we’re looking at is really a replacement for Tongon. And we’ve got two candidates in that class

[Operator:]

Thank you. Ladies and gentlemen, we will now start the question-and-answer session. [Operator Instructions] Our first question comes from David Haughton from CIBC. Please go ahead.

[David Haughton:]

Yes. Hello, Mark and team. And thank you for the update. Pleased to see the turnaround at Kibali and Tongon this quarter. And I got a couple of question in regards to that, if you don’t mind. Just looking at Kibali, the nameplate is roundabout 6.8 million tons or at least that’s guidance we think given previous, but you’re shooting well about that. Is that as a consequence of feeding the softer satellite ore?

[Mark Bristow:]

David, we’re running very well on Kibali and we’ve got a little bit of transitional. But, I think the team has got their head around -- we changed out the engineering team after the first quarter. And we’ve really been focused on availability and planned maintenance. And one of the big drivers behind the throughput performance this quarter has been, we achieved a 94% availability in the plant and we had good solid long runtimes with the plant, which the whole trick in processing. If you can keep those plants running steadily, you get everything rocked. And I think that’s something we still haven’t quite ticked that box at Tongon to have these long six, seven, eight-day runtimes. So, we’re performing above nameplate at the moment and our intention is to keep it that way.

[David Haughton:]

So that was going to be the follow-on. Given your commentary there, to what extent should we be thinking about the throughput? And the ability to feed it, I guess is the other challenge because you’ve got the underground ramping up and you’ve got your various open pit sources, just wondering what we should be thinking about there, going forward on throughput.

[Mark Bristow:]

So, this next quarter, we’re guiding same throughput and a significant step up in the grade, as I showed you in the feed schedule with the introduction of the Kombokolo higher grade ore, which is what we re-cut after the poor performance in the beginning of the year on a grade basis. We’ve got no shortage of feed, the big challenge until we really get that ramp after July next year from underground, is really the grade. But once the underground starts ramping up, we reduce volume of open pit and particularly the amount the gold, the plan calls for, because by the time we get to steady state and in 2018, 80% of the gold produced comes from underground.

[David Haughton:]

Then flipping over to Tongon. It’s good to see that you’ve got the power coming on in this quarter, gives you a lot of more flexibility. I’m just wondering how we should be thinking about the ramp up of that production profile as well.

[Mark Bristow:]

So, again, we’re just shy of nameplate in Tongon. We’ve really -- as you see from the results, we’re on top now steady feed at around 2.6 grams, the recoveries really -- we’re starting to make a habit of 84% and we were achieving on sort of once or twice a week and little higher than that. So, that’s all good. And really it’s getting that mill throughput. We’ve got a few plans to improve again that efficiency of that mill. And we still -- as I pointed out earlier, our runtimes and our availability because of the continued interruptions that we do experience will be there a lot less than the past. We’re still not optimal in that operation but it’s certainly a lot better, and we’re expecting to show you another step up this quarter to get us. And you just need to do the math. I mean, David, if you look at our guidance, you like at the math, then we get a move from -- in Loulo to well into the 190,000 ounces for this quarter and Kibali also over a 190,000 will do an extra 8,000 to 10,000 ounces and Tongon, you can see what the quarter looks like.

[David Haughton:]

Yes. And part of the missing equation there is how you’re going to get to the bottom end of the guidance, so going to be one of the best quarters that you’ve ever delivered to be able to get there.

[Mark Bristow:]

That’s absolutely right.

[David Haughton:]

Okay. And I think I’d heard you say that for Morila, as you switch over to all of the retreatment of the tails, your target is to get $1,000 cash cost. Is that correct; did I hear that correctly?

[Mark Bristow:]

Total cash cost just under a $1,000. And we’ve changed that processing a bit, but we’re at least running the mill on a very large ball load as a scrubber. And we’ve managed to lift the recoveries up materially from our original feasibility design. So, we are just settling that flow sheet. We need -- we had a move around a bit of the pumping and that as we went to 100% tailings. We have the ability and we’ll retain the abilities to switch back to be able to treat ore with the -- until we clear the Birimian option, which we’ve recently announced, and also should we have the opportunity to put Domba through the process as well.

[Operator:]

Our next question comes from Howie Flinker from Flinker and Company. Please go ahead.

[Howie Flinker:]

Roughly, what proportion of your costs, your drop in costs came from the devalued -- what is it called, Central West African franc, as well as fuel?

[Mark Bristow:]

So, nothing much because the euro has been very flat and that West African franc is linked to the euro. So, it’s really a hard currency. The real costs came through efficiencies, more throughput, lower costs, and better grades at Tongon, slightly better grades at Kibali but you heard David highlighting the throughput in Kibali, which really helped. So, Loulo-Gounkoto, very little as because we mined lower grade there, so some benefits, just solid efficiencies particularly on the underground and then we capitalized some of the big portion of the strip from quarter two because we had a big strip there, our auditors felt that we should be doing that. And particularly in line with the fact that we’re going to be capitalizing the big push back in the Super Pit going forward.

[Howie Flinker:]

Isn’t the euro down notably year-against-year?

[Mark Bristow:]

Yes, year-against-year, but not quarter-on-quarter.

[Howie Flinker:]

And what about fuel?

[Mark Bristow:]

Fuel, slightly up now; it’s been drifting upwards a little bit but really not a material; certainly this year it’s been pretty steady. Because there is dampening effect in country, particularly with diesel in the price. We saw the big benefits last year.

[Operator:]

We have no other questions at this time. [Operator Instructions] We have no further questions. Mr. Bristow, back to you for the conclusion.

[Mark Bristow:]

Thank you everyone for making the effort. We look forward to catching up with guys at our investor day starting here in London. And then we will be moving to New York and Toronto. Those who don’t have any information on it, please you can get the information from Lois or Kathy. But I’m sure we’ve already informed you of the detail. And, again, if there are any questions you would like to ask following this call, as you Graham and I are always available to take a call, just drop us an email or give us a call over the next couple of days. Otherwise, I’ll start the road show tomorrow, our global road show will be going through Europe next week. And then the road shows on the Investor Day 17 -- 18 here in London and then we move down to New York and on to Toronto. Okay. Thank you very much again. Cheers.

[Operator:]

This concludes today’s conference call. Thank you for your participation. You may now disconnect.