Barrick Gold Corporation
Q3 2015 Earnings Call Transcript

Published: 6 Nov 2015

[Operator:]

Good afternoon, ladies and gentlemen. And welcome to the Randgold Q3 results international investor presentation. My name is Suzanne and I will be your coordinator for today’s conference. For the duration of the call you will be on listen-only. At the end of the presentation, you will have the opportunity to ask questions. I am now handing you over to your host, Mark Bristow, to begin today’s conference. Thank you.

[Mark Bristow:]

Thanks very much, Suzanne. And good morning, ladies and gentlemen in the Americas and to those in South Africa and over in Europe. Good afternoon. As you know, we had our call at the London Stock Exchange midday today in London. And so I’m taking this to just walk through the results, give you some high-level input and then try to open to questions. There’s a full webcast on our website of the presentation from lunchtime if you want to go and pick up some new detail. So without any further ado, just quickly I highlighted the fact that gold has been going down quarter-on-quarter since the start of 2010 for some 20 consecutive quarters. And we refer to the debate around the possible increase in interest rates and how that’s potentially going to impact in the gold part. And the realization that the industry’s in a particularly tough spot at the moment. And really when we looked through the results so far this quarter, there’s not much sign of people being able to really work out of the challenges given the sort of level of debt and the lack of opportunity to deliver operational improvements to cover this. On the contrary, we at Randgold are again able to share with you a balanced set of results and other profitable production records. And unless some analysts refer to it as a pretty boring set of results, it’s boringly profitable, which is a good thing. So second slide is really our standard health, safety and environment slide. And it’s a bit like our operational performance, it’s steady improvement from a challenging first quarter, as a Group, LTI, lost time injury frequency rate. We’re also happy to confirm our confirmation of our compliance in the outer end of that process on our operations, including Kibali moving towards its first ISO 14001, which is their environmental accreditation in the beginning of next year. Moving to the Group and highlights. A very busy quarter as I touched on production at Kibali and Morila doing particularly well. Loulo and Gounkoto putting in a good performance on plan or on budget. But our challenge has been from quarter one to work on catching up some of those losses in quarter one, which slowly are getting there. Yalea had a challenge with some – not with the weather, but with some pump failures. We’ve been upgrading the pumping system in the underground as part of this changeover to owner miners. And it’s been in the middle of the rainy season, we had a particularly heavy weekend and we had some of our pumps fail and in the back of some of the bottom end of a shaft full of water. Which impacted only our flexibility on mining and that’s the reference to the Loulo-Gounkoto, particularly the Loulo side of the operational results. And I’ll touch on that when we get to Loulo. What is important is these set of results come on the back of some significant improvements, particularly in throughput at Kibali and recovery at both Tongon and Loulo-Gounkoto. So and on a Group consolidated basis, grade was slightly down even, and so it’s a good quarter when you can deliver it on efficiencies rather than grade. Financials, whichever way you look at our financials quarter-on-quarter, nine months on nine months, the numbers underline an increasingly production profile supporting a profitable business. And as this year besides the point, really results driven by throughput and improvement in recovery and all the other efficiency across the operation. Turning specifically to the operations, and starting with Loulo-Gounkoto, the complex as a whole increased production as a result of significant [indiscernible] in recoveries, as I referred to. And next slide, the numbers, you can see the costs are reasonably well contained. And just a slight smidge better than last quarter and production up on the back of recovery grade flat. And that’s really – and I’ll come to that when we look at the two specific standalone operations. Overall picture is a steady production improvement, certainly when you reference 129,000 ounces we produced in quarter one. And it goes without saying that quarter four is again going to be another improvement. And as we catch up and we’re already mining those higher grades that we should have mined last – in quarter three. So we’re expecting a good quarter. Turning to Loulo standalone, the past quarter is really all about grade, as I’ve already touched on, which really impacted on our internal plan to deliver an improved production profile. But nevertheless that grade should come up in the next two quarters anyway. On the key part of this quarter was the move to owner miner and a little bit more about that later. In the results on the standalone basis clearly these numbers explain or put into perspective the explanations I've already given you. On the underground development, Gara did really well. It didn't have any trouble with its pumping system. Yalea still on plan, but as you'll recall we had tried to incentivize the contract that should get ahead of on the development. And which the impact on the accessibility already. It was really about congestion down at the bottom of the mine. We had a lower development rate in September. I think what I'd highlight is that also it was exacerbated by equipment availability and we were forced at the end of the process to start putting our people in the long side AMS, along with our own equipment to ameliorate the impact of that equipment development. And having said that, we reached the end of the quarter with a proper development available or we took over the owner mining responsibility on Sunday, first of November. It's all gone quite smoothly and our teams are up there working hard and we have every reason to believe that this is going to be a better way to mine our ore bodies. And then with people that have to be [indiscernible] in and out and we never rely on their long-term commitment to the business. Just a graph showing the significant improvement in recovery. Actually that is on quarter. It's a really – as you know, we've been really wrestling with this and it's a product of our investment in ensuring that we have full integration of the three core disciplines, mining, geology, grade control and metallurgy. And what we've done is we've gone back into the mine, domained all the different styles of mineralization, particularly on a metallurgical reference. And then we've moved to really understand all the mining ahead of us arriving at the [indiscernible] and joining the blending process. And that's allowed us to more proactively control the reagent suites. And we've just spent a time up in the mine and it’s been encouraging to see the way the team is working to get it. Everyone who knows me and Randgold, we believe in teamwork and we’ve got to the stage now where the remaining efficiencies is all in how much more efficient can we make our team and associated teamwork work. On the exploration side, brownfields really focusing in on extending the ore bodies. We’ve made some good progress with visibility in the Gara, down the Southern – down to the extensions. Potential for 500,000 ounces resource and if you had seen the 80% conversion rates, we’re looking at about four years extra life at Gara. We’re doing the same at Yalea. The holes there are just be hard to borrow on and we’ll update you on the next quarter. Moving on then to Gounkoto as a standalone. Results are all good. And I would point out that we did not use Gounkoto to ameliorate the challenges in Loulo. The Loulo plan was – as the plan, what we were trying to do is get actually some of the higher grade ore with that. And as I say, that’ll come out later. Gounkoto impacted on higher strip fire, higher strip ratio. We intend to keep that strip a little higher for the next couple of quarters, just because to better ensure of flexibility. But we’ll review more color on that when we give you our [indiscernible] on mine guidances or the five-year plan next time we meet. Gounkoto results are really production up, total cash loss down, increase in drag and improvement and recovery, so all adding up to a better bottom line profit. So net results in Gounkoto paying another dividend, $8 million its dividends to date, for the year, $51.7 million. And looking at the overall exploration, as you know we’ve just come out of our West Africa’s rainy season and so we’ve always used this time of the year to review our exploration strategy and plans. We have a lot on our plate in Loulo distinct. Ongoing focus on ground fields and satellite projects, no matter how big they are, just to build flexibility for our mining team. And then the ongoing generative work, which fits into our overall regional West Mali, East Sandoval strategy. And again, more about that when we catch you up on our plans next quarter. Staying in Mali and Morila, had a good quarter. We're projecting a Domba project. It's a short three-month open pit mining project. It has potential to really beef up the balance sheet and ensure that Morila is well positioned to finance its own closure and more importantly its legacy project of ensuring that it can continue in a different form, in the form of an agribusiness style activity following the closure of the mine and scheduled now for 2017. These are numbers and it's really amazing that this team continues to make profits, even down at 0.5 grams a ton. Moving on then to Tongon, really a good performance by Tongon with increasing production, recoveries and profit and a lower total cash cost. What's significant is the mine joins one of a very short list of gold mines having paid back all its capital and shareholder loans in full in the quarter and it's now moved towards distributing its profits in the form of dividends and it starts to pay full corporate cash starting next year. On the subject of government in Cote d?Ivoire, you all have seen that there was a very successful election recently and the [indiscernible] government's got back into their run for the next five years. And that bodes well for our plans for the country. On the numbers, already as I pointed out, pretty much speaks for themselves. And I would just highlight the fact that we've been able to achieve these numbers despite the fact that we haven't filed any commissioned throughput strategy, which is due only – the full commission only at the end of the year. That's the joint project with the crusher supplies and ourselves committing to bring on a full quaternary crushing process in addition to what we've got. The metal will take it up to [indiscernible]. On the grid power, we talked about the challenges last quarter. Those challenges as the cautions continued into quarter three, but by the end of the quarter we were back at 97% good power. And you can see the impact in this graph of how it impacts our cost of that powerhouse. And so again, these results are, to put it in perspective, are even more credible given the fact that we were running at about $1 a ton higher on processing costs because of this extra diesel power consumption during the quarter. Recovery rate continues to improve, as alluded to you earlier. And we continue to be on track for that 86% target by the end of the year. And turning to exploration, Cote d’Ivoire is the top of our exploration. This has many exciting opportunities to expand our footprint in this very prospective country. And we’re about to start our big high resolution, the geophysical survey, which will incorporate the latest technology in the mixture magnetics. And as well as magnetics and radiometrics as well. So we already believe that’s going to help us with the prioritization of the various targets along the [indiscernible] on the early structure all the way down to our [indiscernible]. And the Tongon continued to evaluate potential on other specific satellite resources and we continue to extend the data pits below our pits in the form of drilling results. Right now, our pit continues to be constrained with lesser data. Staying in Cote d’Ivoire, on the call we put some pits in at Fapoha North targets at the end of last season, which returned some encouraging results as – that’s bedrock results, as a 13 kilometer strike. And as a follow-up, this is one of those projects I’m sure [indiscernible] will work out a lot as we chase these targets and we’re going to be first. Next step is going to be a detailed trenching across these pits to see what exactly what’s the geometry of this mineralization as in whether it’s connectible or continuous. Moving across to Kibali, the mine delivered another stellar performance last quarter. Although the production was slightly down and cost us, this was as planned. In fact, we planned a lower production profile on the back of the guidance, 3.3 grams grade, but the mine moves the 170,000 tons more ore and that’s really picked up the production. And we’re happy to confirm that, as we hinted at last quarter, that Kibali is going to comfortably beat its guidance. We started the commissioning of the Ambarau hydropower station, which is the second largest station, third station we've built at the [indiscernible] of the two largest ones. We have one more to go. If we move on to the next slide, these are the numbers and really all I'll say is that if the current quarter goes according to plan, anyone not past quarter I three, Kibali is well positioned to beat this guidance for the year. We'll do an update of the underground development. [indiscernible] very short shaft. As you know, we completed in January and almost three months ahead and we continue to stay ahead on the whole underground project. And we're looking to a significant increase in all our production this quarter as we ramp up towards the 3 million ton mark by late 2018. And at the same time, we've commissioned and are operating the pace, therefore successfully. And as I pointed out in Ivory Coast, this is – power is a critical thing in Kibali's viability or profitability objective. And you can see as we've brought in the hydropower and managed our grid effectively, so we've dropped the unit cost of power. And we're a bit short of our 75% target, but with the Ambarau power station coming into production, that should be achieved as we're going into the drier season, relatively, for the next three or so months. This is the Ambarau in the early stages. This is a phase one phase and unfortunately we had the berm, the present berm on the left-hand side of this slide fail last night in fact, which is going to setback the commissioning for [indiscernible] by about three weeks. The project is still on track to commission both phases by the end of the dry season. And so we'll keep you posted. It's an 11 megawatt power station. The first phase being half that. And then we've already completed the design for the third power station, [indiscernible], which will follow this one once this is up and running. Looking at exploration, a big focus is still around the caved in open pit. It’s due to complete at the end of quarter one next year. As you know, we’re already mining the second open pit, Mengu Hill, and we’re lining up with the third one, Mengu Hill. And Gorumbwa you see on this slide is also in that schedule. But our focus here is to see and test the connectivity between Sessenge and Gorumbwa, particularly. And there’s a gap, which you that’s labeled as the Sessenge Gap. And we’re going to be drilling that out because it is indicating it could connect Gorumbwa and Sessenge. And then the Sessenge shaft waste loan you see on the bottom left of the diagram, that’s really us looking at the up step projections of the 9,000 load from the underground ore bodies. And we’ll show you on the next slide, you can see that in perspective now. And that’s exactly what we are evaluating. On the opposite side of the 9,000 load, we’ve got some gaps and we also haven’t really tested below the 9,000 load, which is one of our targets. The best place to start was closer to service so your [indiscernible] deep. Moving on, that just gives you a perspective of where we are in the whole more regional exploration strategy at Kibali. And we’ve got the Mengu Hill, which is already an operational pit. And then some of the more conceptual targets that we’re still working through our triangle. Moving back to West Africa and our projects, we alluded to some interesting new geology at Sofia, which is a free milling ore body about 10 kilometers to the west of Massawa. And we’ve drilled three holes there now, ore came back with some significant grades averaging 30 meters at 4.7 grams. And so as I hinted last quarter, this has the potential to materially change our strategy on Massawa development. We’re busy working on there at the moment. We’ve made good progress on the Massawa evaluation or re-evaluation. And we hope to [indiscernible] update our pre-feed early next year. As everyone appreciates the Randgold creed, is that it’s only way to really value in the mining industry is through the discovery of world ore bodies. And that’s why we continue to invest in our exploration. And you’ll see in this quarter we announced our joining some of the more esoteric fundamental research that’s been conducted in West Africa. I think we’ve got to a stage where we’ve on our own booked solid databases. And we really need some additional more abstract information like dating and some of the sort of [indiscernible] modeling that’s been done by the Ambarau group, along with the industry. It’s been working for about nine years. So we’ve joined that initiative as a major sponsor. And that all fits perfectly in some of our PhD sponsored programs that we’ve got running in Cape Town and at Kingston in the UK. Another one of Randgold’s core beliefs is that part of the value we create should be invested into the development of sustainable activities for the communities that host our operations. And you know that we’ve been working on these things and this quarter again, a lot of those came to fruition. We’ve completed a feasibility study on the palm oil initiative and around Kibali and we opened up a big training center between Loulo and Gounkoto, which is a partnership with the local community and the government. Designs to generate or deliver or train 100 potential farmers on a three-year roster. So it’s a long-term commitment to uplift and join the Mali government strategy of making agriculture the base of their economic reconstruction. For a change, I thought I’d wrap up my presentation with a look at the state of the markets and in the industry. And I just point you to this graph, which highlights the super cycle that we’ve just been in. And sort of a lot of people don’t believe that this has come to an end and the potential for a new one is right around the corner. And I’m afraid that we don’t believe that’s a possibility. I think the key is when you look at the gold industry, it’sslightly different to the rest of the mining industries, be it base metals or bulk commodities or even oil and gas. And that is that during this super cycle period, the industry really taken up about $90 billion of equity and some $55 billion it has in and hasn’t been able to deliver for that, apart from just keeping the production at the same level. And the product of that is our industry is in bad shape. It’s sitting with a lot of debt. And really given the current gold price, there’s not much evidence that there’s a way out of this, other than the fact that the industry’s got to reinvent itself. And I’m a strong believer that that’s going to happen and sooner, rather than later. And the product of that is a lot of gold production will be taken out of the market. So in the medium term, good for our industry. And very much like we faced in the – it’s almost a carbon copy in my mind of the market we found ourselves in at the end of the 1990s, after the determent efforts to destroy value through hedging. I think another point is that all the other great mining industries have pretty attractive pipelines, despite their challenges facing ever decreasing commodity price. In the gold space, we do not have a pipeline to talk of at all. And we’re mining grades today that are half of the grade we mined 10 years ago. And so we don’t even have quality ore bodies to help us dig ourselves out of the hole we find ourselves in. It goes without saying that when you compare Randgold against the industry, despite the fact that we are not immune to the strengths of the current market, we are in a whole lot better shape. And the point I want to leave with you is that our intention is to stay that way and not get seduced into do anything stupid just because we’re in a strong position. But to doggedly focus on our strategy and our disciplines and ensure that we continue to be a go-to gold stock despite the fact that we more and more have to compete with our peers – rebased peers as they reposition themselves and write down their debt. And I would leave you with the reassurance that our complete commitment is to stay ahead of the game by keeping to our strategy, which has already proved to be the reference through the many we’ve been through over the last 20 years. And to continue to test our businesses against that strategy and to maintain our commitment to deliver on our plans. And I believe if we keep our focus on being profitable and creating real value, we’ll continue to outperform the market and our peers. Thanks for your attention and really we’ll quickly pass over to questions. Suzan?

[Operator:]

[Operator Instructions] Our first question comes from the line of Patrick Chidley of HSBC. Please go ahead.

[Patrick Chidley:]

Yes, hi everybody.

[Mark Bristow:]

Hello Patrick.

[Patrick Chidley:]

Just wanted to focus back on Sofia. That’s very good draw results there and what – could you give us a bit more of an idea of what the geology is there, what the sort of depth of the structure is and sort of what the depth extent might be to this.

[Mark Bristow:]

I think it’s a long, continuous zone of mineralization, some more than 12 kilometers. And we drove the – there was a zone of higher grade mineralization around 650 meters to 700 meters when we first drilled them. [indiscernible] brought in. Then what was concerning me and Rod and Joe is that maybe that zone of six to seven years more super [indiscernible] enrichment. So that’s what we talked to you about last quarter. So we went in and sunk a few deeper holes in that intersected that continuous zone there and we came up with these results. It travels about 350 meters on that zone, so we wanted to just be comfortable that it’s a real stage of mineralization rather than just a surface enrichment. Also we went and doing that we realized that drilling that we had done in the past north of that southern zone where we drilled, you can see in the diagram that the ore body continues up. There was a length of that mineralization that we’re pretty sure now doesn’t represent the main targets. So we’ve got to go back and follow that up. So that’s the – we still believe it’s 600 meters to 700 meters of strike and it appears to be plunging towards the northeast. So early days, we just wanted to do that test as we talked to you last quarter, we just didn't have the results in by then. But we could see the – which we could see the checks. We had a good look at them. So we were right in our prediction and so there's a follow-up [indiscernible] for this quarter. It's a classic [indiscernible] if you searching for oil deposit.

[Patrick Chidley:]

Okay. Thanks. And how would you characterize that relative to what, say, you got out some at Massawa and then at Yalea?

[Mark Bristow:]

It's not a Gara, because it's not – it's more like a Sabodala rating than any of the other deposits. Big shear zone milling, it's right inside the Greenstone Belt remember. And then Massawa's quite different and it's right on the edge of the basin belt boundary.

[Patrick Chidley:]

Okay. Great. Thanks. And then just a follow-up question on Loulo. Would the changeover to owner mining in Q4 and then now and then into 2016, will that be – what kind of changes should we expect on your mining cost per ton? And also obviously the CapEx this quarter is going to be higher. And how much by?

[Mark Bristow:]

We guided higher capital for the year and the reason, Patrick, our cash flow was higher this quarter is that scheduling that payment where we had planned. The actual payment I think [indiscernible] after the quarter. So we're guiding – we [indiscernible] get $400 million for the quarter and we're talking $230 million-ish. Do you want to catch up? Graham can (inaudible) the numbers.

[Graham Shuttleworth:]

So Patrick, you remember our original guidance was $330 million and then we added $70 million to that in that mining. So it was $400 million for the year. We're probably looking more at $330 million now for the year. Which would still mean quite a significant capital spend in the fourth quarter if you look at the run rate that we've been going after the first three quarters. And the difference would really rollover into 2016.

[Mark Bristow:]

we're guiding sort of $230 million

[Graham Shuttleworth:]

$220 again.

[Patrick Chidley:]

$220 million to $230 million. okay.

[Graham Shuttleworth:]

Yes.

[Mark Bristow:]

Yes. We'll [indiscernible] those numbers when we speak to you next quarter.

[Patrick Chidley:]

Thanks. Operating cost, Loulo underground. Is that going to go down quite a lot?

[Mark Bristow:]

It’s 20%.

[Patrick Chidley:]

All right. 20%.

[Mark Bristow:]

It’s going to take some time. Remember again in quarter three we carried sort of 1.5 because we were developing our team, plus we had the AMS team. So the guys did well, those numbers we took on the nose. And there’ll be a little bit of efficiency issues, but we’re pretty sure that when we look at – as we negotiated the exit with AMS, the margins they were charging, we should get around this.

[Graham Shuttleworth:]

Patrick, just remember when Mark says 20%, he’s talking about on that portion of the costs, which makes up about half of our underground costs, which makes up about half the total cost. So when you factor that through, if you remember, our original guidance in terms of what it would do to our total cash costs is only about 5%. 5% is what we guided.

[Patrick Chidley:]

Okay. Yes. All right. And then I think you mentioned that you had some water problems because of the rain and the pumping problems. Could you just outline or just describe how that happens, surface water getting into the underground workings? Is it through sort of it coming through the pit or…

[Mark Bristow:]

I could handle it if you don’t use rain for an excuse, Patrick. So…

[Patrick Chidley:]

Yes, all right.

[Mark Bristow:]

So we upgraded our pumping system. It is in the middle of the rainy season. And particularly in the pit controls and putting in two stage pumps out of the pit. And there’s [indiscernible] in August in the rainy season. We had a particularly heavy couple of weeks. And at the same time, we just didn’t get extra pumps in that we had planned to get and in in time, and we were caught flatfooted.

[Patrick Chidley:]

So there’s pumps in the pit.

[Mark Bristow:]

And it was in the pit that flowed over into the underground. We’re still sealing some of the active [indiscernible] to the underground. We’re done on Yalea and Yalea’s fine. And so that we were behind on that. And it ended up with two of the declines. Bottom of the declines being flattish. And when you try to get all that sorted out, you end up with a congestion underground. And so it took some time to recover. So we re-positioned our mining plan that. And the plan is we were going into the purple patch in Yalea and so we just didn’t mine as much purple patch as we planned to in quarter three. But that will come out of course in quarter four.

[Patrick Chidley:]

Okay, great. Thanks, very much.

[Operator:]

Our next question comes from the line of Martin Pradier of Westwood International. Please go ahead.

[Martin Pradier:]

Hi, thanks for the opportunity. What I would like to understand is Kibali. Kibali has been running around 160,000 tons of production. And what is different Q4 compared to Q3? Should we expect slightly higher production, the same or what is the mine planning telling you?

[Mark Bristow:]

3.3 gram, somewhere between 130,000 ounces to 160,000 ounces. That's what – the big thing is throughput. We've got Mengu Hill ore, with is plain, and the guys did really well. This quarter was about 170,000 tons more processed than last quarter. So I would say – Graham, somewhere 130,000 to 150,000 ounces.

[Martin Pradier:]

Great. Thanks.

[Operator:]

There are no further questions.

[Mark Bristow:]

Thank you, Suzanne. And again, ladies and gentlemen, we are starting our road show next week, this coming week. And so we'll be catching up Europe first and then back out to the UK. And then we'll see you guys in Boston, New York and San Francisco and then on to Canada at the end of November. So we'll catch up face-to-face. Look forward to it. And again, thanks for making the time.

[Operator:]

Thank you for joining today's call. You may now replace your handsets.