Randgold: where giants tread

From obscure beginnings, Randgold Resources has grown into a mining phenomenon, writes Leon Louw, editor of African Mining and Mining Mirror.

The rise of Randgold Resources has a lot to do with the rise of its South African born CEO, Mark Bristow. Bristow (along with Ivanhoe’s Robert Friedland) can best be described as a mining rock star. Put his name on a list of speakers at a conference and you can be sure that the number of delegates will double. Journalists fall over their feet to get the rare interview and industry leaders pay immediate attention as he takes to the stage. He is outspoken, has been described as ruthless and brazen — even arrogant by some — and hands-on by those who have worked with him. Bristow does not shy away from an adventure, and certainly has a large appetite for risk; yet, as many analysts have pointed out, those risks are calculated and attention is paid to the finest detail. For two years in a row, he has been named as one of the 100 best performing CEOs in the world by the Harvard Business Review, moving up to 23 from 49 in 2015. Announcing the 2016 ranking in its November issue, the magazine said: “There are so many reasons for leaders to focus on the short term: slow growth, shareholder activism, political turmoil — to name just a few. Yet some CEOs still manage to train their sights on the long term and deliver a strong performance over many years.” One thing is for sure: Bristow has earned the respect of even the most cynical in the world of mining and, under his watch Randgold Resources has grown into a giant in African mining. But Bristow and Randgold’s road to fame and fortune has been eventful to say the least.          

Where it all began

The Randgold story begins in 1994 when one of South Africa’s most famous mining houses, Rand Mines (better known as ‘the Corner House’), was taken over by Barlows, and Randgold & Exploration (RG&E) was spun out as its gold mining arm. At that stage Rand Mines was 101 years old, having been created in 1893. RG&E controlled four marginal mines: East Rand Proprietary Mines (ERPM), Blyvooruitzicht, Harmony, and Durban Roodepoort Deep (DRD). When management embarked on a “death with dignity” strategy to close down these once legendary mining operations slowly, shareholders revolted and demanded a change in management. The revolt was led by UK gold bug Julian Baring of Mercury Asset Management, joined by Fraser Alexander’s chief executive Peter Flack, and the father and son team of Roger and Brett Kebble.

When the takeover happened, a young mining geologist called Mark Bristow headed up the ‘new business’ department at RG&E. Although his blunt nature and opinionated utterances made him very popular with the local media, it gained him no friends in the boardroom. However, according to Flack who became CEO of RG&E, Bristow was the only RG&E executive who had an operational plan and vision for the company’s exploration portfolio in West Africa — and the board bought into it.

The West African assets were packaged in a new company, Randgold Resources, which was listed on the London Stock Exchange in 1997 after it acquired the Syama mine in Mali from mining giant BHP Billiton, in addition to a portfolio of exploration assets. Flack became chair of Randgold Resources and the board appointed Bristow as CEO. The problem was that, at that stage, RG&E still owned a 55% stake in Randgold. The Kebble influence was thus still much stronger than what both Flack and Bristow felt comfortable with. When Brett Kebble’s empire started to disintegrate, he sold off assets and undertook intricate corporate restructurings. Then Kebble proposed a merger between RG&E and Johannesburg Consolidated Investments (JCI) — JCI was controlled by Kebble. The move would have been disastrous for Randgold, and put Kebble and Bristow on a collision course. Bristow refuted Kebble’s claim that he still held a substantial stake in Randgold and stated in 2005 that RG&E held no more than 6.69% of its shares, which was eventually proven to be the truth. In one of the most bizarre and publicised murder cases in South Africa’s history, Brett Kebble was shot dead in his car in 2005 in what was later described as an ‘assisted suicide’.

"Bristow is the product of a very expensive education that cost investors a lot of money during those first six to seven years,” says Peter Major, director mining at Cadiz Corporate Solutions. “Although, that can be said for many mining CEOs in the world today. The Kebble and RG&E episode, as well as the falling gold price environment back then, were big learning curves for Mark. But what sets him apart from most of the others is that he never gave up. He hung in there and he made his shareholders 20 times their money from 2002 to 2012. So today he is deservedly recognised as one of the best mine managers and CEOs in the world, and the numbers back that up,” adds Major.

Despite its healthy position today, Randgold didn’t get off to a flying start. Syama was in a serious state of disrepair and needed work. The gold price bottomed out at around USD265 per ounce in September 1998 — a year after Randgold bought it — and the mine couldn’t repay its debt. However, while all this was happening, Bristow and his team of top geologists were getting exceptional results in the trenches at Morila, one of the mining licenses BHP shunned. “Morila was the company maker,” Bristow said later.

Bristow saw potential where nobody else could. Unwavering, he built a new mine in Mali — of all places — and had most other mining executives shake their heads in disbelief. The feasibility study for Morila started in 1998 and the mine poured its first gold only two years later. Bristow formed a joint venture with AngloGold Ashanti (40%) and together with the Malian government (20%) operated a money-spinner for more than 14 years. The joint venture route is a strategy that Bristow would, in future, employ successfully in West and Central Africa as he continued building the Randgold brand. In 2002, Morila produced one million ounces (Moz) of gold, making it one of the most profitable mines ever developed. Since its inception, Morila has produced more than 6Moz of gold and paid more than USD2-billion to stakeholders. The mine put Randgold well and truly on the map and although the mine was scheduled for closure in 2013, a pit pushback, tailings re-treatment project, and the possible development of a satellite pit at Domba have extended the life of mine to at least 2019. “Morila is a closing mine. However, we are negotiating with local communities to start mining Domba, a small deposit adjacent to the current operation, which will beef up Morila,” says Bristow. The mine produced 122 374oz of gold in 2015 and 90 000oz in 2016.

A taste of the Senegal–Mali shear zone

If anything, Morila gave Bristow a taste of the Senegal–Mali shear zone. He would duplicate the process of building new mines in Africa from scratch three more times — a feat no other mining CEO active in Africa (except maybe Harry Oppenheimer) could ever achieve; not even flamboyant Friedland. “Mark has spent a lot of money on exploration and greenfields projects, and he has been successful. He has done it better than anybody I know. Although Friedland has invested a lot of capital in defining ore bodies, he has, up until now, not built and operated a fully functioning mine, although the headgear is up at Ivanhoe’s Platreef platinum project in South Africa. However, I doubt whether he will operate Platreef; he will probably sell it, as he would the Komoa–Kakula copper deposit in the Democratic Republic of the Congo (DRC). Rob Still, CEO of Pangea Exploration, has been successful at more than a dozen different deposits in different countries, but he has also never actually built a mine. Bristow has built and runs four successful mining operations in Africa,” says Major.

Building the Randgold brand

After Morila’s success in Mali, Bristow’s aggressive exploration programme resulted in the opening of three more mines in quick succession. The Loulo–Gounkoto mining complex in west Mali started production in 2005; the mills started turning at the Tongon gold mine in the north of Côte d’Ivoire in 2010; and the Kibali gold mine in the DRC poured its first gold in quarter three of 2013. Randgold (45%) operates Kibali in a joint venture partnership with AngloGold Ashanti (45%) and the Congolese parastatal, SOKIMO (10%).

Randgold mined ore from an open pit at Loulo and two underground mines, Yalea and Gara, for six years before opening the Gounkoto opencast mine in 2011, just two years after making the greenfields discovery at Gounkoto in 2009. The ore from Gounkoto is processed by the Loulo plant under a tolling arrangement. Based on current reserves, the complex has a scheduled life of mine to 2028. Loulo–Gounkoto will be reinforced by a new Superpit development at Gounkoto. “Mining at the complex is now at a steady state. Cash costs at Loulo is down and that can be ascribed to the fact that we now do the mining ourselves. When you develop an underground mine it is great to have a contractor — the efficiencies are amazing — but that changes as soon as you start mining. The problem is that the contractors want tonnes and we want gold,” Bristow tells African Mining. According to Bristow, mining at the complex is currently ahead of schedule. “Although there has been a slight drop in grade over the past six months, our goal is to produce close to 700 000 ounces in the first quarter of 2017,” adds Bristow.

The Tongon mine in Côte d’Ivoire comprises two opencast operations, the Southern and Northern Zones, both of which have potential for more reserves. The mine currently has a six-year life of mine. The geological model for the Southern Zone pit was updated, resulting in resource gains that replaced the reserves mined during 2015. The mine produced close to 260 000oz of gold in 2016.

The Kibali Gold Mine in the DRC is the largest project undertaken by Randgold to date. The mine represents an investment of more than USD2.5-billion. It produced 642 000oz in 2015 and comprises 10 permits covering an area of 1 836km² in the north-eastern parts of the DRC, 560km north-east of the city of Kisangani, and about 150km west of the Ugandan border town of Arua. Kibali comprises an integrated open pit and underground operation, as well as a 7.2 million tonnes per annum (Mtpa) processing plant. The mine is currently developing the underground mine via twin declines and a vertical shaft. The handover of the vertical shaft is scheduled to take place in mid-2017. Randgold is building three hydropower stations to provide the mine with electricity and a thermal power station for low rainfall periods as backup. 

The Mali affair

Bristow’s 20-year affair with Mali, although at times volatile, has benefitted the country enormously. Over the years Randgold has had a number of disputes with the Malian tax authorities, the most recent resulting in the closure of both the company’s offices in Bamako and its Malian banking account. But Bristow carries some clout in Mali, where it operates the Loulo–Gounkoto and Morila mines, and according to Bristow the issue has been resolved. “In the 20 years that we have been in Mali, Randgold has invested FCFA1.5-trillion (USD2.8-billion) and contributed FCFA2.5-trillion (USD4.7-billion) to the country’s economy in the form of taxes, royalties, salaries, payments to local suppliers and community initiatives,” says Bristow.

“Randgold is currently in a very healthy position. Bristow just follows the basics — that takes confidence, willpower and a real sense of reality,” says Major. “The one thing that could scare investors though, is Randgold’s propensity to invest in new greenfields projects,” he adds. “If Randgold had the cash — and they do — I would rather have them buy and operate an existing mine, instead of finding and developing a totally new deposit as Bristow has done until now. However, that has been his forte so who are we to say he should change?” says Major. “Although Mark has a tendency to go out and find great new deposits, he wouldn’t let a good opportunity slip through his fingers. If he can get a return on a brownfields project, he’ll look at it. That’s another thing I like about him — he doesn’t have sacred cows. He looked at Obuasi in 2002 and had another look at it recently,” says Major. “He knows when to hold, and he knows when to fold.”

The one thing that could make Bristow stumble is a lack of another good, high-grade deposit, and nobody knows it better than him. What makes Randgold different is that the company has invested heavily in exploration, even in bad times. But the pressure to find another Loulo or Kibali is building. The company is planning to have USD500-million in the bank by early 2017; enough, according to Bristow, to build a new mine — if they can find one. New small deposits and satellite pits are enough to sustain the company for the next 20 years, but if Bristow really wants his name to be written up in the annals of mining legends, an above average discovery would do no harm.

The pressure mounts

“We are putting pressure on the geologists. Randgold needs to deliver a new discovery and that is our focus now. We have the ground to deliver on this, and it is extremely important,” says Bristow. First prize for Bristow, he says, would be good deposits in Côte d’Ivoire where exploration drilling is returning good results at the Boundiali and Fonondara permits. “If I had one wish it would be to find a plus five million ounce mine in Côte d’Ivoire. It is easy to operate there, the infrastructure is good and the mining code is the best in Africa. We have absolutely no risk in Côte d’Ivoire; we have paid back all capital and we are making profits. We could fund a USD2-billion investment should we find something that meets our criteria,” says Bristow.

If not Côte d’Ivoire, Bristow’s next best bet is at the Massawa project in Senegal, which Randgold claims is one of the largest undeveloped orebodies in Africa. Bristow has, on numerous occasions, said that he is convinced that the next big gold discovery in Africa would be made in Senegal. The work at Massawa is running parallel with drilling at Sofia, 10km to the west of Massawa, where good drill results are reported. “The Sofia ore displayed leach recoveries of plus 90% and thus, together with the Massawa Central Zone, is shifting the critical mass away from the refractory nature of the Massawa Northern Zone, making the combined complex more attractive,” says Bristow. The exploration projects on satellite deposits at Kibali also look highly prospective,” he adds. “Our aim is to develop three new, high grade, good quality orebodies in the next five years,” says Bristow.

Despite the enormous success that Randgold has achieved in Africa over the past 20 years, Major does ask some probing questions. “We have to be careful not to get sucked in by personalities. Randgold’s share price is double what it was eight years ago, having been a lot higher at a more favourable gold price. What worries me about investing in gold today is that you are basically tracking the gold price,” says Major. “Randgold did beat the gold price for six years from 2004 to 2010, but it was at a time when the price was on the rise. Randgold’s share price has held up reasonably okay in the past five years with a much weaker gold price — that deserves recognition as it is something Bristow’s peers couldn’t do. But ideally, and this is what Mark will battle to do, is for the share price to go up, over time, regardless of what the gold price does. Now that would be a feat,” says Major

At 57, Bristow will probably bring five more gold mines into production over the next six to eight years. For now, Randgold is safe in his hands, but the big question on all journalists’ lips is, what happens after Mark Bristow?