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In its reaction to the recent drop in gold prices, LSE and NASDAQ-listed Africa-focused gold mining and exploration company Randgold Resources will review all its operations and projects, with a focus on managing cash flows.

The review at Randgold‘s Mali-based Loulo-Gounkoto complex, has resulted in a change in the mining plan, which reduces the expenditure on capital and operational development of the underground mines, as well as the build-up of lower grade stockpiles, while efficiently feeding the ore mined to the plant. The company explained that the net effect is a small reduction in grade, and consequently the complex has reduced its anticipated production for the year from 590 000 oz to 560 000 oz, while capital expenditure and working capital tied up in stockpiles have each been reduced by about US$20 million.

Further, Randgold said a planned decrease in the grade mined at Gounkoto and a reduction in recoveries due to copper-rich ore from the Yalea South pit pushback had a greater than expected impact on the Loulo-Gounkoto complex‘s performance in the first quarter of the year, but the company is adamant its growth strategy remains intact.

Loulo-Gounkoto‘s reduced contribution and higher costs, a larger than usual amount of gold unsold at the end of the quarter together with the lower gold price were reflected in Randgold‘s Q1 results, announced today.

Production of 199 013 oz was down 7% quarter on quarter and profit dropped by 43% to US$81.6 million, Randgold noted. Meanwhile, the company’s Tongon mine in Cote d’Ivoire improved its performance across the board, boosting gold production by 15% on the back of a stabilised power supply and increased throughput and efficiencies, while the Morila joint venture, also located in Mali, beat its production and cost targets.

Randgold said the development of the Kibali gold project in the Democratic Republic of Congo continues to progress rapidly towards its goal of first gold production before the end of this year, however, as part of the business review, the project has rescheduled a portion of the work related to the sulphide stream, planned for the current year, to early 2014. The company asserted that this is not expected to impact the forecast production schedule, but reduces the peak funding requirement in this year. Consequently capital expenditure on the project in 2013 is now estimated at approximately US$700 million.

Chief executive Mark Bristow said that notwithstanding the revised plan at Loulo-Gounkoto, the company’s forecast annual production and cash costs remained within its previous guidance, adding that the its solid business plan is based on realistic assumptions and bolstered by Randgold‘s secure long term growth capability and reserves that were estimated at a US$1 000/oz gold price.

“While Randgold remains strongly placed to sustain its profitability under any realistically conceivable gold price scenario, we have nevertheless reviewed each operation plan in the light of the recent drop in the price, making adjustments where necessary to ensure we manage our cash flow given this year’s large capital spend. At Kibali, the rescheduled capital expenditure will reduce the peak funding requirement without materially affecting the production profile or putting cash flow generation at risk,” he said.

“In the meantime, the Loulo-Gounkoto complex is getting back to planned grade, recovery and production levels, Tongon continues to improve and the recently approved pit pushback project at Morila, which will extend that operations life by two years, is scheduled to start this quarter,” Bristow concluded.

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