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MINING: Randgold, the cost killer

By UNKNOWN
Posted on Tuesday, 17 April 2018 08:42

At the company’s annual general meeting held at Paris’s luxurious Hôtel de Crillon on 12 November 2017, chief executive Mark Bristow boasted of a successful year and a mounting cash pile for Randgold Resources. The francophone Africa-focused company mined 1.25m ounces of the yellow metal in 2016. Due to an upsurge in the gold price over the past year – reaching $1,339 per ounce in January 2018 – Randgold recorded profits of $202.6m during the first nine months of 2017, a 22% increase compared with the same period in 2016.

By driving down production costs from $698 per ounce in 2014 to a current $618, the 22-year-old mining group continues to grow despite the commodity price downturn. A number of Randgold’s smaller competitors have not been so successful, which has created cheap acquisition opportunities. In 2016, this led to the purchase of Kilo Goldmines – situated near its Kibali mine in the Democratic Republic of Congo (DRC) – and the development of a joint venture with Alecto Minerals in Mali, close to its Loulo-Gounkoto mine. Bristow was also proud of Randgold’s stock performance, which has done better in the long term than the gold price. He points out that the latter is not the only factor influencing Randgold’s results.

Explaining the strides made since 1995, Bristow says that the most important thing was not what he and his team members did, but what they did not do: “We didn’t invest in loss-making mines; and we have never stopped exploring the African soil or looking for opportunities to purchase mines.” Magnus Ericsson, Sweden’s leading expert on mining economics, who teaches at Sweden’s Luleå University of Technology, says: “in order to understand Randgold’s success, you have to remember that its founder is the heir to a line of South African geologists and mining engineers, who are the most experienced in gold mining on the continent. South Africa was for several years the world’s largest producer. He was one of the executives of Rand Mines, formerly the largest gold mining company in South Africa, at a time after independence when white South Africans were wondering about their future in the industry.”

Indeed, Bristow admits that his South African journey before launching Randgold was important to help build his strategy in West and Central Africa. “I was managing 13 underground mines in South Africa and this was a key learning process in terms of technical, managerial and social issues – in negotiating with South Africa’s National Union of Mineworkers. I’m now a firm believer that it is possible to work with trade unions in a constructive manner, and today their representatives are on each of the boards of our mining sites,” he says.

LEAVING HOME

Bristow’s choice to pursue opportunities outside South Africa with Randgold is in part personal. He says it is impossible to work in a dispassionate and effective way in his country of origin. Bristow, who also owns the South African-based company Rockwell Diamonds, says that Pretoria’s mining regulations are made to “enrich a new elite” who are close to the government and to the governing African National Congress, not the miners and their families.

His hunch was that the franco­phone countries close to Ghana may hold similarly rich gold reserves. Ericsson says that Bristow’s early days in Mali, after repurchasing the licenses of BHP Billiton, were chaotic. The company then turned to Central Africa a decade later, acquiring the Kibali permits in the DRC, where production began in 2013. “We continue to seek opportunities in two geological zones: the West African Craton […] and the Congo Craton,” says Bristow, who is interested in purchasing permits in countries where Randgold already has operations – Côte d’Ivoire, DRC, Mali and Senegal – while keeping an eye on Guinea and Burkina Faso and, to a lesser extent, Mauritania and Tanzania.

But the company is not ready to spread its wings too far. “Buying permits in South Sudan or in Central African Republic is not even worth considering at the moment due to security concerns,” he says. According to mining economist Ericsson, Randgold’s strength is its unrivalled position as a top “mine developer”. “The group is unmatched when it comes to transforming deposits into mines. That is where it creates most of its value and it is not afraid to do that in complicated countries such as the DRC,” he adds.

To achieve this, Randgold relies first and foremost on its local teams. “Almost all of our operations are managed by local staff that we have trained […]. They are extremely brilliant people who we’ve sent to South Africa, France and the UK for training,” says Bristow, who himself used to teach at the University of Kwazulu-Natal. This policy, he says, has built loyalty among managers, ensuring low staff turnover, which would not be the case with (more expensive) Western expatriates. Bristow says his company is the first to have proved that “Africans can manage mines at the best international standards.”

To ease things along, the group has appointed two former ministers, Côte d’Ivoire’s Safiatou Ba-N’Daw and the DRC’s Jeanine Mabunda Lioko, to its executive board. The company is also straightforward – or, as some critics like to say, “brutal” – in its dealings with governments, while other big mining groups such as Rio Tinto, Anglo American and AngloGold Ashanti prefer to combine political correctness and secrecy.

GOVERNMENT WRANGLES

The direct approach does not always work. In the DRC, Bristow and his team, who are active members of the country’s Chambre des Mines, have been campaigning since 2013 against the new mining code. This delayed the passing of the bill for two years, but the national assembly passed it in early December 2017. Randgold is now allying itself with Swiss giant Glencore to block the Senate from approving the code.

In Côte d’Ivoire, where the mining code is “the best on the continent” according to Bristow, the company is pushing for the current limit of 10 exploration licences to be raised. It is also calling for the long administrative procedures to be simplified for miners that are already operating there.

Randgold’s biggest challenge with government has been in Mali. Bamako continues to claim more than €100m ($124m) in unpaid taxes and royalties from Randgold. Bristow says the claim is unfounded. But the company is still in regular contact with the government. Randgold, whose activities account for close to 7% of Mali’s gross domestic product, wants to find an amicable solution to avoid going into international arbitration. In the meantime, despite a temporary shutdown of the firm’s local offices in 2016, its Morila and Loulo-Gounkoto mines have not stopped extracting Mali’s gold.

From the March 2018 print edition

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