Randgold Resources is an African success story. In particular it is a West African success story, with the company having to date discovered four world class gold deposits in that region totalling some 15 – 20 million resource ounces to prove that coincidence has nothing to do with it. 

The first of these deposits was the company maker Morila in Mali, now entering its twilight years. The second was Loulo, also in Mali, with a 12 million ounce gold resource and a 7.4 million ounce reserve where underground mining recently commenced – this the first big underground mine in west Africa in 100 years, since Obuasi. The third deposit is the Tongon project in the Cote d’Ivoire where construction work on the 300,000 tonne a month mine is due to commence at the end of 2008. The fourth major discovery is the Massawa prospect in Senegal, and Randgold Resources CEO Mark Bristow says he has never seen anything as exciting as Massawa outside the Obuasi deposit, which has produced some 15 million ounces of gold.

Bristow attributes the success Randgold Resources has achieved, in contrast to many other groups, to a difference in approach. “We started by looking at geological potential, in comparison with the companies in South Africa which concentrated on building well engineered projects, without prioritising profitability.

“When we started out we looked at the world’s geological potential and asked ourselves where the world class gold deposits are to be found, the plus two million ounce deposits.” The answers Randgold Resources came up with were; western and central South America, incorporating Chile and Argentina; the western portion of the US, Nevada in particular; the archean geology in Canada; the Kaapvaal craton in South Africa; the archean craton that covers north western Tanzania, the Central African Republic and the Democratic Republic of Congo; the Kalgoorli region of Australia; the Pacific Rim comprising Indonesia and Papua New Guinea; and a geological structure that covers south and central Siberia and northern Mongolia. And then there is the Birimian shield in West Africa, which covers Burkina Faso, Niger, Ghana, Mali, Guinea, and eastern Senegal.

“After that we identified the risks, and looked for geographies where we might have a competitive advantage. We took into account fiscal regimes, economics, as well as political risks and infrastructure. South Africa, for example, has a mature mining sector which is influenced by politics. Our goal was to emulate the Barrick of the late 1980s and early 1990s, where profitability was everything. And, with the end of the Cold War and the advent of Nelson Mandela’s government, suddenly instead of being pariahs South African mining people were welcomed throughout Africa.”

L PLANT

The Loulo plant

Bristow says, aside from the anomaly of anglophone Ghana a country steeped in mining history, the francophone countries of West Africa have no real mining legacy, though data exists from the French geological surveys done during the colonial period. “It remains virgin territory as far as mining potential is concerned. Also, in effect there is no tribalism in francophone West Africa; if one speaks French one can deal with everyone.

“We arrived in West Africa with no assets and no cash, but with a mining profile and we were Mandela’s boys; people were willing to listen to us,” Bristow says. “In comparison we would not have achieved the same thing in South America, which really is North America’s back yard and hunting ground. You could say the same about Australia and the Pacific Rim. As for Russia, that will be West Africa times ten, but that is still to come.

MARK BRISTOW

Randgold Resources CEO,
Mark Bristow.

” Bristow notes that a lot of the big mining groups have not made it in West Africa (outside of Ghana); only now are they returning as emerging markets replace established markets such as Canada, Australia, USA, and South Africa as mining destinations. “But you can’t manage projects in places like West Africa remotely. One has to have relationships on the ground.”

He tells of how he and senior executives have spent the past nine months doing public participation exercises, going from village to village in the Cote d’Ivoire to discuss the Tongon project. Randgold Resources’ track record also speaks for itself with a US$12 million investment in Morila turning into a US$1 billion dollar project, where the Malian government has made US$550 million in taxes.

Bristow also points out how the company’s focus in a single region has translated into a competitive edge, and existing infrastructure can be used to build new projects. For example, the Massawa prospect in eastern Senegal is only 100 km from Loulo, and would use its same supply access points. This includes a road being built that will reduce travel time from the mine to Mali’s capital Bamako from 24 hours to four. At the same time Tongon will use the logistical infrastructure from the Morila operation; supplies for Morila come through Abidjan, and Tongon is en route.

The market seems to agree with him regarding the company’s advantage, as Randgold Resources with two operating mines has a market cap of US$3.5 billion compared with AngloGold Ashanti which has 20 mines around the world and a market cap of US$9 – US$10 billion.

“We went in with a plan and worked according to it, as opposed to saying we want to be a million ounce producer.” Randgold Resources is expecting attributable production of 400,000 ounces this year, and as its Loulo underground mine builds up this will extend to more than 600,000 ounces by 2011. The Tongon mine in Cote d’Ivoire, the company’s third mine, will add another 200,000 ounces a year.

However, Bristow says that 2008 has been one of the company’s most difficult years as it matured to become an established producer with two operations and a new project being engineered. Tongon has been upgrading its resource to reserve status, with it now having a reserve of three million ounces and a resource of 4.4 million ounces. Bristow says that Tongon can be compared to Loulo in that the shear hosted orebody has linear features and satellite deposits and underground mining potential. All this suggests a long life operation, unlike Morila, a deep sedimentary deposit that outcropped and subsequent discoveries are not a given, as has been the case with no satellite deposits having been found.

TIPPING POINT

Tipping point at Morila,
Randgold’s first mine.

Tongon
With the upgrade of the Tongon orebody the plant has been increased in size from a 200,000 to a 300,000 tonne per month (tpm) operation. This production of 300,000 tpm in unweathered rock will increase to about 325,000 tpm in weathered rock. The recoveries are anticipated to be 95% in the oxide ores, 90% in the transitional ores and 87.5% in the sulphide ores.

Of course further upgrades can be done over time, as happened at Loulo where the plant is being upgraded from 220,000 to 300,000 tpm for a cost of US$15 million and at Morila where the plant was upgraded from 250,000 to 350,000 tpm. “It revolves around the milling capacity, really,” Bristow says.

The pre-feasibility study at Tongon was based on 1.4 million ounces of reserves and since then the grade has improved as better deflections were found. “We are careful about making over optimistic claims over our reserves, and the Tongon north and south reserves are well defined. The focus has been on converting resources to reserves at Tongon and that has been the reason for the growth in reserves. We could augment the existing reserve if significant high grade zones are discovered, as has happened at Yalea.” Like Loulo, Tongon, an open pit project with a strip ratio of 3.8:1, has underground potential, but the immediate growth potential in resources/reserves lies in two satellite pits, Tongon East and Poungbe. “The potential is there for the project to grow as the region is prospective.” Conceivably it may even reach the scale of Loulo.

DRILLING ON TONGON

Drilling at Tongon in
the Cote d’Ivoire.

Bristow says that the long lead items for the Tongon project have been ordered, in particular the mills and the back-up 20 MW power station. Tongon is supplied by grid power, which is based on hydroelectric and gas fired generation, at around US10c/kWh. “We are assisting with the building of the infrastructure that includes a 30 km 90 kVA power line extension to the mine.

“One of the keys to getting Tongon into gear is a bridge we have built, the wall of which also creates a temporary water storage dam. We have significant accommodation in place for the initial phase of the construction project, through the exploration camp, and we have established a stockpile of sand and aggregate for construction activities."

A year ago the project was costed at US$260 million including the fleet and given the inflation pressure being experienced by the industry Bristow says that is now expected to be a little higher. He says that after the team had finalised most of the main orders and subcontracts they will update the capital estimates and lock in prices. Asked how much the capital cost could go up to, Bristow estimates, “somewhere between US$267 and US$300 million excluding the fleet costs.” He points out this does include a change in the parameters of the plant design.

The final design of the project is well advanced, and Tongon will use ball mills, like those Randgold Resources uses at Loulo, although a little bigger, as opposed to a SAG ball mill combination which it uses at Morila. The plant at Tongon will feature staged crushing, three stages, and Randgold is still debating the use of flash flotation, which might increase recovery further. Senet is the preferred EPCM contractor and Randgold is acting as its own company representative.

“We know the labour legislation and the landscape better than anyone,” Bristow says. “We have worked with the government in settling the interpretation of some of the aspects of the mining convention, such as how the tax incentives work. We did the same in Mali, where legislation had to be changed for us to use the mining rights to raise funding.” And he adds that it is a misconception that the tax regime in Mali is lenient, as many people assume. The corporate tax is 35% and there is a 6% royalty.

The Tongon mining convention has been settled with the ministry of mines, which is now dealing with the other government departments, and the issuing of the mining licence is imminent.

In early September, the potential mining contractors for the Tongon open pit mine had been reduced to a short list of four, one South African company, one French, one Ghanaian and one Australian. Randgold Resources, which will own the mining fleet, has introduced a formula that ensures the contractor is part of the business, but at the same time does not hold the operation to ransom. “In general mining companies don’t do volume contracts well, but we also want to avoid the situation where the contractor effectively passes all the risk to the owner and uses the owner’s balance sheet to raise the capital it requires.

“The environmental work for Tongon is complete with no major impacts, and we are the only mining company in West Africa to have undertaken a social and health impacts base line study on the effects of our project on the local population. We are pushing a partnership process at Tongon, and have an independent agent, Digby Wells and Associates, doing that study.”

YAL PORTAL

The Yalea portal.

Massawa
The discovery at Massawa is exciting because it comprises six kilometres of continuous gold mineralisation and Randgold Resources has drilled every 200 to 400 metres with some of the drill lines having two intersections. The reason it has not yet declared a resource is because the surface is characterised by a hard ferricrete cap and trenching to properly evaluate the shallower portions of the mineralisation is not possible, although RAB drilling has confirmed the outcrop positions. Straight after the rains, reverse circulation drilling will be undertaken to enable reliable grade estimates to be made for the upper weathered portions of the mineralisation.

Two zones are being focused on at Massawa, the North and Central zones. These have been drilled on a 200 metre grid. The North zone extends 1.7 km and the mean gold seam width of the main mineralised unit is 9.2 metres at a grade of 4.8 g/t. The Central zone is wider with a mean seam width of the main mineralised unit 17.65 metres at 3.42 g/t. These initial estimates only cover one of three units in the Central zone and only one of about five units in the North zone, which implies great potential for a large open pit mine. “I have not seen anything like this before,” Bristow says. “The only continuous strike that I know of that is comparable is the Obuasi trend which is six kilometres long.”

The find is not a coincidence. Bristow points out that Randgold Resources has been exploring in Senegal for nine years and this find was a second order anomaly which was only evaluated as part of the second round of exploration. “Exploration has its ups and downs, but the advantage Massawa has given us is the luxury of cherry picking any potential merger and acquisition opportunities. Anything we buy will have to be benchmarked against Massawa and that won’t be to our disadvantage.

” Randgold Resources believes strongly in turning over exploration properties and is a strong proponent of the use it or lose it principle that South Africa has adopted. Bristow describes the state of exploration in Africa as constipated, with a lot of juniors having picked up ground positions and doing little with them. The previous generation of junior projects discovered in the nineties were the result of experienced and capable mining people and geologists being shed from the majors during the last downturn and then forming their own junior enterprises. On the other hand he suggests that many of the current generation are paper traders, and the result is that out of about 150 registered companies in a country like Tanzania only about five are really active. The situation is similar in Ghana and Mali.

With the strong position in which Tongon, and Massawa’s potential, place Randgold Resources Bristow says it will not do what the merger and acquisition project promoters want and be the region’s pooper scooper. It has demonstrated it will create its own value, rather than rely on acquisitions unless those offer superior merit.

Morila was Randgold Resources company maker, but it offered limited flexibility. Loulo and Yalea established the company’s steady production profile. Tongon is the future growth, which is already in place and will see the company produce over 600,000 attributable ounces of gold by 2012. Massawa is the future potential in an industry where production declines are the order of the day.

Having established a footprint and competitive advantage in West Africa, the group is now looking to see if it can repeat this in east Africa, with Tanzania now where West Africa was about 15 years ago, and the potential of the CAR and DRC still untapped.