Randgold quarterly profit disappoints

Tue 10 Nov, 2009 12:09

By Julie Crust

LONDON (Reuters) - Gold miner Randgold Resources (RRS.L) posted higher output but lower-than-expected profit in the third quarter on rising unit costs, but said it would fast-track its Gounkoto project to tap its "spectacular" grades.

Randgold's gold production rose to 118,925 ounces from 101,856 ounces, but total cash costs grew to $573 (343.46 pounds) an ounce, partly due to higher costs at its flagship Loulo project in Mali on a slower-than-expected ramp-up from the Yalea development.

The company said separately three workers were killed in an accident at Loulo on Monday.

The company's shares were down 5.1 percent at 4,535 pence at 11:11 a.m., hit also as gold prices eased from a record $1,110.85 an ounce on Monday.

The only pure gold producer in the FTSE 100 index swung to a third-quarter profit of $13.6 million from a loss of $684,000 a year ago, though its profits dropped 39 percent from the second quarter.

"These disappointing earnings are the result of rising costs, due mainly to ongoing difficulties with the Yalea underground development at the Loulo project in Mali," said Numis Securities in a note.

"We believe that Randgold is currently overvalued in relation to its operational risks and established production levels," it said.

Randgold said it would accelerate its Gounkoto project, 25 kilometres south of Loulo, and planned to complete a pre-feasibility study by the end of the first quarter of 2010.

Chief Executive Mark Bristow told Reuters he expected gold to reach $1,200 an ounce by the end of the year due to the fundamental shortage of the metal.

Evolution Securities said Randgold's forward sales commitments meant it had not fully benefited from the increase in the gold price.

The company is winding down its hedging position.

PROJECT PIPELINE

The development of the Tongon mine in the Ivory Coast is ahead of schedule. The first gold could be poured next October, towards the early part of its fourth-quarter 2010 forecast, with full production starting four to six weeks later.

Randgold aims to double its gold production by 2011 and expects output to get close to doubling again by the end of 2013 with the start-up of Gounkoto and its Massawa project in Senegal.

"There can be little doubt in our view that Randgold is a major gold producer in the making," said JP Morgan, adding that all three projects appeared to host multi-million-ounce ore bodies with good to high grades.

A scoping study on Gounkoto estimated an inferred mineral resource of 2.65 million ounces at a grade of 6.3 grammes a tonne.

"Gounkoto's grades are just spectacular," said Bristow.

The company is fully funded to develop its projects, including its newly acquired 45 percent stake in the Kibali project.

It expects to start site construction at Kibali within the next 20-24 months, Bristow said.

(Editing by Rhys Jones and Will Waterman)