NEW YORK (
) -- Gold miner
gives investors 100% exposure to
proving the theory that
is more profitable than investing in physical gold.
Bullish analysts give gold stocks as much as a 3:1 leverage to gold's spot price, meaning that if gold prices rise 20%, gold mining stocks could rise 60%. Gold prices have run up 9.8% so far this year while Randgold's stock has popped over 8%. But since listing on
in July 2002, the stock has run over 2,600% while gold has risen only 295% in the same time frame.
Randgold Strikes Gold
var config = new Array(); config<BRACKET>"videoId"</BRACKET> = 86269279001; config<BRACKET>"playerTag"</BRACKET> = "TSCM Embedded Video Player"; config<BRACKET>"autoStart"</BRACKET> = false; config<BRACKET>"preloadBackColor"</BRACKET> = "#FFFFFF"; config<BRACKET>"useOverlayMenu"</BRACKET> = "false"; config<BRACKET>"width"</BRACKET> = 265; config<BRACKET>"height"</BRACKET> = 255; config<BRACKET>"playerId"</BRACKET> = 1243645856; createExperience(config, 8);
Randgold, a pure African gold miner, isn't currently offering this massive leverage but instead is trading in tandem with the gold price, which gives an investor exposure to gold without the hassle of storing the physical metal.
Randgold recently reported a 70% increase in first-quarter net income. his number could grow exponentially as the company opens another mine in the third quarter. I sat down with CEO Mark Bristow at the Hard Asset Show in New York to find out his strategy for record high gold prices and what kind of leverage Randgold will have in the future.
Randgold just reported a huge quarter ... What's the one cause you attribute it to?
Bristow: Gold price. Gold price helps you out in everything. We are growing and we increased our production but really it's all about gold price looking year on year.
Quarter on quarter we had a tough quarter relative to the previous quarter. It was a bonanza quarter at the end of last year. This year we've had a few operational challenges. We had some throughput issues in both our mines. We're on top of them now ... and this year will also be like last year, big hockey stick.
The last quarter will be a lot better than the first quarter. Why? Because we're bringing our third mine in the third quarter which will add to production
and lower costs.
How levered is Randgold to gold prices? 100%?
Bristow: Absolutely. We've got a small hedge left but nothing to really affect the business. The key for Randgold really is we're probably the most correable of all gold stocks to the gold price.
Why is that?
Bristow: Because we're a pure gold company. Most other gold companies have a little bit of silver or base metals. We've always been very focused. We're just a gold miner.
How long does it take the price to trickle down to you guys? When do you see that profit?
Bristow: Within a few days. We ship twice a week and we set the price on the day after we ship the gold, so instantaneously.
How much is your cash cost?
Bristow: Well at the moment $600, going down to about $400 as we've got some new mines coming into production
with higher grades. Grades are king in the gold mining industry. It brings down the cost per ounce.
Now how big are you?
Bristow: We got two in Mali. We founded them both. We built them both. We have the third one coming into production in October. We founded that and we're building it ourselves. We've got another one just south of Lulo, which we'll start constructing in January 2011. We've founded that one as well. We have a project at feasibility in Senegal. We also founded that. And last year we bought The Moto Gold Mining Co. that has a very big asset in the Congo ... That's a really big project we're in a partnership with
on that project but we're the managers.
Are you worried that you might get too big?
Bristow: We're not anywhere near being too big, but if you ask the question differently; how big do you want to be? Between 1-2 million ounces is a good real size in the gold industry. We want to be profitable that's our big focus. We're focused on profits, that return for shareholders. We want to be exposed to the gold price. We've proved beyond any doubt that investing in gold stocks is better than investing in the physical
How much gold do you think you're going to produce in 2010?
Bristow: 470,000 for 2010, 600,000 next year and by 2014 we should be at 1.2 million ounces. We've got the money to fund the development and we're not going to issue any more stock.
How can you say that for sure?
Bristow: Because we've done it many times.
Issuing stock you mean?
Bristow: No, we've got the strong balance sheet, we've got $500 million in the bank and we're making profits.
Are you going to raise the dividend?
Bristow: We always look at utilization of capital. Anything
we make that is outside what we need to bank our reserves, we pay that to shareholders.
What are some of the difficulties you're finding in being an explorer and producer?
Bristow: We started as a small exploration company. We were $10 million
when we IPOed in London at $147 million. We're now a $7.5 billion company.
The biggest challenge is to grow the company, manage it and keep the entrepreneurial team together and not get caught up in bureaucracy ... We fight against that every day.
Bristow: We hold management's feet in the fire.
What are some of the risks about mining in Africa
Bristow: You know there are risks everywhere you go in the world if you're a miner. If you come to this country it's the greenies, if you go to Australia recently it's the politicians, if you go to Africa it's everything else. Its infrastructure, lack of skills, cost of power because there are no big power grids. There are many different challenges and the key to get past that is to find quality reserves.
But just because you find the gold does it mean you get to keep it?
Bristow: We don't want to keep it. We want to mine it, sell it and distribute the benefits of doing that.
But how do you know that some government where your mining isn't going to come in and say 'that's ours I'm taking it'?
Bristow: Because if you're converting it into profits and paying taxes then everyone wants you around. And I think that's the big challenge for the mining industry is often we get confused about what we're there for. We mine national assets particularly in emerging markets like Africa. We're merely the custodian of a national asset and our job as miners is to convert that so that it benefits not only the government but the local communities and importantly our shareholders.
How high will gold go in 2010?
Bristow: I've said it will trade between $1,100-$1,200. We've seen ... it go over $1,200 again ... There's a lot of energy being put in by the G8 governments to try to prove to the world that they've got everything under control. I think there's still a lot of stress in the world to come and I'm certainly on the record by saying we're going to see a higher gold price than $1,200 next year.
Now when gold does go down or is a little volatile how does that effect you guys day to day?
Bristow: We use $700 an ounce to calculate our reserves. We put in a big margin on our planning to ensure that we are not trying to exploit the spot gold price. Our key is we're a long-term player in a market that as you point out is volatile. There are cycles to the gold price and you want to stay with your plans at a lower gold price.
Do you expect summer to have the traditional summer doldrums that we normally see?
Bristow: I think so. I think the Greeks have started the run early and I think the whole European crisis has still got a long way to play out. It's one thing putting a rescue package together. It's another thing having to pay for it and the only way you can pay for it that I can see is you've got to print a lot more money. You print money, you devalue currencies. If you plot gold against any other currency for the moment, it's all upwards. The trend is upwards.
Last question, how many more people are you going to hire in 2010?
Bristow: We're the biggest employer in Mali outside the government. We're going to employ just under 1,000 people in the Ivory Coast so that's going to be a big step up.
Now is that 1,000 more or a 1,000 total?
Bristow: 1,000 more.
And then how many people do you hire when you get another mine?
Bristow: We currently employ about 6,000 people at the moment. We'll add about 1,000 to that with the Ivory Coast development. To build a mine is about 1,500 at peak and once it's steady about 1,000.
Written by Alix Steel in New York
Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.