how can mining companies maximise shareholder return… creating value for all stakeholders - mark...
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How can mining companies maximise shareholder return…creating value for all stakeholders
Mines and Money…December 2014
Gold price 2002 to 2014…longest rally in history
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1600
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2000US$/oz
Gold mining industry fails to deliver value…
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100
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400
AB
Euromoney Global Gold Index
2002 2014
Source: SNL
Higher revenue and steady production…recipe for profits?
Tonnes producedGold price
$/oz
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200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
500
1000
1500
2000
2500
3000
3500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Mine Production Gold Price
Source: SNL
Cumulative free cash flow burn for top gold companies…shareholders footing the bill
$16bn cumulative negative FCF since 2000
Number of shares in issue trebled
This was despite a 4-fold rise in the gold price during this period
We expect this trend to accelerate in a low gold price environment
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1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
-20
-15
-10
-5
0
5
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-$16bn
Shares outstanding Bn (RHS)
Cumulative Free Cash Flow US$m (LHS)
$ Bn Shares Bn
Source: Citi Research, Bloomberg (global gold mining companies under City coverage)
Capital expenditure grows without delivering benefits…
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25
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35
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5000
10000
15000
20000
25000
30000F
Y00
FY
01
FY
02
FY
03
FY
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FY
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FY
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FY
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FY
08
FY
09
FY
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FY
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FY
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FY
13
Production Moz
Capex US$m
US$m Moz
Source: Citi Research, Bloomberg
Industry failed to replace what it mined for more than a decade…
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6000
7000
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80
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3-yr Running Avg of Potential Au Prd from Discoveries** (mil oz)
CPM's World Gold Mine Production (mil oz)
Exploration Budgets Aimed at Discovery* (US$ mil)
Moz US$m
Lack of exploration success drives decline in grade…
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Reserve Grade Mining Head Gradeg/t
Reserve gradevs
Mining head grade
Major gold producers…reserve calculation prices
2004-2014
Source: Scotiabank September 2013
200
400
600
800
1000
1200
1400
1600 EldoradoGoldcorpAgnico EagleIamgoldCenterraKinrossPolymetalBarrickNewmontRandgoldAngloGold AshantiHarmony Gold
$/oz
Gap between gold production and replacement threatens sustainability…
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600
800
1000
1200
1400
1600
1800
0
2
4
6
8
10
12
14
16
18
2019
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
14
Moz US$/oz
Gold price
Source: SNL
Creating profitable partnerships is core to the mining industry…
Mining Companies
and Investors
Employees and
communities
Governments NGO’s and Regulators
Provide enabling platform for businessProvide or incentivise development of infrastructureMining legislation to enable investment, conducive to fiscal and legal stability, as well as good governanceProvide regional safety and security
Responsibility of mining companies:
Responsibility ofGovernments:
Attract first world financeGuard against exploitation of equity markets at expense of host countryDeal honestly and transparently with governmentsCreate jobsTransfer skillsSupport local suppliersHave meaningful social responsibility programmesMine profitably, pay taxes
Expand capacity in the trough and take profits at the peak…
$$$$$$
expand ing capacity in the
troughs
taking profits in the peaks expansion at
peak in gold price
BUST in the trough
Gold production costs vs gold price…
Source: Scotia equity research
SE Asia
RussiaCentral AsiaCanada
USA
Where to find >3Moz gold deposits… major global gold districts
Americas - 628̴ 2.2Boz / 0.5g/t
Africa - 222̴ 1.4Boz / 1.4g/t
Europe / Central Asia - 247̴ 0.9Boz / 0.8g/t
Australasia - 268̴ 1.3Boz / 0.6g/t
Total global gold resources – 1 4655.8Boz / 0.6g/t
Source: Metals Economics Group – includes all global assets with >500oz contained Au
Central America
AustraliaWest Africa
Central Africa
South Africa
South America
Alaska
Feasibility studies should be banked…
Geometallurgy drives metallurgical testworkrepresentativity of samples critical
Optimisation and Mine Designcapital mine design and production schedule
Trade off studies on principal conceptsOpen pit vs UG – decline vs shaft – cave or open stope,
backfill options – CAF vs paste
Geological, resource and geotechnical modelsdefine mining method
Gatekeepers to ensure reserves pass our filters
Orebodies drive profitabilityreturns set by capital costs and reserve grade
Making investment decisions…
Does it apply principally to gold?
Have we identified and understood the country risks?
Does it fit our values?
Will we have active management participation?
Will it enhance our partnering network?
Does it diversify our geographical exposure?
Does it have a reserve potential greater than 3 million ounces of gold?
Does it have the potential to be +200 000oz per year producer?
Can we move it up the value curve?
Does it have the potential to be in the lowest total unit cost quartile?
Can it produce an IRR in excess of 20%?
Does it have a payback of less than 2 years?
Is it accretionary to our share value?
Value creation in the gold industry is possible…
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A B
EuromoneyGlobal
Gold Index
Randgold
2002 2014
Indexed: 1 July 2002=100
Disclaimer…
Randgol d reports its mi neral resources and mi ner al reserves i n accordance with the JORC 2012 code. As suchnumbers are reported to the second significant digit. T hey are equivalent to N ational Instrument 43-101. Mineralresources are reported at a cut-off grade based on a gold price of US$1 500/oz.The reporting of mineral reserves is also i n accordance with Indus try Guide 7. Pit opti misati ons are carried out at agold price of US$1 000/oz, except for Morila which is r eported at US$1 300/oz. Mineral reserves ar e reported at acut-off grade based on US$1 000/oz gold price withi n the pit desi gns. Underground reserves ar e also based on agold price of US$1 000/oz. Dilution and ore loss are incorporated into the calculation of reserves . Cautionary noteto US investors: The United States Securities and Exchange Commissi on (the SEC) per mits mini ng companies , intheir filings with the SEC, to disclose only proven and probabl e ore reserves . R andgold uses certain ter ms in thisannual report such as ‘resources’, that the SEC does not recognise and strictly pr ohibits the company fromincluding in its filings with the SEC. Investors ar e cautioned not to assume that all or any parts of the company’sresources will ever be converted into reserves w hich qualify as ‘proven and probable reserves’ for the purposes ofthe SEC’s Industry Guide number 7.
CAUTIONARY NOTE R EGARDING FORWARD-LOOKING ST ATEMENTS: Except for the historical infor mationcontained her ein, the matters discussed in this presentation are forward-looking statements within the meaning ofSection 27A of the US Securities Act of 1933 and Secti on 21E of the US Securities Exchange Act of 1934, andapplicable Canadian securities legislation. Forward-looking statements include, but ar e not li mited to, statementswith respect to the futur e price of gold, the esti mation of mineral reserves and resources, the realisation of mineralreserve esti mates, the ti ming and amount of es ti mated future production, cos ts of production, reservedeter mination and r eserve conversion rates. Generally, these forward-looking statements can be i dentified by theuse of forward-looking ter minology such as ‘will’, ‘plans’, ‘expects’ or ‘ does not expect’, ‘is expec ted’, ‘budget’,‘scheduled’, ‘esti mates’, ‘forecasts’, ‘intends’, ‘anticipates’ or ‘does not anticipate’, or ‘believes’, or variations ofsuch wor ds and phrases or state that certain actions, events or results ‘ may’, ‘could’, ‘would’, ‘ mi ght’ or ‘will betaken’, ‘occur’ or ‘be achieved’. Assumptions upon which such forward-looking statements are based are i n tur nbased on factors and events that are not withi n the control of R andgold R esources Li mited (‘Randgold’) and ther eis no assurance they will prove to be correct. F orward-looking s tatements are subj ect to known and unknow nrisks, uncertainties and other factors that may cause the ac tual results, level of activity, perfor mance orachievements of Randgold to be materially different from those expr essed or i mplied by such forward-lookingstatements , including but not li mited to: risks related to mining oper ations, including political risks and instabilityand risks related to international operati ons, actual results of current explorati on ac tivities, conclusions ofeconomic evaluations , changes in project parameters as plans continue to be refined, as well as those factorsdiscussed in Randgold’s filings with the US Securities and Exchange Commission (the ‘ SEC’). Although Randgol dhas attempted to identify i mportant fac tors that could cause ac tual results to dif fer materially from those contai nedin forward-looking statements , there may be other fac tors that cause results not to be as anticipated, esti mated orintended. There can be no assurance that such statements will prove to be accurate, as actual results and futur eevents could differ materially from those anticipated in such statements . Accordingly, readers should not placeundue reliance on forward-looking statements. Randgold does not undertake to update any forward-lookingstatements herein, except in accordance with applicable securities laws.CAUTIONARY NOTE TO US IN VESTOR S: T he SEC per mits companies , i n their filings with the SEC, to discloseonly proven and probable ore reserves . We use certai n ter ms in this release, such as ‘resources’, that the SECdoes not recognise and strictly prohibits us from i ncluding in our filings with the SEC. Inves tors are cautioned notto assume that all or any parts of our resources will ever be converted into reserves which qualify as ‘proven andprobable reserves’ for the purposes of the SEC’s Industry Guide number 7.