Merge or die, major gold miners told

November 6, 2015, 12:49pm

Mark Bristow. Picture: BLOOMBERG/JASON ALDEN

By Thomas Biesheuvel, Business Day Live, Bloomberg

LONDON — The biggest gold miners, weighed down by record debt and with prices near a five-year low, will have to merge with others to survive, according to Randgold Resources, the best-performing producer of the metal in the past 10 years.

"The big producers have the biggest challenges of all," Randgold CEO Mark Bristow said on Thursday. Eventually, you’re going to see survival mergers."

Gold’s 42% price slump from a record set four years ago is cutting profits and stressing balance sheets for mining companies, with the largest producers weighed down by debt totalling almost $35bn.

In September, the benchmark 30-member Philadelphia Stock Exchange gold and silver index, which includes Barrick Gold and Newmont Mining, fell to the lowest level since 2000.

Barrick and Newmont have discussed combining their operations several times in the past two decades. The latest merger talks ended in April last year, when both companies blamed each other for the breakdown.

Randgold, which has advanced more than fourfold in London trading over the past 10 years, has so far avoided the worst of the turmoil that has forced producers to reduce asset values and raise cash.

The company says all its mines make a profit at $1,000/oz. The metal has fallen 4.1% this year to about $1,110.

"The industry can’t survive at the current spot," Mr Bristow said. "It will look very different in two years’ time."

The company owns mines in Mali, Côte d’Ivoire and the Democratic Republic of Congo. It is examining AngloGold Ashanti’s Obuasi mine in Ghana, with the option to revive the deposit if the company thinks it can become profitable.

The redevelopment would cost Randgold about $500m, which Mr Bristow said could be paid for without raising debt or selling shares.

"We can build our next mine on our own quite comfortably," Mr Bristow said. "It’s completely affordable."

On Thursday, Randgold reported third-quarter profit had fallen 27% from a year earlier to $42.3m. Its sales totalled $340.7m and it produced a record 305,288 ounces of gold.