Randgold Net Profit Falls; Eyes Dividend Boost --2nd Update

By Alex MacDonald

LONDON--Randgold Resources Ltd. (GOLD) suffered production setbacks at its two mines in the Ivory Coast and Congo that resulted in a 8.5% drop in second quarter net profit.

But the FTSE 100 miner vowed to still meet its full-year production and cost guidance, and also reaffirmed willingness to revise its dividend policy with a view to returning a significant portion of future cash flow to shareholders.

Randgold's net profit fell to $49 million in the three months ended June 30, compared with $54 million in the same period a year earlier, following a 3.6% drop in revenue to $277 million during the period. Revenue dropped due to a 3.6% fall in gold output to 281,494 troy ounces, which more than offset a 6.3% rise in the average gold selling price.

Randgold's shares closed down 3.8% on the day at 8,635 pence a share after falling nearly 12% earlier in the day.

Analysts said the results were disappointing due to the severity of the setbacks at Randgold's Tongon mine in the Ivory Coast and the Kibali mine in the Congo. Shares however, pared back their losses in afternoon trading after the Bank of England lowered its key interest rate, causing the spot gold price to swing into positive territory. Numis Securities analyst Justin Chan said Randgold's investor call also reminded that the company's "fundamentals remain strong...in fact the second half should be quite strong, as management has guided."

Chief Executive Mark Bristow conceded that the second quarter was "without doubt one of the tougher operating quarters we had."

The West African gold producer suffered 46 days of lost Tongon output due to longer-than-expected plant repairs, Mr. Bristow said. Also Kibali faced challenges from processing multiple ore feeds while trialing new equipment that led to lower throughput, recovery and grade dilution, he noted. The problems resulted in a 6.3% on-year rise in cash costs to $727/oz in the second quarter.

Nevertheless, the company still generated net cashflow from operations of $101.5 million in the second quarter, up 42% from the same period a year earlier due to lower working capital. This more than doubled the company's net cash position to $273 million as of June-end. Mr. Bristow reaffirmed the company wants to maintain a $500 million cashpile to build a new mine without having to raise a lot of debt.

Once "we get to half a billion [dollar] level... we will try to convince the board to change" the company's dividend policy with a view to returning a greater portion of the cashflow to shareholders, he said. Randgold should hit the net cash target by year-end and $1 billion at the end of 2017 if gold stays above $1,350/oz, he said.

He also dismissed the likelihood of big acquisitions, including any interest in making an offer for rival Acacia Mining PLC (ACA.LN), Tanzania's largest gold miner. Barrick Gold Corp. (ABX), Acacia's parent company "would certainly be happy. My shareholders wouldn't," he said, noting that Acacia Mining was fully-valued.

The company reaffirmed its target to produce between 1.25 million to 1.3 million gold ounces this year at a cash cost of between $590/oz to $630/oz. Lost output from the Tongon mine should be offset by better-than-expected performance from its Loulo-Gounkoto mining complex in Mali, while a new satellite deposit at Kibali should feed higher grade ore into the mine's plant, thereby allowing the mine to reach its annual target, Mr. Bristow said.

-Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

August 04, 2016 12:05 ET (16:05 GMT)

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