Review of operations
12 Annual
Report 2005 Randgold Resources
(For glossary of terms see the company website at
“Shareholders have
enjoyed substantial
capital returns in
the year with the
share price rising
41% from US$11.42
to US$16.13.”
FINANCIAL RESULTS
Net profit for the year of US$40.9 million was more than double that
of the previous year. This was due to the start of commercial operations
at Loulo, an improved performance at Morila and higher gold
prices, which averaged US$445 per ounce compared to US$409 per
ounce in 2004. Attributable production was 314 831 ounces in 2005
compared to 204 194 ounces in 2004. Earnings per share of 62 cents
were up from 32 cents in 2004.
Industry wide cost pressures continued this year as a result of the
weak dollar and high diesel and steel prices. The security situation
in Côte d’Ivoire has also impacted on costs since longer alternative
supply routes are being used for Morila. Loulo is less exposed than
Morila to these elements due to its supply route through Senegal and
lower diesel requirements resulting from the plant design. Total cash
costs for the group were US$211 per ounce for the year compared
to US$184 per ounce in 2004.
Expenditure on exploration and corporate costs was US$22 million,
well up from last year’s US$16 million, as extensive drilling programmes
were undertaken in all countries in which the company operates
except Ghana and Côte d’Ivoire.
Morila’s five year corporate profit tax holiday ended in November
2005 and the accounts include a provision of US$4.3 million for tax.
Loulo benefits from exoneration from corporate profit tax for five years
from the date of first commercial production, which was 8 November
2005.
With a view to assuring the development of the Loulo underground
project, the company undertook a global equity offering in the year,
raising US$103 million after costs. This eliminates the need for any
further hedging, which may have been required with bank financing,
and provides sufficient funds for the foreseeable future. There is
another funding initiative which the company is investigating and that
is a refinancing of the Loulo project finance at more favourable, flexible
terms. This should be achievable with the company’s strengthened
balance sheet, which had US$152 million in cash as at 31 December
2005. Funds are only invested in fixed deposits and money market
instruments with superior credit ratings.
The main balance sheet movements in the year include an increase
in receivables. This includes US$12.2 million of advances to the
main contractor at Loulo, MDM Ferroman (Pty) Ltd. MDM was the
contractor responsible for construction of the Loulo mine until the
main construction contract was taken back on 30 December 2005.
Significant uncertainties exist relating to the recoverability of the
amounts given as security for the advances. MDM purport to have
a claim for US$29 million against the company. Randgold Resources
has initiated legal processes to recover monies in an amount exceeding
US$30 million which includes an application for the liquidation of
MDM, the outcome of which is uncertain at this time. Further details
are given in note
26 of the consolidated financial statements.
