London, 2 August 2007 (LSE:RRS) (NASDAQ:GOLD) - The continuing increase in gold production at Randgold Resources' Loulo mine in Mali, together with the rolling out of hedges, boosted the company's gold sales revenue for the June quarter to US$66.2 million - up on the March quarter (US$63 million) and the comparable quarter in 2006 (US$63.4 million) - in spite of a lower contribution from its Morila joint venture.
Profit from mining of US$28.2 million was marginally up on the previous quarter but once-off costs related to the restructuring of the Loulo project finance facility, increased exploration expenses at the Tongon project, now at final feasibility stage, and non-cash hedge restructuring charges impacted the bottom line. Net profit was US$6.8 million against the previous quarter's US$12.7 million and Q2 2006's US$14.6 million.
Total cash costs rose to US$361 per ounce (Q1: US$321; Q2 2006: US$270) reflecting the weaker dollar, higher oil prices, lower production at Morila and the unscheduled utilisation of stockpiled ore at Loulo, necessitated by equipment breakdowns, which resulted in the reversing of previously deferred costs.
The company said production and net profit were expected to increase in the second half of the year when higher-grade ore will be accessed at Morila. In Q2 Loulo achieved record production of 70 660 ounces (Q1: 67 908oz; Q2 2006: 51 233oz) as a result of steady throughput at slightly higher grade and recovery rates. Mining tonnages were lower than planned owing to prolonged breakdowns of the mining contractor's excavators, requiring mill feed to be supplemented by stockpiled ore.
The CIL expansion project was completed and commissioned during the quarter, which should ensure sustained recovery rates. Work on the tailings thickener and clarifier project, due for completion by the end of this year, continued on schedule.
Meanwhile, development of the twin underground declines for the Yalea underground mine reached a distance of 400 metres from surface at a vertical depth of 75 metres. Yalea is scheduled to deliver its first ore from underground to the plant during the last quarter of this year. At Gara, the second underground mine due to be developed at Loulo, further drilling has outlined an additional inferred resource of 400 000 ounces at 4.9g/t. Following further infill drilling, the mine's design will be extended to exploit this additional ore, which represents an 18% increase in Gara's underground resource.
As anticipated, production at Morila was down to 86 832 ounces (Q1: 103 224oz; Q2 2006: 135 387oz) as a consequence of lower grade and recoveries. Mine management are confident that they will meet the planned production scheduled for the second half of the year and are pursuing strategies to make up the production shortfall incurred during the first half of the year.
At the Tongon project in the Côte d'Ivoire, the feasibility study drilling programme made good progress. The study is scheduled to be at bankable level by the end of next year and, if all goes according to plan, Tongon will pour its first gold two years later. The feasibility study includes a re-scoping study in the third quarter of this year which will review the capacity of the planned processing facility in the light of the promising results received to date from the ongoing drilling programme.
On the exploration front, the company had 10 drill rigs operating in five countries - Mali, Côte d'Ivoire, Senegal, Burkina Faso and Tanzania.
Chief executive Mark Bristow said the challenges of the past quarter had been dealt with effectively and, on balance, the company was satisfied with the results that had been achieved.
"Loulo is doing exceptionally well and production at Morila is scheduled to get back on track in the latter half of the year. The Yalea underground development is making rapid progress and Tongon is increasingly shaping up as our third new mine. Meanwhile the quality of the results we're getting from our exploration programmes continues to underline the value of our sustained and substantial investment in organic growth," Bristow said.
"The conversion of the Loulo project finance into a US$60 million corporate revolving credit facility involved an upfront cost but has significant benefits: a lower interest rate, saving in political risk insurance, flexibility in terms of using the funds and dealing with the hedge book, and longer-dated availability."