“Is the gold industry being buoyed up by speculative sentiment rather than by the creation of real value?” Randgold Resources Chief Executive Mark Bristow asked at the Mining Indaba 2007 conference. Bristow said the growth in the industry’s market capital was attributable to mergers and acquisitions at the top end and a flurry of new listings at the bottom. Many producers were apparently concentrating on the exploitation of market opportunities rather than the development of profitable businesses, while investors were largely focused on the short term.

Despite the spectacular rise in the gold price, the industry’s modest profit margin had not increased at the same rate because cash costs had also increased sharply, and due to a lack of exploration investment, the new gold supply was static and possibly declining. There was therefore no strong underlying support for the present value of the market.

Bristow noted that of Africa’s ‘big six’ gold mines developed since 1995, only three had as yet generated real returns. “Because we’re in a bull market which rewards production rather than profits, nobody is focusing too much on this financial underperformance but ultimately it’s not a sustainable situation. Stakeholders expect rewards and their patience is not infinite. When host governments, for example, see that mines are not producing the promised profits, and therefore not paying the anticipated taxes, it prompts them to tax through royalties,” he said.

“Successful operations support profitability, and profitability in turn supports sustainability. We don’t manage Randgold Resources with one eye on the next quarter and the other on the whims of the market – we manage it for the long-term benefit of all its stakeholders. The question remains: are we as an industry building profitable businesses or are we merely exploiting short-term opportunities? For Randgold Resources the answer is clear: we’ve built and we continue to build.”

Randgold Resources discovered and developed the world-class Morila and Loulo deposits in Mali. Its Tongon project in the Côte d’Ivoire is currently at bankable feasibility stage.