Why Randgold Resources

BIG, burly, loud and infectious: Mark Bristow, the founder and chief executive of Randgold Resources, looks every inch a mining man.

The 6’3” South African is in good form as he bounds into the gold miner’s functional London office in the shadow of the Savoy Hotel (it is undergoing a 16-month £100m refit – the hotel, that is).

Bristow, 50, has a dizzying round of investor meetings in London and New York, mixed with site visits to his gold mines in Mali and the Ivory Coast over the next four weeks. But at the end of May he, his two grown sons and three family friends will begin a 48-day motorbike safari from Cape Town to Cairo on a souped up off-road BMW 800 GS.

“I love the outdoor life,” he booms. “And overcoming challenges with your sons is a fantastic thing.” His 18 and 20-year-old sons seem to like the outdoor life too. Together the trio have already climbed Mount Kilimanjaro, scaled Mount Kenya and white water rafted down the Zambezi.

But just in case worried investors were wondering, it will not all be play for Bristow. He says: “I will take a sat phone and a laptop. It is easy to stay in touch with the office these days.”

But his shareholders will not begrudge Bristow any time off. The business posted its 2008 pre-tax profit of $71.6m, up from $66.9m the year before, on increased production and higher prices.

The FTSE 100 business, which employs 5,000, has a market capitalisation of £3.1bn. Bristow owns 0.73 per cent of the business, valuing his stake at just under £23m, which is certainly not bad going in the current environment.

Randgold’s stock, which stands at around 4,011p, has gained about 33 per cent this year, much better than the rest of the stock market. The firm has been the only gold miner to hold blue-chip status since Consolidated Gold Fields was snapped up by Hanson some 20 years earlier.

Bristow is clear about why the company is outperforming its peers. He says: “Exploration is the engine that drives our train.” He has little sympathy for rivals who he says in this high gold price environment are going to the market for funds when they should be busy digging up gold and producing cash.

The gold price is currently around $886 an ounce, but last March it hit an all-time high of $1,030.80. This is a far cry from the late Nineties when gold was in the doldrums selling at around $250 an ounce.

Rangold produced 428,426 ounces of gold last year from its two principal West African mines in Mali – Loulo and its flagship mine Morila. It is building a third mine called Tongon in the Ivory Coast.

However, Morila alone has produced over 5m ounces of gold since the firm bought the undeveloped site from BHP (before it merged with Billiton) in 1996, beginning production in 2000.

Bristow says: “Morila has been our company maker. It has been one of the most profitable mines in the world over the last decade. We raised the cash to develop it ourselves to develop that mine. We didn’t want to parcel it out to other companies.”

Rangold is also developing a number of other sites in West Africa including Yalea in Senegal, which the firm says has the potential to become a “significant” development. As he puts it: “We are very excited about this discovery. It has the potential to be very big for us. It could become our new flagship mine.”

It costs Randgold $460 to produce an ounce of gold, which at today’s prices gives the firm healthy margins that allow in to invest in exploration.

Planning for new mines is based around a gold price of $650 an ounce. The business plans to boost production to 600,000 ounces a years by 2011. Its capital spending last year was $280m; this year it will spend a little less at $240m. It holds $250m in the bank and carries no debt.

Bristow says he has no plans to borrow from the markets “unless we make a big acquisition.” But last month Randgold broke off talks to buy the 22m-ounce Moto Goldmines in Congo, which it would have developed with the government, because he said the price was too high.

It is clear he remains wary of buying ready-made assets and prefers to create them instead the good old-fashioned way. He says: “I am a great believer in discoveries. It is hard to create great value by buying assets because you always have to pay a premium.”

Bristow is proud that his firm employs 5,000 people across West Africa. He believes it has done immense social good. He explains: “So much happens in Africa that enslaves people, and one of these things is charity. If you want to make a man free, give him a job. Give people disposable income and you liberate people politically and economically.”

In this recession, as in most downturns, investors have turned to gold as a safe haven pushing up the price.

“We have a jolly good time when the rest of the world is in the pooh,” he jokes. But he adds: “I believe in this currency. It is the only currency that politicians can’t print. When gold was $250 an ounce people thought it would lose its status as a reference currency. But that has proved not to be the case.”

And Bristow is clear that the big banks are to blame for the global downturn. According to him, “banks have got to get smaller. I still deal with bankers who don’t see that the world has changed. Banks traded everyone. They had no allegiance to people, countries or the firms they worked with. When they could not find a natural market they created one, and encouraged people to trade in that. That has got to change.”

He thinks we are in for a long recession and that it will take seven or eight years to recover to the levels we have recently enjoyed.

Bristow’s story is a fascinating one. He founded the business in 1994, when he spun it out of South African miner Randgold Exploration. He raised $10m in the US in 1995 and bought assets in Mali.

In 1997 he listed on the London Stock Exchange, raising another $81m – yet once Morila began production in 2000, he was able to return $82m to shareholders a year later. The firm has been built on the back of solid returns from is Mali mines ever since.

In a business world where conformity is all too often seen as the way to succeed, Bristow is a breath of fresh air. Shareholders would be forgiven for insisting he should be wrapped in cotton wool for his African motorbike safari.