RanGold Resources Limited

8/3/2019 RanGold Resources Limited

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Introduction- A brief overview of the gold mining industry’s importance

in today’s global market .

The word “gold” has brought attention to everyone’s ears as of late due to its sudden

increase in value over the last few years. As Federal Governments have printed more currency

investors have fled to gold seeing it as a safer asset due to the devaluation of the U.S. dollar in

result of things like Quantitative Easing. If you want to really look at the big picture here with

the rise in the value of gold over time, it all started in 1970 when President Nixon decided to

break away from what was back then called the “gold standard.” Which this meant was that the

U.S. dollar’s value was in some way linked to the value of the price of gold, which kept its value

very stable and not easily manipulated. Once the Federal Government broke this link the value

of the dollar and its consistency changed forever, using 80% of its value over the last 40 years as

you can see here in this chart below.



It is true that the value of the dollar has been falling consistently since the enactment of

the federal reserve, and although on this chart a drop of 80% in value seems like nothing

compared to the devaluation of the entire 2oth Century, it is still a significant amount, but what is

most important and has been most disturbing to not only America’s citizens but especially there

investors is the sudden rise in the Federal Deficit since 1970 when we left the “gold standard.”

The reason for this sudden rise in the federal deficit is the corresponding break away

from the “gold standard,” which we can see clearly, that since 1970, our federal deficit ran up

from under $500 billion to now $14trillion. Before we left the gold standard, the Federal

Reserve and the Federal Government was limited to what they could do as far as manipulating

our currency, the U.S. Dollar. Leaving the “gold standard” allowed the federal government to

print money, among other things, to devalue the dollar. This not only allowed the federal

government to now make its debt cheaper, since debt acquired in dollars in earlier years is now



worth less than it would have been without its devaluation, making it cheaper, it also allowed

them to boost exports due to this devaluation at inflationary prices. The return they received

from taxes on net exports with inflationary prices gave them the opportunity to keep running up

the debt, by making it cheaper in real-terms rather than nominal.

This may look good on the surface, as per capita in nominal terms has risen dramatically

since the 1980’s, but when adjusted for inflation, the average American per capita income has

been relatively flat since the 1980’s, even though its production has risen dramatically.

Add this with the fact that the last ten years has been a lost decade for Americans who are long

term investors in the stock market, with the continuing decline of the value of the dollar by

another 23% in the past decade alone, along with the decline in household income and

American’s are losing their wealth fast and have been looking for somewhere to turn. All of

these charts can be seen below along with another example of the correlation of the Federal Debt

to the devaluation since the 1970’s. We can also see below the detrimental fact that household

savings and household debt have been moving in the exact opposite direction.



With our purchasing power so low, coupling with the corresponding inflationary prices without

any real household income growth, investors have looked toward gold as a sort of new currency

to protect their wealth. Here is a chart on the price of gold over the last ten years as investors

have flocked to it as a hedge against inflation and the devaluation of the U.S. Dollar.



Although this chart does not show us how gold has trended even higher in the last few

years reaching a record high of $1,800 an ounce, we can still see its incredible growth over the

past decade. If you were an investor in gold back in the 1990’s, your investment, as it stands

right now, with gold hovering around the current price of $1,600 an ounce, you would have

quadrupled your money. For this exact reason, caused by the circumstances I have mentioned

above, the incentives for gold mining companies to expand and increase production has become

quite attractive I’d say. The rise in the price of gold has given these companies more capital to

invest in gold mining equipment, technology, staff, and the research and development it would

take to not only find new mines, but to effectively be able to extract gold more efficiently and

from places where people may have never been able to mine it successfully before. For these

reasons I chose Rangold Resources, which can be found on the NASDAQ exchange under the

symbol (GOLD), in order to gain a full understanding on just how competitive this industry has

become, and what it takes to become and stay at the top of the industry.



Objectives

My objectives for my research of Rangold are numerous. I will explore everything I can

about who they are and what they do. First I will start off with their basic background

information and then will attempt to answer numerous questions about their operations.

Questions I will answer will be:

-What are their requirements for the creation of value?

-Do they have a clear business strategy, and if so, what is it?

-What is their business criterion?

-How to they deal with foreign countries in Africa with poverty being their biggest

barrier to economic growth?

-How do they go about exploration and investing in their future?

-How do they deal with the risk of doing business in Africa?

-How does the local infrastructure around their gold mines effect their business?

-What is the life cycle of a gold mining project?

-How do partnerships help and/or hurt their ability to make profits?

-Who are the stakeholders?

-What are the total acquisition costs of new projects vs gold price?

-How much value can they deliver to their shareholders?



-What are their reserves, indicated and measured resources, inferred resources, advanced

targets, follow-up targets, identified targets, and regional exploration areas? I will also

explain what all these mean.

-What are their major resources?

-How much gold are they actually producing, its quality, operation efficiency, timeline

for supply and can they guarantee production?

-What are their management techniques?

-What are their capital requirements and are they a growing company gaining market

share?

-What does the future hold for Rangold?

-What uncontrollable problems might they encounter due to things such as nature and

political pressures that may add to their costs of production and cannot be easily

forecasted?

-How do they match up with their competitors in all the above?

-And lastly, how do the ups and downs of the price of gold effect their daily business

operations?

Presentation of Information



“Rangold Resources Limited, together with its subsidiaries, engages in the

exploration and mining of gold mines in west and central Africa. It holds 80%

controlling interest in the Loulo min located in western Mali; Morilla min in Mali; 89%

controlling interest in the Tongon mine located in the neighboring country of Cote

devoire; 83.2% controlling interest in the Massawa project in Senegal; and 45% interest

in the Kibali project, which is located in the Democratic Republic of Congo as well as a

gold deposit at Gounkoto in Mali. The company was founded in 1995 and is based in St.

Heller, the Channel Islands.”(YahooFinance) Its major focus is in Africa and it is listed

on both the NASDAQ and London Stock Exchanges. The major discoveries mentioned

above are quite significant. To date, so far as we know, and that could mean there may

be more then estimated, the Morilla deposit in southern Mali includes 7.5 million ounces,

in Yalea there is 7 million ounces and in Gounkoto 5 million, both in western Mali. Then

there is also 4 million in the Tongon deposit in Cote d’Ivoire and 3 million in the

Massawa deposit in Eastern Senegal.

As we can see in the chart below Rangold Resources Limited has grown

exponentially over the past ten years along with the price of gold. As you can see the

stock price which was once at only $3 per share is now right around $106 dollars today.



Among its closest competitor Royal Gold Incorporated, Rangold continues to have a

higher share price, more market share, and much less volatility in its stock price

which is great for investors to see. We can see this by comparing the stock prices of

all its competitors on the following chart.



Rangold’s requirements for the creation of value revolve around a clear business strategy

which includes sustainability, time and tenacity. Their business criteria is broken down into five

categories which include communications, partnerships and people, size, returns and focus, as

can be seen in their breakdown in the chart below.

When thinking about their exploration and investing futures especially when dealing with

foreign countries in Africa with high poverty rates, Rangold has to be very helpful and also very

cautious when dealing with Africa’s risk. Poverty can affect business in many ways. For

example, Thomas Sowell shows in his book Basic Economics that even workers whose output

per hour remains the same can be of very different value if the transportation costs in one place

are higher than in another, so that the employer’s net revenue from sales is lower where these

higher transportation costs must be deducted from the revenue received. When the same product

is produced in areas with different transportation costs and sold in a competitive market, the

places with higher transportation costs cannot pass all those costs along to their customers



because other areas whose costs are not as high are able to charge a lower price. Business in

Third World countries without modern highways or efficient trains and airlines may have to

absorb higher transportation costs (which is the case in most African nations). Even when they

sell the same product for the same price as businesses in more advanced economies, the net

revenue from the product will be less, and therefore the value of the labor that went into

producing that product will also be worth correspondingly less. Also, in countries with high

levels of corruption, the bribes necessary to get bureaucrats to permit business to operate

likewise have to be deducted from sales revenues and likewise reduce the value of the product

and of the workers who produce it, even if these workers have the same output per hour as

workers in more modern and less corrupt economies. This is why workers in Third world

countries make a fraction of what workers producing the same output in farther advanced

economies. Also, when dealing in foreign lands it is important for businesses to understand and

locate price ceilings or floors put on labor in that particular nation or industry. These are what

we call minimum wages and maximum wages. If minimum wages are a result of doing business

in a particular economy it may make more sense to use capital investments as an alternative

rather than using the number of staff they would usually use in countries in which they could

find cheaper labor. Capital investments include technological advancements in their

transportation and mining capabilities to make up for the increase of costs that comes with the

territory. If they are dealing with wage ceilings then it would make sense to run their businesses

with less capital investments and more laborers since this would have the opposite effect of a

minimum wage. Below are pictures of how Rangold charts out how they deal with Africa’s

risk. Below you can see how they map out Africa and rate each country with a letter grade, and



what those letter grades represent, politics and infrastructure, both of which I have described in

detail above.

The life cycle of a gold project starts with the exploration of geographical areas in which

there are high probabilities of finding plentiful gold reserves. It just so happens that Africa is a

continent in which has some of most untapped gold resources in the world which puts Rangold’s

position there along with its experience in dealing in Africa extremely beneficial. Following

exploration come the discovery which then leads to the capital investments needed to get the

project rolling. Once the mining and exporting is in full swing and capital recoupment has been



achieved, the rest of the profits realized go to the stakeholders and taxes. Over time the

production of the mining slows down as the gold resources are depleted. What is not sold right

away goes into the companies reserves for sale at a later time. Also, at the closure of each

particular project capital is needed to be put aside for reinvestment to start this process all over

again. A chart provided to us by Rangold shows this cycle to us below.

The partnerships facilitated between the governments and Rangold are also extremely

important especially when it comes to infrastructure, pay and taxes. Without good partnerships it

may make business less efficient, hardly manageable, and ultimately unprofitable. The

guidelines Rangold uses in their partnerships are also displayed below.



When having partnerships it is an important task to define the distribution of income

amongst these stake holders. Below is how Rangold accomplishes this.



Below is a graph on their acquisition costs vs. gold price. As you can see, as the price of gold

has risen over the past decade so have their ability to spend.

Next we can see the vast reserves Rangold has also acquired that can still be used to be

sold for profit, or for future investments in new projects.



These vast reserves put them in a great position to continue growth and expansion, and to

be able to handle unforeseen obstacles that we will talk about later such as a drop in the price of

gold or inclement weather that can slow down their production. Not all things can be controlled,

so it is important to have a significant safety net to protect you from things that cannot be

foreseen or controlled.

Right now Rangold is operating mines or developing mines in three countries, with

feasibility of future projects in a fourth country as well. Below you can see a breakdown of all of

their recent projects that are operating or being developed, their feasible future developments,

identified and follow-up targets, regions being explored, all along with their reserves and

indicated and measured resources. By examining this pyramid you can see the great growth

potential that this company has.



Analysis of Findings

One of the first interesting findings I found out about Rangold, was about its 6.5 million

ounce Morilla and 4.2 million ounce Tongon deposits. On one of the most highly noted financial

research publications, Seeking Alpha, they proclaimed that the project was highly accessible by

road and in close proximity to the town of Banfora and the major city of Bobo Diolasso. Grid

power is located approximately 30 kilometers from the eastern boundary of the project. This

solves one of the dilemmas that we stated above about the available infrastructure of the areas in

question. This was good news for Rangold.

Also, Seeking Alpha brought to light again the importance of investing in gold mining

companies because they create real value. Rather than just investing in the commodity of gold

itself, as many traders choose to do, this article explains to investors seeking to invest in gold,

that gold mining companies are the way to go because they are a real investment, as they create

value and profits from finding, mining and processing gold. As the price of gold increases, the



amount of profit gold mining companies realize increases and in addition the company’s

respective stock price also appreciates. However, the problem with investing in gold, or gold

mining companies is the price of gold tends to revert to the mean. Before I showed you a chart

that just showed you the rise of gold in real numerical value, but here as we look at a chart for

the price of gold adjusted for inflation we see that gold, based on historical patterns, will most

likely fall in value in terms of inflation, which may create and cause problems for the extreme

growth that we have seen in Rangold over the past year.

Here is the chart of the price of gold adjusted for inflation.

Below we can see how Rangold has increased profits and earnings per share for their investors in

the past year. The question will be is will they be able to continually increase profits especially

if the price of gold decreases adjusted for inflation?



What will 2012’s results look like if the price of gold does fall back to its mean?

Another article published under the Wall Street Journal’s market watch has a different

idea about Rangold’s future into 2012. Although he states that all the factors for another ensuing

bear market, or recession, are in place, he feels as though the price of gold will sustain itself and

could even break new record highs, making Rangold Resources in fact one of the only five

stocks he suggests to buy into during the current market turmoil. Also, the dollar has now been

on the rise lately with the collapse of the Euro, making the inflationary pressures mentioned in

the previous segment almost negligible.



Even if this cozy outlook does come true, there are still things to look out for. For

example, a series of setbacks had occurred at Rangold Resources Tongon mine. The company

said in a statement, “As anticipated, the third quarter’s difficult operating conditions in the pit,

due to the wet weather and mining through transitional ore, persisted into the fourth quarter.”

Market Watch also found additional problems that included a temporary work stoppage in

November and issues caused by a changeover in power supply. Its Loulo mine also experienced

lower-than-forecast production in the quarter, though is showing signs of getting back in line

with the fourth-quarter forecast, but even so, it’s revising its production guidance for 2011 from

700,000 ounces to 690,000 ounces. This is still significantly higher than the previous year, but it

is slowdowns such as these that could hut Rangold Resources’ market share, profit margin and

ultimately its earnings per share for its investors.

Conclusions and recommendations

After evaluating this company from top down, I believe it sits in a pretty good position to

keep growing and gaining market share. My recommendations to them would be to keep doing

what they are doing, but to try to find ways to keep production up even when the weather is

working against them. Maybe some capital investments towards draining systems or pavements

for the mining area would help. This is something that ultimately the engineers would have to

figure out. My only other suggestion would be to keep their gold reserves as high as possible

while gold prices are heading lower, so they are loaded and ready to go when they begin to rise

again which will ultimately raise their long-term profits. Sell as little amount of gold as possible

in a down trending market, but as much as you can when prices are peaking. This is easier said

than done, since no one knows what the future will behold. We can only guess, or react as the



market acts. Rangold Resources number one asset is its gold reserves, and with the eventual

collapse of the world’s second most powerful currency, the euro, I believe in today’s world “gold

is king” rather than the old saying “cash is king,” and therefore should keep as much reserves as

possible heading into the future.

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RanGold Resources Limited