RANDGOLD
- A Gold Story Like No Other

Randgold and Exploration Limited (symbol: RANGY), the South African-based ADR, is an unusual animal in the Nasdaq jungle. First, because it is a gold company, second, because it is a holding company, and third, because of its blinding obscurity. With no PR department and listed on an exchange dominated by visible, high-tech players like Microsoft and Cisco, it is an unassuming elephant in the land of the lions.

Moreover, should you bother asking this elephant where he's been, he'll tell you a swashbuckling tale unique to the annals of gold mining.

Randgold used to be a motley collection of mines, each plodding along under management contract, paying out dividends until their orebodies were exhausted. In 1994 Peter Flack and Roger Kebble led a shareholder revolt at Randgold, toppling a management committed to shutting down their high-cost, aging mines in a "closure with dignity" policy. Rather than accepting defeat, their team implemented a sweeping plan to reorganize into more rational, autonomous units. By shedding outmoded management contracts, they sparked what some observers have called a revolution in the manner in which South African gold mining organizations conduct business. Over the next four years, through a dizzying series of mergers, acquisitions, reorganizations and spin-offs, Randgold has emerged as a holding company with primary assets in its favorite child Randgold Resources, in its refurbished megamine Durban Deep, and a mineral rights package throughout Africa.

Today, Durban and her sister mine Harmony are thriving profit centers, with more ounces in the ground through shrewd acquisitions, and ever declining costs in an environment in which even goldbugs have thrown in the towel.

If that weren’t enough to interest the average investor, Rangy's underlying holdings represent some of the most attractive opportunities in gold today. To wit, consider Randgold's 60%+ ownership of Randgold Resources, an exciting, high grade, low cost surface operation with a producing mine at Syama in Mali and with exploration and development interests throughout a swath of middle Africa. Consider also its 12% ownership in the dynamic new Durban Deep, possibly the world’s most leveraged mine to the price of gold.

Randgold Resources
- The Pachyderm's Lair

I had a chance to speak with Mr. Kebble of the recent progress made in his mine collection (he calls them "our conglomerate") and of the planned breakup of Randgold. He appeared confident and in good spirits after an exhausting week touring the States. A burly, sixtyish man in a tweed jacket greets me with a bear-like handshake. We sit down and he introduces me to his travelling colleagues, Mark Bristow, Peter Kinver, and David Kuzmanich, Senior VP at HSBC Securities.

Mark Bristow is CEO of Randgold Resources and a geologist with a Ph.D. He's quiet, with a boyishly young face, and very friendly. Through his leadership the company has scoured the fertile gold belts of middle Africa in an ongoing and highly successful effort to diversify into low cost orebodies, well ahead of the pack.

The total holding of approximately 16 000 km² spans such politically low risk countries as Burkina Faso, Côte d'Ivoire, Mali, Senegal and Tanzania.

Peter Kinver is the new Managing Director for their flagship mine Syama, having recently held that post at Ashanti's million ounces a year Obuasi mine. Prior to that he was the youngest MD ever, having worked in that capacity at Kloof for many years. He is young, 42, stands tall, and has a very serious look about him. Speaking with an air of assurance, he told me of the progress Syama has made to improve costs and increase production this year. Their target of 270,000 ounces at a cash cost of $210 will be met beginning the first quarter of 1999.

But the biggest story is a multitude of expanding high-grade ore bodies. Chief amongst these is Morila, 80 kilometers northwest of Syama.

"Morila has been a luck out for us," Kebble proclaims. The economics do appear fantastic, with an expected payback of 15 months, an impressive 50% internal rate of return, and planned production of 200 koz/yr. The strip ratios are small (3.8:1) and it's very diggable; the rock is not too hard. The grade averages 4.2 g/t with a total resource of 2.2 Moz, which continues to expand. Capex is projected at $80M but "could be less than $70M," claims Bristow, adding, "we will benefit by using surplus equipment from Durban, which will keep costs down." With over 2 million ounces close to the surface and projected cash costs below $120/oz, "banks are falling over each other to finance the deal," Kebble intones. Bankable feasibility will finish by March 1999 with July 99 construction and an operational start in February 2001. I mention the similarity to the Anglogold/IAMGOLD Sadiola Hill mine in Mali. "Yes, but without the debt."

With further acquisitions of adjacent orebodies like Tongon and Medinandi, the reserves continue to pile up. Loulo, yet another Malian property, where exploration drilling continues, will wait for a more favorable gold price of $330/oz or 500,000 extra ounces to go forward and Golden Ridge, in Tanzania, will be sold because the orebody is less than 1 Moz, and doesn't fit into corporate plans.

"This will be the last quarter of losses" promised Kebble. Indeed, Syama has just turned the profit corner; it is now fully producing over 40,000 oz this quarter. Attributable cashflow from Syama operations is projected at $18 M in 1999 at $300 gold (without considerations of depreciation, depletion, amortization, capital expenditure or changes of working capital). That's an attributable annual cash flow of 79 cents per Rangy share. The Syama heap leach project scheduled to come on line later in 1999 will add another 33 cents to this figure. Morila and Loulo, once they're fully operational, expect to add another $1.43 and $0.34 per year, respectively.

Durban
- Unstoppable King of the Deep

The news from Durban is equally encouraging.

"Durban is going like a train" Kebble was pleased to announce. The company is hell bent on increasing production beyond 1 Million ounces per year to command the valuations of a senior producer. It is looking to do that through acquisition, knocking on the doors of neighboring Hartebeesfontein and Australia's Emperor Gold, with an underground mine in Fiji. The Argonaut project, a massive 40+ Million ounce deposit deep under Johannesburg, looks very promising, and the company would like to partner development with a North American major like Homestake, which has its own extensive underground experience, having run the Lead, South Dakota mine for over a century. Now that Placer Dome has JV'd South with Western Areas, a North American partnership with Durban appears increasingly likely.

Randgold & Exploration
- All Good Things End Well

At this point, it's not clear how they might execute a breakup strategy but Kebble's wish is to shepherd Durban Deep and Randgold Resources into the JCI fold.

To begin with, all companies in the conglomerate, including Western Areas, Randfontein, Randgold Resources and JCI, are now being registered for Nasdaq listings. CAM, the Kebble’s investment vehicle, will likely be consolidated into JCI. Randgold’s South African mineral rights will be formed into a new listed company. Then Randgold, including the $48 Million convertible bond debt, may be consolidated into JCI, with the net result that Randgold shareholders would have a stake in JCI stock.

Management would prefer to buy back the convertible bond debt. There is mention of a dividend from Randgold Resources, and sales of their Navachab, TGME and other mineral properties would add cash, but raising enough for a buyback in a prolonged, low gold price environment may be problematical. As yet, all scenarios are possible, including converting the bond into shares in October 2001 and/or retaining Randgold's structure ad infinitum. Proposals will be forthcoming in the second half of 1999, when shareholders will be presented with options.

The curtain may close for Randgold, but probably not for awhile. Recent talk of this happening in 1999 is optimistic; most likely it won't occur until 2001 at the earliest.

Dr. Jim Azzola
jazzola@san.rr.com

Graphics: Polarbear at rangy@usa.net