Nordgold (LSE: NORD), with 9 gold mines in several emerging markets, has spent 2013 working on increasing their production and efficiency to combat challenging global gold markets.
Nordgold
(LSE: NORD), is a gold producer that specializes in emerging markets. With 9 operating mines currently located in
Russia, Kazakhstan, Guinea, and Burkina Faso, the company has spent 2013 focused
on increasing the efficiency of its production and administration processes
across its portfolio as well as delivering the launch of the Bissa project, its
second mine in Burkina Faso. Nikolai
Zelenski, CEO of the company, took a few minutes to speak to Metals News about
the progress that Nordgold has made during the last year.
Said
Zelenski, of the complicated business atmosphere in the resources sector, said
“I think Nordgold’s challenge is similar to that of everyone else in the
sector.” The largest issue for gold producers is that the gold price has
dropped 28% since the start of 2013.
In order
to continue to be profitable, Zelenski and his team have been working to
increase operational efficiency. He
said, “We have been working throughout the year in order to improve the
efficiency and performance of our business.
We have made significant progress. In third quarter our all-in
sustaining cost per ounce of production was $1008 dollars.”
Nordgold’s
efficiency programs deal with entire area of value creation in gold, starting
from geology where the company continues to grow their reserve/resource
profile, mining and metallurgy, as well as a constant vigilance on
administrative expenses. Added Zelenski, “In the company, we are looking at
reducing dilution and improving the utilization of equipment, as well as
improving recovery rates, growing plant and fleet productivity and we want to
reduce some of the consumption of energy for the mines.” These changes are what have brought the cost
per ounce of gold production down.
Zelenski
believes that a forensic approach to cost management is very important in a low
cost environment. He said, “In this kind of market you can never be
relaxed. We will continue to work on
improving efficiency.”
In addition to
bringing their cost per ounce down, the company is also looking to build a best
in class management team. Said Zelenski,
“Nordgold has bolstered its management team with the recent arrival amongst
others of Louw Smith as Chief Operating Officer, who joined from Alacer Gold
and Martin White as Technical Director who joined from Aureus Mining Inc.”
While
Nordogld remains focused on driving value from its existing growth pipeline, it
remains open to opportunities in emerging markets. Said Zelenski, “We have a new mine launched
in January 2013 that is working really well – Bissa in Burkina Faso. It was built within 15 months with a capital
expenditure of $250 million dollars – on time and on budget. It will deliver an
excellent return on invested capital and it is already significantly exceeding
our initial production estimates. We intend to repeat Bissa’s success”.
Zelenski said that
there are particular characteristics the company looks for before going after
an acquisition. He said, “We are looking
at junior companies for small-scale acquisitions. The typical project will have two million
ounces with a grade of above two grams and a simple structure to process
ores. We are looking at areas that have
infrastructure that is reasonably developed. This is the criteria we use when
identifying projects.” The company tends
to focus on emerging markets rather than traditional markets. Although Zelenski and his team see the value
in working in areas such as North America, that is not their chosen niche. Said Zelenski, “We will look at a wide range
of areas. We believe that jurisdictions
such as US, Canada, Australia, and South
Africa are the areas where the local miners have competitive advantage and this
why we are not actively looking at those countries.” Nordgold is looking to more underexplored
regions for opportunities to find gold.
Said Zelenski, “We are looking at emerging markets, especially at the
countries where we already operate, such as Russia, Kazakhstan and across West
Africa. We are quite flexible and we are
look at the quality of the deposit.
Certainly, we also look at countries where there is a properly managed
resource industry.” Zelenski and his
team are not interested in political areas that aren’t open and sympathetic to
mining. He said, “We avoid countries
that aren’t friendly to mining.”
Nordgold’s focus on driving down costs, building
a very strong management team, an excellent pipeline of projects and developing
new mines, as well as making careful acquisitions, means that shareholders will
likely benefit. Said Zelenski, “The
dividend yield for 9 months of the year has been at 4.1% and if we pay dividend
for the fourth quarter the yield will be certainly higher. We pay dividends on
a quarterly basis. Our Board of Directors will meet in February and determine
what dividend will be paid for the fourth quarter of the year.” After the company decides on the dividend,
they will continue looking for new opportunities.
The
company does have some debt to pay down.
Said Zelenski, “Our current debt is slightly above $700 million
dollars. The debt level is something
with which we’d be very comfortable in a normal market, but in this market, we
need to decrease it. Our mines are very
well invested and are generating free cash flows. We don’t have any projects in the
construction phase that need capital. As
a result we have quite a bit of flexibility around using the cash that our
operations generate to pay dividends and reduce debt. Market volatility is
something we have to deal with. The
further down the road, the more difficult the challenges become. But we are
very fortunate to have added very strong professionals with the right
experience and attitudes in developing mines in different parts of the
world. We believe that they will improve
the performance of the company next year.”
Why
should investors take a look at Nordgold in this challenging market with
falling gold prices? Zelenski said, “I
think there are a lot of reasons to be interested in Nordgold right now. We are a dynamic gold producer. We have been in gold since 2007 and we have
continued to increase our production in 2013. Nordgold is anticipating reaching
850 koz of gold in 2013 compared to 717 koz in 2012. We have been resilient to
the gold price: well invested assets and low AISC allow us to generate free
cash flow. We have had a lot of success improving our resources. We also have
an excellent pipeline of projects and new mines. We have a simple strategy and
good dividend yield. And the overall low multiples that we currently have must
attract investors”.
http://www.nordgold.com/
Nord Gold N.V.
Luna
Arena, Herikerbergweg 238, 1101 CM Amsterdam Zuidoost,
The Netherlands
T +31
20 406 4480
F +31 20 406 4555
Investor relations
Valentina Bogomolova, IR Manager
M +7 916 474 59 96
T +7 495 644 44 73 ext.6711
va.bogomolova@nordgold.com