Interview: Rangold Resources FD Graham Shuttleworth

GRAHAM SHUTTLEWORTH, finance director of FTSE 100 gold miner Randgold Resources, tells his friends that “it’s better to be lucky than smart”.

The words are usually mentioned in context of a story the 43-year-old South African tells about his move away from banking in 2007, and back into the gold industry, in which he had worked until 2000. The banking industry’s collapse, and the continuing remarkable strength of the gold price (which has gone from as low as $600 an ounce in 2007 to $1,550 (£991) today) means he made a very smart move.

The fact that he modestly suggests he might just have been lucky says something about Randgold too – a mining company which has had its fair share of luck, but has also been extremely smart, and modest too, about the way it does things.

Randgold’s share price rise has been anything but modest over the past ten years. The company’s stock was trading at just over £1 during the nadir of the gold market in 2000, and is now changing hands for nearly £60 a share.

The share price, unlike that of many other gold miners, has outpaced the gold price by some margin. And all the value has been created since 1995, when Randgold Resources was set up.

There has indeed been a fair amount of luck, in that the company has benefited from the huge surge in gold. But Randgold also saw an opportunity, and took it.

“We got into Francophone Africa in the mid-1990s when it wasn’t popular,” explains Shuttleworth.

Other miners, he says, were happier in English-speaking countries: “That gave us a competitive advantage. We got in there early, in the right places.”

As a result, the company has managed to find all of its own gold.

“Every ounce we have discovered has cost us about $15 an ounce,” says Shuttleworth. Most of that cost is just exploration – paying for geologists who know where to look.

To put $15 an ounce into context, a proven gold field will sell for closer to $500 an ounce. “We aim to find gold or find somebody who has found it but doesn’t know he has found it,” he says.

Start-up atmosphere

The company’s rapid ascent means it still has the atmosphere of a start-up. A tiny office just off the Strand is its main footprint in the UK.

“We still think of ourselves as a small business, with not a lot of cash and a lot of debt. Philosophically, that’s still how we look at it. We see ourselves as owners,” says Shuttleworth.

Randgold does not want marquee offices in big global capitals. Rather, it wants to concentrate its finance where its assets are – in African gold mining.

It has four main mines: three in Mali and one in the Côte d’Ivoire. Beyond that, the company has a myriad of other opportunities it is analysing at any one time – with 302 different projects across five African countries: the Democratic Republic of Congo, Burkina Faso and Senegal being the other three. Shuttleworth’s caution is noteworthy. To most people, gold exploration will conjure up images of buccaneering activity that only very occasionally results in great instant wealth.

Randgold has created huge value very quickly, if not instantly, but it has done so in a measured and careful way.

“Our aim is to have a profitable mining business that just happens to be in gold,” says Shuttleworth.

His point is that Randgold focuses its attention on getting hold of the yellow metal at a price that means the company would be profitable even if the gold market were to collapse.

Gold may be the ultimate store of wealth – the place to keep your money when war is raging and national debt is rising – but it is also an extremely volatile asset class.

“We spend very little time worrying about the gold price. At the moment, our cash costs are less than $700 an ounce – that gives us more than a 100% margin with the price at $1600,” he says.

The high gold price has been very good for Randgold, and 2011 proved to be a stellar year. Profits almost quadrupled to more than $400m (£256m), as new production came on stream just as the gold price was climbing.

Gold terms

Shuttleworth’s view on gold, for the record, is that it is closely correlated to expansions in the money supply, which means that quantitative easing and promises of further money printing will boost gold. When countries print money, “the value of money has to go down in gold terms”, as he puts it.

What’s more, as the US debt ceiling has risen in step changes over the last 50 years, “the gold price has risen to match it”.

But as well as being a store of value, gold is also a commodity – something increasingly used by the developing world to satisfy demand for jewellery, among other things. However, Shuttleworth believes this is less important in driving the price.

“Gold is not driven by consumption but by supply and demand. There’s a dovetailing [with commodity price trends] but it’s a different driver,” he explains.

Close relationships

Trained at Deloitte in South Africa, Shuttleworth had a spell abroad before coming back and deciding to do corporate finance.

A recruiter mentioned an opportunity at Randgold & Exploration – the company out of which Randgold was spun – to him. “The recruiter said it came with a company car, and I said, ‘Fantastic – I am in’,” he recalls.

He worked with Randgold’s long-time chief executive Mark Bristow on its IPO in 1997, before leaving the company in 2000, when the low gold price had the industry on its knees.

He spent the next seven years putting together big global mining deals as a corporate financier at HSBC, before making his well-timed move back to Randgold when its CFO departed in 2007.

Shuttleworth’s history suggests he is someone who likes to forge close relationships with business partners.

“When I was in banking, I enjoyed working for the smaller companies most. On the big deals, there are hundreds of advisors running around. On a smaller company, you tend to be on your own and they really rely on your advice,” he says.

Randgold itself is the only company in the FTSE 100 that doesn’t employ a Big Four auditor to look at its books, preferring BDO.

“We started life with a Big Four firm,” says Shuttleworth. “When I joined, we went out to tender and BDO won the audit. We are a perfect business for a non-Big Four firm. We don’t need specialised skills or need a massive global business to look at us.”

And while he jokes that he is “glad to do my bit to stop the oligopoly”, Shuttleworth ultimately thinks that the choice of BDO reflects Randgold’s approach to business more than anything else: “If we go into a country, our competitors will instinctively use one of the global oil suppliers, for instance. We tend to see what the local distributor can do for us. If their interests are aligned, they will get involved to help us if we have a problem.

“And to BDO, this is a very important audit. On things like capital raisings, they have been extremely responsive.”

As the FD of a mining company, he is also at the forefront of initiatives to publish more granular data on sustainability and tax payments wherever Randgold operates.

“As producers we have moved towards much greater disclosure on what we are paying and to whom,” he says.

Randgold pays $150m in taxes to Mali, he says, against a total budget there of $1bn. The company will shortly publish a detailed analysis of its sustainability performance as part of the Global Reporting Initiative. However, Shuttleworth doesn’t appear to have strong views either way on the move.

“I understand the need for it – people want to see this information,” he says.

He does eventually concede that “it is trying. It takes up a lot of people’s time.” But he also adds that in time it will become routine, and thus easier.

African advantage

Whatever Randgold does next, it seems unlikely that it will involve a dramatic move away from its roots.

“From time to time we have looked at growing our strategy, and looked at Eastern Europe or Latin America,” says Shuttleworth.

“But Africa is our competitive advantage. We believe we can manage the risk there.”

Russia carries too much political risk, he says, while operating in Latin America would mean going up against the big American mining groups, which are much more comfortable dealing with the challenges, being nearer to home.

And what will he do next?

“There’s still a lot to do at Randgold. It remains very interesting and challenging here. There are times when one thinks it would be nice to have the top job,” he says.

But whatever happens, Shuttleworth wants to stay entrepreneurial: “I think it would be tough to go into a really big bureaucratic-style business.”

It’s a comment that tells you a lot about Randgold: despite being one of the largest companies in the UK by market capitalisation, the company’s finance director would not describe the company as big.

Randgold’s success has happened so quickly, it is clearly taking time to get used to. ?