FULBRIGHT & JAWORSKI L.L.P.
A Registered Limited Liability Partnership
666 Fifth Avenue, 31st Floor
New York, New York 10103-3198
www.fulbright.com
STEVEN SUZZAN DIRECT DIAL: (212) 318-3092
PARTNER TELEPHONE: (212) 318-3000
SSUZZAN@FULBRIGHT.COM FACSIMILE: (212) 318-3400
October 19, 2005
VIA EDGAR AND FEDERAL EXPRESS
Mr. H. Roger Schwall
Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Mail Stop 7010
Washington, D.C. 20549-7010
Re: Randgold Resources Limited,
Registration Statement on Form F-3/A filed on October 12, 2005
File No. 333-127711
Annual Report on Form 20-F/A for the year ended December 31, 2004
filed on October 12, 2005
File No. 0-49888
Dear Mr. Schwall:
On behalf of Randgold Resources Limited (the "Company"), we hereby submit
to you Amendment No. 3 to the Company's above-referenced Registration Statement
on Form F-3 (the "F-3 Amendment") and Amendment No. 3 to the Company's
above-referenced Annual Report on Form 20-F (the "20-F Amendment") reflecting
changes made in response to the Staff's comment letter dated October 18, 2005.
All responses to the comments set forth in this letter are submitted on
behalf of the Company at its request. Set forth after each numbered paragraph,
each of which corresponds to the numbered paragraphs of the October 18, 2005
comment letter, are the Company's responses to the Staff's comments.
Mr. H. Roger Schwall
October 19, 2005
Page 2
AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON FORM F-3
Indemnification of Directors and Officers, page II-1
- ----------------------------------------------------
1. We note your disclosure that you are allowed to purchase and maintain
insurance at your expense for the benefit of certain individuals or
entities, including your auditor. Please tell us whether or not you have
done so. We may have further comment.
Response: The Company advises the Staff that its Articles of Association
was amended in 2003 to eliminate the Company's ability to indemnify its
auditors, and has amended the disclosure in Item 8 of Part II accordingly.
In addition, the Company advises the Staff that it has never purchased or
maintained insurance covering its auditors. The Company is also supplying
to the Staff supplementally correspondence from Roger Williams, the
Company's financial director, and PricewaterhouseCoopers LLP, to the Staff
dated June 2002, addressing the auditor indemnification issue.
FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2004
Financial Statements
- --------------------
Note 2 - Significant Accounting Policies
- ----------------------------------------
Property, Plant and Equipment, page F-8
- ---------------------------------------
2. We have reviewed your response to our prior comment numbers five, six, nine
and ten. Please address each of the following in detail.
Please provide a separate analysis to support your accounting for each
of the following:
o Costs relating to the definition of mineralization in existing mineral
properties
Response: The Company acknowledges the Staff's comments and advises the
staff on a supplemental basis as follows:
Costs relating to the definition of mineralization in existing mineral
properties refer to the direct expenditure (such as drilling costs)
incurred to convert existing mineralization into proven and probable
reserves and/or to enhance the Company's knowledge about existing
reserves and mineralization to help in the formulation of the optimum
mine plan. Under the Company's IFRS accounting policies, such costs are
capitalized where it has a high degree of confidence that future
economic benefits will flow to the entity.
The Company believes that this policy is appropriate because costs
should be capitalized under IFRS where it is "probable that future
economic benefits will
Mr. H. Roger Schwall
October 19, 2005
Page 3
flow to the entity and the asset has a cost or value that can be
measured reliably" (paragraph 89 of the IAS Framework for the
Preparation and Presentation of Financial Statements).
The Company's accounting policy does not mean that all exploration and
evaluation costs relating to the definition of mineralization in
existing properties are automatically capitalized. There could be
circumstances where the Company does not have a high degree of
confidence that an economic benefit will arise. The Company has
explained below how it determines whether it has a high degree of
confidence that a future economic benefit will flow from such
expenditure.
o The expansion of the productive capacity of mineral properties which
are already being mined
Response: The Company acknowledges the Staff's comments and advises the
staff on a supplemental basis as follows:
Exploration and evaluation costs relating to the expansion of the
productive capacity of an existing mineral property are incurred to
expand the mineralization, with a view to generating additional future
production. Under the Company's IFRS accounting policies, such costs
are capitalized where it has a high degree of confidence that future
economic benefits will flow to the entity.
The Company believes that this policy is appropriate because costs
should be capitalized under IFRS where it is "probable that future
economic benefits will flow to the entity and the asset has a cost or
value that can be measured reliably" (paragraph 89 of the IAS Framework
for the Preparation and Presentation of Financial Statements).
The Company's accounting policy does not mean that all exploration and
evaluation costs relating to the expansion of the productive capacity
of an existing mineral property are automatically capitalized. There
could be circumstances where the Company does not have a high degree of
confidence that an economic benefit will arise. The Company has
explained below how it determines whether it has a high degree of
confidence that a future economic benefit will flow from such
expenditure.
The Company also capitalizes the development costs incurred in
expanding the productive capacity of an existing mineral property.
o We note no disclosure regarding your adoption of IFRS 6 in your filing.
Please clarify whether or not you have adopted this standard. Refer
also to paragraph 26 of IFRS 6. We may have further comments.
Mr. H. Roger Schwall
October 19, 2005
Page 4
IFRS 6: "Exploration and Evaluation of Mineral Resources" is applicable
for annual periods beginning on or after 1 January 2006 and although
the standard encourages earlier application, the Company advises the
Staff that this standard has not yet been adopted. The Company made
reference to IFRS 6 in its previous response letter to indicate that is
acceptable in terms of the most current guidance to capitalise
exploration costs under IFRS. The Company intends to adopt IFRS 6 from
1 January 2006.
o Please explain why you believe this represents a change in accounting
policy rather than a selection of a new accounting policy. Specifically
address paragraphs 7 to 16 of IAS 8.
Under IFRS, the Company develops and applies its accounting policies in
line with paragraph 10 of IAS 8 which requires all policies to be
"relevant" and "reliable". The Company concluded that the wording of
its accounting policy on exploration and evaluation costs had to be
amended in 2004 to take account of the new situation that arose during
the year - namely, the decision to incur significant exploration and
evaluation costs on the Loulo underground project where, for the
reasons described below, the Company had a high degree of confidence at
the outset that future economic benefits would flow to the entity. This
change to the policy wording was considered appropriate under paragraph
14(b) of IAS 8 on the grounds that it would provide "reliable and more
relevant information".
The Company specifically considered whether under IAS 8 this was a
change in accounting policy or simply a "new event or condition that
differed from those previously occurring" under paragraph 16. The
expenditure on the Loulo underground project represented a new
situation, in the sense that this was the first time that significant
exploration and evaluation expenditure was being incurred where the
Company had a high degree of confidence in the outcome. However, the
Company had incurred exploration and evaluation expenditure in prior
years and had already published an accounting policy for such
expenditure. As a result, the Company concluded that it was appropriate
to draw attention to the revised wording by disclosing it as a change
of accounting policy.
In deciding whether this was a change in accounting policy or a "new
event or condition", the Company was mindful that:
o This decision did not affect the accounting treatment applied in the
2004 accounts, given that there was no prior period effect; and
o It was important that the new policy be fully disclosed and explained.
Mr. H. Roger Schwall
October 19, 2005
Page 5
o Please explain in detail, how you applied, determined thresholds for
and defined the concepts, probable and degree of certainty. It
continues to be unclear why the application of these concepts in the
determination of whether or not an expenditure represents an asset
results in a difference between IFRS and US GAAP. We note your
conclusion that there is a difference between IFRS and US GAAP because
you believe there is a requirement for a final feasibility study to be
completed before exploration and evaluation assets can be capitalized.
Note that US GAAP does not permit the capitalization of exploration or
evaluation expenditures.
The Company believes a "high degree of confidence" provides an
appropriate threshold for determining whether exploration and
evaluation expenditure should be capitalized and that in all such cases
the future economic benefits are "probable". Appendix A to IFRS 3
defines "probable" as "more likely than not".
The completion of a final feasibility study increases the Company's
confidence about whether future economic benefits will be generated.
However, the Company's IFRS accounting policy allows for the fact that
in certain situations the Company will have sufficient confidence in
the outcome of a project to justify capitalizing the costs before the
final feasibility study has been completed. In the case of the Loulo
underground project, the costs were capitalised after the Company had
completed a pre-feasibility study. Having regard to the particular
circumstances of this development, as explained more fully below, the
Company believes that this pre-feasibility study provided sufficient
comfort to conclude that a high degree of confidence was justified.
This view was confirmed by the completion of a development study in
2005 and the plan to proceed with the development of an underground
mine was approved by the Company's Board of Directors in August 2005.
The Company anticipates that construction of the underground mine will
commence in 2006.
The Company acknowledges that the definition of what constitutes an
asset is similar under both US GAAP and IFRS. However, the Company has
been advised that US GAAP is more restrictive regarding the treatment
of exploration and evaluation expenditure because the SEC takes the
view that expenditure cannot be capitalised under US GAAP unless a
final feasibility study has been completed and hence proven and
probable reserves have been established. A GAAP difference arises
because for the purposes of establishing probability there is no such
requirement to have a final feasibility study under IFRS. The Company
believes that there will be some situations - such as the Loulo
underground project - where, having regard to the particular
circumstances, the Company has a high degree of confidence in the
outcome before a final feasibility study has been completed.
Mr. H. Roger Schwall
October 19, 2005
Page 6
The Company's previous response to comment 5 referred to the
capitalization of exploration and evaluation expenditure under US GAAP.
The Company acknowledges that exploration and evaluation expenditure
cannot be capitalized under US GAAP, on the basis that any such costs
incurred after the final feasibility study are deemed to be development
costs.
o Please explain in greater detail why you believe a high degree of
confidence exist when defining mineralization on existing properties
and also when expanding the productive capacity of a mineral property
already in production.
In general, when defining mineralization on an existing mineral
property or in expanding the productive capacity of a mineral property
already in production, a higher degree of confidence exists because:
o Knowledge of the types of geology and existing mineralization is
already in existence
o Structures such as faults have already been investigated
o Knowledge of the metallurgy of the mineralization has already
been obtained
o When already in production, information has been gained as to the
efficacy of the mining method chosen and its associated costs
o The response of the ores to the processing plant has already been
established and a history of working costs has been built up
o As there is already an existing infrastructure and processing
plant the capital cost is much reduced
o Tell us the nature and level of the information, engineering data or
other evidence that the company needs at the time the exploration and
evaluation expenditures are made to determine that a particular cost
should be capitalized.
The information the Company requires to justify capitalizing
exploration and evaluation expenditure will vary according to the
circumstances of each project. In relation to greenfield exploration,
for example, the Company will generally require a final feasibility
study before any expenditure is capitalised. In relation to the Loulo
underground project, however, the infrastructure was already being
constructed for an open pit operation and the Company concluded that
the completion of a pre-feasibility study was sufficient to justify the
capitalization of the exploration and evaluation expenditure. Such
studies are completed to a level of accuracy of +- 20-25% and, in
relation to underground projects, include the following objectives:
Mr. H. Roger Schwall
October 19, 2005
Page 7
o The preparation of preliminary or conceptual underground mining
methods for the deposits based on the available geological and
geotechnical information
o The siting and design of the underground layouts
o The determination of production rates from the underground
operations
o The scheduling of underground development and mining operations
o The determination of mining capital and operating costs.
o Please tell us how you define the terms greenfield and brownfield.
Greenfields exploration may be defined as "The process whereby broad
target areas are selected on the basis of favourable geology and/or
geophysics with little or no evidence of the target mineralization. It
relies strongly on empirical models coupled to an understanding of the
relevant tectonic settings, mineralizing processes, and effective use
of geochemistry and geophysics to define specific targets within those
areas".
Brownfields exploration may be defined as "The exploration of areas of
favorable geology extending from or adjacent to existing mines and
mineral deposits to distances limited only by the economic transport of
ore to an existing mill".
Brownfields exploration is inherently lower risk than greenfields
exploration because of its proximity to existing mines. Brownfields
exploration can also be looked at as exploration "around existing mine
locations" or exploration within "sight of another mine's headgear".
Generally speaking the Company would consider brownfields exploration
to take place in areas of similar geologic rock type, structure and
mineralization to that already identified in the existing mine or
mineral deposit. The Company would also consider that a break would
exist in the already identified mineralization i.e. it is not
continuous.
Where the mineralization is continuous we define a 3rd type of
exploration, which is better described as "extension drilling" rather
than exploration as the presence of mineralization has already been
demonstrated. This drilling takes place on the extensions to bodies of
mineralization that have already been fully drilled out and a decision
has already been taken (based on a bankable feasibility study) to put
the property into production. The extensions to the "proven" orebody
will have already been drilled to a density that allows us to determine
the shape and orientation of the orebody. These extensions may be along
strike or they may be down dip of the proven orebody. That these
extensions haven't been fully drilled out may be due to a variety of
reasons.
Taking the case of the extension drilling carried out at Loulo, an
economic analysis showed that a different mining method would be
required to mine the
Mr. H. Roger Schwall
October 19, 2005
Page 8
down-dip extensions to the open-pittable orebody i.e. underground
mining. The decision was therefore taken to commence open pit
operations before the deeper extensions were drilled out to a level
where a bankable feasibility study could be carried out on a possible
underground mine to be developed. However, a pre-feasibility study
showed the potential for an economic underground mine to be developed;
the requirement was for infill drilling to a level where reserves could
be established.
o Provide us with an analysis that compares and contrasts the type of
information available, the assessment of probability of cash flow
generation and the degree of certainty for each type of exploration,
including but not limited to "greenfields', "brownfields", and "around
existing mine locations.
We may have further comments.
The type of information available, the assessment of probability of
cash flow generation and the degree of certainty will vary according to
the particular circumstances of each project. However, the following
table provides an indication of the "typical" situation for
"greenfields" exploration, "brownfields" exploration and "extension
drilling".
----------------------------------------------------------------------------------------------------------
Type of information Probability of Degree of certainty
cashflow generation for exploration type
----------------------------------------------------------------------------------------------------------
Greenfields exploration Geophysical and geochemical Low probability Low
surveys, pits and trenches,
RAB, some RC and limited
diamond drilling
----------------------------------------------------------------------------------------------------------
Brownfields exploration Mainly RC and diamond drilling Probable Medium
("around existing mine with drill spacing to 100m apart
locations")
----------------------------------------------------------------------------------------------------------
Extension drilling Diamond and RC drilling to High probability High
spacings of 25-100 meters apart
----------------------------------------------------------------------------------------------------------
Revenue Recognition, page F-13
------------------------------
3. We have reviewed your response to prior comment number eight. Please expand
your disclosure to indicate whether or not the subsequent adjustments as a
result of differences between the estimate and the actual contained metal
are significant. To the extent significant, disclose the amount of time
between the initial estimate and the final adjustment and the amount of
adjustment reported in each period. Additionally, explain why you believe
it is appropriate to record the revenue at the time of the estimate, if you
have a history of significant adjustments. For US GAAP refer to SAB Topic
13.
Mr. H. Roger Schwall
October 19, 2005
Page 9
Response: The Company acknowledges the Staff's comment and has expanded
its revenue recognition policy on page F-13 in response to the Staff's
comment to clarify that differences between the estimate and the actual
contained metal are insignificant. The Company further provides the
Staff on a supplemental basis with the following information:
RESULTS (OUR SHARE) 2004 2003 2002
-------------------------------
Refinery adjustment (ounces) 237 690 486
Adjustment as a percentage of
ounces sold 0.1% 0.2% 0.1%
Historically, these refinery adjustments did not exceed 0.2% of ounces
sold and these adjustments are normally made within 3 days of
recognizing the sale.
Note 5 - Change in Accounting Policy, page F-14
-----------------------------------------------
4. Please explain why you regard around mine exploration costs associated with
a contemplated underground extension of an existing ore body as an asset,
when it appears your treatment of such costs relative to the associated
open pit mine have consistently been regarded as expense. It also appears
from your disclosure that exploration costs incurred in contemplation of
extensions of the existing open pit, will continue to be expenses as
incurred. Tell us why you believe these policies should be different when
the nature, activities and the circumstances appear to be the same or
similar.
Response: The Company acknowledges the Staff's comments and points out
that the same criteria for asset recognition apply equally to open pit
and underground operations. No exploration costs were capitalised for
the Loulo open pit operation as the Company did not have a high degree
of confidence that the project would provide a future economic benefit
until it had completed the final, bankable feasibility study. In this
case, there was more uncertainty about the project's viability prior to
the final feasibility study because the project required the
establishment of all the mine infrastructure and plant. Nevertheless,
should the situation now arise where exploration and evaluation
expenditure is incurred to extend the open pit through the
establishment of additional economic ounces, these costs will be
capitalised if the Company has a high degree of confidence that the
expenditure will generate future economic benefits. The Company does
not believe, therefore. that the policies are in any way different.
Mr. H. Roger Schwall
October 19, 2005
Page 9
If you have any additional comments or questions, please feel free to
contact the undersigned at (212) 318-3092, or Anthony Saur at (212) 318-3172.
Very truly yours,
Steven Suzzan
Enclosures
cc: Kevin Stertzel
Jill Davis
George Schuler
Jason Wynn
Timothy Levenberg
D. Mark Bristow
