John Sayers, CEO, DRDGOLD
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DRDGold scores at Mintails' expense
Brendan Ryan
Posted: Fri, 03 Oct 2008

[miningmx.com] -- ASX-LISTED Mintails’ financial problems have worked to the benefit of DRDGold which is its partner in the Ergo and Elsburg dump retreatment operations on the East Rand.

DRDGold is putting up R100m to cash-strapped Mintails which voluntarily suspended trading in its shares on September 18, apparently because it had run out of funds.

Mintails is currently developing two projects - East Rand Gold & Uranium (Ergo) on the East Rand and West Rand Gold & Uranium (Wergo) on the West Rand.

Wergo is wholly-owned but Ergo is a 50/50JV with DRDGold. Ergo is due to come into production this month and ramp-up to an annual output of 75,000oz of gold.

Mintails and DRDGold are also 50/50 partners in the Elsburg JV which was established to treat some 1.7bn t of tailings material on the East Rand containing gold, sulphur and uranium.

DRDGold has now announced that it has bought another 15% of the Elsburg JV for R100m taking its stake to 65%.

According to a DRDGold statement the 50/50 interests of DRDGold and Mintails in the Ergo JV are not affected by the acquisition and remain unchanged.

Mintails has also granted DRDGold a conditional option - exercisable between January 1 and January 15 next year – to acquire a further 11.4% interest in Elsburg for R75.9m.

Mintails executives - in particular chairman Bryan Frost – had previously maintained the company had the funds in place to bring Ergo into production.

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The DRDGold statement said, “although the Elsburg JV is scheduled to commission the Brakpan plant early in October, both joint ventures require significant capital investment as the projects continue.”

It added Mintails had agreed to divide the R100m, plus any proceeds from the option, in capital expenditure between the Ergo JV and the Elsburg JV projects.

Some R30.2m will be spent on the Ergo JV plus another R23.8m should the option be excercised.

About R52.4m will be spent on the Elsburg JV with an additional R52.1m should the option be exercised and about R17.4m will be spent on the refurbishment of the CIL gold circuit which is to be used by the Elsburg JV.

The deal is good news for DRDGold because it allows the company to grow its profitable surface dump retreatment operations and reduce its exposure to its high-cost, marginal, deep-level mines.

It’s not so good for Mintails because it reduces Mintails share of the profits to come from the East Rand dump operations.

It does keep Mintails in operation at a time when raising funds is extremely difficult but the lower share of the Elsburg JV means Mintails will be more dependent for its medium term and longer term profits on Wergo.

DRDGold CEO John Sayers commented, “the acquisition we have announced today facilitates the advancement of both the Elsburg and Ergo JVs. Also, it is consistent with DRDGold’s stated intention of focusing on its SA gold operations and, in particular, its surface dump retreatment operations. “

The writer owns shares in Mintails and DRDGold.