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» DRDGOLD gains as Mintails struggles
» Gold Fields, Harmony are star performers
» DRDGOLD shuts loss-making ERPM
» DRDGOLD might suspend ERPM mine

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Gold, Mintails lift DRDGOLD prospects
Brendan Ryan
Posted: Tue, 30 Dec 2008

[miningmx.com] -- SHARES in DRDGold have started to look interesting again. They reached 580c in the week before Christmas - 36% up on the 425c level at which they were trading in early October.

And although the share has retraced somewhat – DRDGold is currently trading at 555c/share - there are two reasons supporting a renewed interest in the company. The first is that the US dollar gold price is rising and has moved well above the $800/oz level (currently at $885.20/oz); the second reason is that DRDGOLD is scoring heavily from the financial woes of joint venture partner Mintails.

The latter is the more important reason, as it involves a fundamental positive change in the structure of DRDGOLD's business model. DRDGOLD is a 50:50 joint venture partner with Mintails in the Ergo dump re-treatment operation that's currently commissioning its treatment plant near Springs on the East Rand.

If all goes to plan, Ergo should ramp up rapidly to its full production rate of 75 000oz/year of gold. That output was supposed to be split equally between DRDGOLD and Mintails but DRDGOLD will now get all of it for about the next 12 years. That follows its move to buy 100% of the associated Elsburg joint venture with Mintails, which consisted of about 186m t of dump material that's going to be treated first by the Ergo plant.

That amounts to a net production gain of 30 000oz/year of gold for DRDGOLD in total, after deducting the 45 000oz/year it will no longer produce because it's shut down the underground operations at ERPM.

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What's more, those should be 75 000 highly profitable ounces as Ergo's costs as a surface operation should be in the lowest quartile of the industry's cost curve compared with the ultra-deep level operations at ERPM, which were losing money. Add the increased production to a rising gold price in both US dollars and rand and you can see why there's renewed interest in the share.

The performance of the gold price has been disappointing for much of this year after breaching the $1 000/oz level in March and then falling back to around the mid-$700/oz level. Gold is moving up on renewed investor concerns about weakness in the US dollar and forecasts of tight supply of the metal.