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DRDGOLD grasps for option value Posted: Tue, 07 Mar 2006 [miningmx.com] -- SPEAKING on South African radio recently, DRDGOLD executive chairman, Mark Wellesley-Wood, quipped that the company had “become boring” after having liquidated gold mining shafts in South Africa’s North West province. Those were the infamous Buffelsfontein assets that regularly lost money and were always variable in performance. DRDGOLD drew a line under them in March 2005 after an earthquake knocked out vital infrastructure. Without these marginal assets, DRDGOLD had become predictable, Wellesley-Wood said – though not so predictable as to avoid surprising analysts with its deeper-than-expected interim loss, unveiled in February. So it’s no coincidence that DRDGOLD should raise the curtain (again) on Argonaut –a project uncharitably dubbed “Aqua-naut” in the late Nineties owing to flooding of its underground conduits. However, in its new guise just a slice of the original venture is being contemplated by DRDGOLD – about 8.9 million oz of resources compared to the 25 million oz in its initial scope. In addition, the smaller packet of ounces is accessible from DRDGOLD’s existing ERPM mine in Boksburg, so there was no need to sink a shaft. But the project is not really much more economic than when last on the drawing board. A rand gold price of R140,000/kg was needed to make money out of Argonaut, Wellesley-Wood said. Gold miners can expect R109,000 for every kilogram of gold sold. So why bother? One reason is that DRDGOLD wants to again cash-in on the so-called option value traditionally embedded in gold exploration companies. That’s the attraction to some investors in gold mining firms that can suddenly book profits from unmined or unprofitable gold resources were the gold price to improve. You’d think that having already collected a doubling in the gold price since 1999 there was little chance of significant further gold price gains for gold bulls. But gold punters aren’t like normal people – a fact universally acknowledged. “In case it’s gone unnoticed, we’re raging gold bulls. And I wouldn’t stop at a gold price forecast of $700/oz,” said Wellesley-Wood in support of wheeling out Argonaut and introducing another project, Sallies (not the same as the listed firm), which contains an estimated 2.4 million oz of resources. Wellesley-Wood is also mindful that gold option value may become top of mind for investors when Witwatersrand Consolidated Gold Resources (Wits Gold) lists on the JSE Securities Exchange in April.Free news alerts: click here to subscribe
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