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DRDGOLD's final throw of the dice Posted: Wed, 18 Jul 2007 [miningmx.com] -- JOHN SAYERS IS NOTHING like his predecessor at DRDGOLD, Mark Wellesley-Wood. Trained in finance (not mining), low on spin, reserved but with a flickering of good humour, Sayers is taking South Africa’s most colourful gold company out of the limelight. It’ll be weird. “We have to get DRDGOLD off the reputational issue. We haven’t delivered what we said we would,” says Sayers, in a perhaps unintended echo of the company’s motto: “We do what we say.” The past six months have been even more turbulent than usual for DRDGOLD. Management has effectively ditched its investment in the 79%-owned Emperor Mines, an Australian-listed firm, having sold two of its mines, mostly to repay debt to Emperor’s banker. Of the $250m that flew into the bank after Emperor Mines sold its 20% stake in the Porgera mine some was diverted to close a hedge. Funds attributable to DRDGOLD were then deployed to extend Crown Recoveries by approving reclamation of the 3L2 slimes dam in South Africa. Throughout that time DRDGOLD was absorbing the shock exit of its bullet-proof CEO Wellesley-Wood, whose contract wasn’t renewed. Having seen DRDGOLD through many of the cataclysms that now afflict it, the departure of Wellesley-Wood is an ambiguous one. DRDGOLD’s share went into a tailspin, halving in value in six months and, crucially, slipping below the $1 level required by Nasdaq. It still runs the risk of not being traded on the bourse even though DRDGOLD is regularly a top 10 traded stock. A consolidation of the stock is being considered – a potentially important change, because although it will keep DRDGOLD visible on Nasdaq it shed its trademark appeal to retail investors. And there’s wariness about the strategy. In some respects, Sayers is betting the farm. He’s opted for yielding future cash flow from Porgera for a one-off bonsella and then hoping the South Africa assets will deliver. They frequently haven’t, so analyst worry about that. Merrill Lynch’s Shaylen Trikamjee says DRDGOLD’s ore-bodies are low quality, costs are high and product delivery remains unreliable. “We maintain a neutral stance,” he says, even though the share is currently cheaply valued. The remainder of funds on the balance sheet will be pumped into ERPM, aged though it is. Astonishingly, there’s even talk of a capital return – the first time DRDGOLD has returned cash to shareholders in many years. However, what that means is that Sayers doesn’t intend buying new operations over the short term. “Fundamentally, the best gold is the stuff we already own.” That places extra pressure on DRDGOLD’s South Africa operations to perform. Steve Shepherd, an analyst at JPMorgan, says: “This stock is for risk tolerant bulls only.” As for Emperor Mines, it will retain the Tolukuma mine in Papua New Guinea (PNG), as well as 5,000sq km in exploration Sayers describes as fragmented but potential for “a bonanza site”. Consideration is also being given to selling its investment in Emperor Mines, currently trading at A$0.12/share. Sayers says he’d prefer exiting at “50 cents rather than 40 cents” with the value in Emperor comprised of its Australian presence. Perhaps Bernard Swanepoel’s Harmony Gold would be interested in Emperor as a resting place for the company’s PNG assets? Click Here to
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