[miningmx.com] — DRDGOLD is negotiating to sell its Blyvooruitzicht gold mine to Bernard Swanepoel’s Village Main Reef (Village) group at what looks like a bargain price, provided the gold price stays over R400,000/kg.
The price has been set at R150m and DRDGold will take payment in Village equity issued at 175c a share, which will give DRDGold a stake of about 9% in Village. The current Village share price is 166c.
The price agreed is not even half the bottom-end valuation put on Blyvooruitzicht by JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke.
In a recent research report, the analysts commented: “On the basis of our modeling we would look for an offer in a range of R325m to R500m (84c to 130c a share) depending on how such an offer was structured.’
DRDGold CEO Niel Pretorius has defended the deal, telling Miningmx it would be a “responsible” transaction which took into account the capital expenditure needed to be ploughed into Blyvoor to keep the mine viable.
“Yes, Blyvoor could be worth up to R500m at current gold prices (around R450,000/kg), but the asset would be worth nothing at a gold price of R330,000/kg, and watch what happens when next year’s winter power tariffs are applied,” he said.
“I believe we will see the premium in the deal come through in the Village share price which must rise if Blvyoor is really worth that amount of money.
“I also believe that if there is one person who actually knows how to run these mines it’s Bernard Swanepoel. He is the man who developed the strategy to optimise these kind of assets.”
But Pretorius confirmed that DRDGold had received no undertakings from Village on the amounts of capital to be invested into Blyvoor. Swanepoel indicated to Miningmx he believed the mine could fund what needed to be done out of its cash flows.
“I am very happy with the outcome of this deal,” he said. “I would have preferred to pay cash – even though Village is not cash flush – rather than use my equity at such low price levels but there was a strong indication from the DRDGold side that they wanted to retain some exposure to the potential upside.
“I don’t see Blyvoor as a negative cash flow operation at current gold prices but at R340,000/kg it would be a different ball game. Then there would be only one smart looking executive in this deal and it would not be me.
“Yes, Blyvoor is undercapitalised but so has every gold mine I have ever acquired.”
The sale agreement at this stage is “non-binding and in-principle” and DRDGold has granted Village a 60 day period of exclusivity to complete the transaction, subject to a R5m break fee.
Pretorius last week said DRDGold had received four offers for Blyvoor. He told Miningmx the other bidders had been told their bids were unsuccessful.
“I am now committed to negotiate with Village in good faith to complete this transaction and will not be actively going around looking for better offers,” he said.
COMEBACK TRAIL
Blyvoor is the third deep-level, marginal gold mine that Swanepoel has acquired since launching his comeback to gold mining through the takeover of Village in 2008. The other two are Buffelsfontein and nearby Tau Lekoa, which Village acquired through an asset takeover of Simmer and Jack Mines (Simmers) in March.
The Village share price had already been sliding from a 12-month high of 290c ahead of the Simmers deal.
Once that was completed, disgruntled Simmers shareholders dumped their new Village stock, driving the share price down another 40% to a low of 126c from which it has recovered to current levels. Other assets owned by Village are the Consolidated Murchison gold and antimony mine, as well as Lesego Platinum, which is evaluating a medium to deep-level platinum project on the eastern limb of the Bushveld Complex.
The major driving force behind what would happen next is the gold price, because all these operations are cash positive at around R450,000/kg and are highly geared to a rising rand gold price.
If the rand gold price stays firm, Swanepoel’s earlier prediction that “we’re going to generate the kind of cash that will make a mockery of our current share price” will be proved correct. But a pull-back in the gold price to levels in the mid-R300,000’s – for whatever reason and even if only temporary – would be disastrous for these mines and Swanepoel’s comeback plans.
– The writer owns shares in DRDGold.
