DRDGold’s Pretorius sees logic of dumps deal with Sibanye

Niël Pretorius. CEO, DRDGold. Pic: Martin Rhodes © Martin Rhodes

DRDGOLD has been one of the top performers on the Johannesburg Stock Exchange over the past year going up seven-fold from around 170 cents to peak at around R12.60 earlier this month before retreating on the back of the weaker gold price as well as a tough assessment by JP Morgan Cazenove.

In a research report published on July 12, JP Morgan analysts, Allan Cooke and Abhishek Tiwari, commented: “DRD looks stretched relative to our spot and base case DCF valuations at this price.”

The analysts downgraded their valuation of DRDGold from ‘neutral’ to ‘underweight’ and predicted a drop in the share price to R10.10 from then levels above R12. DRDGold shares had retreated to R10.03 by Thursday afternoon.

Questioned on this at a media briefing held at the Ergo treatment plant near Springs on July 21, CEO Niel Pretorius commented: “I have no problem with JP Morgan’s assessment of DRDGold’s position. Those are knowledgeable and responsible analysts and I would recommend that retail investors in DRDGold read that research”.

Pretorius added: “Movements in our share price have been volatile in response to moves in the gold price and the share had recently rallied very strongly but what a year it has been for DRDGold.

“Our market cap went from R700m to as high as R4.9bn and you must remember that the Ergo business had an estimated value of just R80m in 2008 when it was created through a joint venture between Mintails and DRDGold.”

On the positive side, the JP Morgan analysts highlighted the stabilisation of operations at Ergo and, in particular, the performance of the new flotation/fine grind circuit which was commissioned in 2014.

They commented: “This circuit had an initial adverse impact on recoveries when first commissioned and was temporarily suspended. It has since recovered and is performing to plan now. DRD has a solid balance sheet and attractive dividend potential in our view”.

In his presentation, Pretorius underlined DRDGold’s sound financial and operating position and also highlighted feasibility studies underway to increase Ergo’s economic life to at least 25 years now that regulatory approval had been received for construction of the Withok tailings dam.

That is crucial for Ergo’s future because the Withok dam will be used to store the 800mt of material from tailings dams situated across the Witwatersrand that could still be put through the Ergo treatment plant to recover contained gold.

Pretorius told Miningmx that his strategic plan was for DRDGold to “stick to its knitting” and not use the increased revenue flows to diversify into other mining operations, but he did not rule out collaboration with other gold companies looking at developing separate dump retreatment operations such as Sibanye Gold.

Pretorius said: “I don’t think investors in Sibanye are buying that share for the potential of its dump retreatment scheme and I don’t think that value is reflected in the Sibanye share price.

“I think a combination of DRDGold’s operations with another major dump retreatment scheme like that of Sibanye could result in a one plus one equals five outcome.

“We have not spoken to Sibanye about this because we have had too much on our hands getting DRDGold to the stable position which it now occupies. Maybe I should,” Pretorius commented.