DRDGold shareholders support Sibanye-Stillwater tailings deal

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1461
Johannesburg

DRDGOLD’S plans to lock in new gold tailings resources received a shot in the arm today after shareholders approved the acquisition of the West Rand Tailings Retreatment Project (WRTRP) from Sibanye-Stillwater, a transaction valued at R1.3bn in December when it was first announced to the market.

The key resolutions approved were that DRDGold would issue 265 million shares to Sibanye-Stillwater in return for WRTRP which will allow DRDGold process some 78 million tonnes (Mt) of gold-bearing tailings in the first phase of the project. In return for the resources, approximately 38% of DRDGold will be handed over to Sibanye-Stillwater.

Another key part of the transaction approved is that Sibanye-Stillwater has an option to improve its holding in DRDGold to 50.1% within 24 months. The final aspect of the shareholder support was that they waive their rights for Sibanye-Stillwater to make an offer for the balance of DRDGold shares as normally required given more than 35% of DRDGold shares were used to finance the transaction.

“This transaction is a step-change for DRDGold,” said Niel Pretorius, CEO of DRDGold in a statement. “We have doubled our reserves and secured infrastructure to access these very quickly,” he said. “After many years of consolidation this is a major advance towards growing our company.”

Said Neal Froneman, CEO of Sibanye-Stillwater: “We are thrilled to be one step closer to realising immediate value for our underutilised surface infrastructure and tailings storage facilities, while retaining upside to the WRTRP and future growth in DRDGOLD”.

In an interview with Miningmx, Pretorius said two conditions precedent were still to be met including an environmental impact assessment and the approval by the Johannesburg Stock Exchange of the firm’s shareholders’ agreement to provide the waiver. “These still have to be negotiated; there’s still work to be done, but they are procedural,” he said.

As manager of the partnership, DRDGold will embark on development of the vended assets in two phases. The first phase will include the upgrade of Sibanye-Stillwater’s existing Driefontein 2 and 3 plants in order they process tailings from the high grade Driefontein 5 tailings storage facility (TSF).

This must be completed in 24 months after deal closure and could see capacity doubled to 600,000 tonnes per month. Commissioning of the facility will take 12 months.

The phase one development was expected to be cash generative with “… minimal upfront capital investment”. Cash generated from the first phase will be pumped into phase two and the refinement of the original WRTRP process.

Phase two will deliver a central, high volume central processing plant capable of processing at least one million tonnes per month of tailings.

Pretorius said project development would begin immediately on closure of the transaction with a view to first full production coming in the 2019 financial year. Asked if the deterioration in the rand gold price had taken the edge off the attractiveness of the deal, Pretorius said: “Instead of making a huge crap-load of money, we’re just going to make a crap-load of money”.

The rand gold price is about R90,000 less per kilogram of gold compared to November when the rand began to strengthen against the US dollar.

2 COMMENTS

  1. I admit that I am astounded at the flagrant price pressure on SA gold mining shares.
    Positive news = share price drop.
    Further investment = negative news (which is native only to the gold miners).

    The downward pressure on SA Gold shares has been in stark contrast to the price of Rand gold which has been moving tangentially upward for the last several years. Pick any graphing tool and view for yourself.
    Overlay any of the big three on this and tell me there is no problem.
    Are we saying that the costs to mine are escalating at a far, far higher rate than the Rand gold price rise, which is already pretty steep? If so then we are pulling the wool over our own eyes with regard to Rand based inflation and further investigation is required into this subject.
    The alternative answer may lie in the fact that disinterest in SA gold mining shares may be exactly what is desired and is being played out.

    By the way, any fingers pointing at exchange rate fluctuations to justify the goldminer price vs Rand gold price divergence, must note that these fluctuations are, by nature, already built into the Rand gold price…

    • Dear Concerned Citizen,

      Thank you for your thought provoking comment.

      I hereby plead for your indulgence , as i respond to your comment. I will traverse the subject matter, but with a global perspective. I will compare the phenomena that you raised to peers ( incl inherent factors) , albeit subjectively. Consider the following comparisons SA Gold Shares ( JSE Gold Index) , TSX Canadian Gold, Philly Gold Index (XAU) and Aussie All Ords Gold Index over a period 2000 – 2017.

      In 2000 ( commencement of Gold Bull Market) , the levels of these indices were as follows :
      JSE Gold Index = 682
      TSX Canadian Gold =105
      XAU = 69
      All ords Gold = 975

      The highest peaks over the said period ( CY2000 – CY2017) :
      JSE Gold Index = 3504 in Sep CY2002 ( up 414% on CY2000)
      TSX Canadian Gold =455 in Sep CY2011( up 333% on CY2000)
      XAU = 233 in Dec CY2010 ( up 238% on CY2000)
      All ords Gold = 8499 in April CY2011 ( thus up 772% on CY2000)

      So from gold bull-market onset to peak , the JGLDX had done well as compared to the TSX Gold & XAU, BUT it peaked too early. This is so because then (CY2002) our gold miners were seen as dirt cheap on a $/oz production basis, and were generating cash & paying dividends. So when the trade got crowded, and the HMY of this world were buying up everything including Evander , investors simply went looking at other parts of the world for better value because our gold miners just could not deliver the commensurate returns. The R/kg gold price when the JGLDX peaked was R105k/kg , as compared to its peak of R606k/kg ( x6 times CY2002 level) achieved in Jun/July CY2016 , whereby the JGLGX was at ±2900 level. The reason for investors disappointment is really at the door of RSA miners. For example , Harmony production costs in FY2002 was R45721/kg ( Yes, ± forty six thousands rands) as compared to 1HFY18 ( interims) of ±R608000/kg ( yes, Six hundred and eight thousands rands) , THUS A 1322% (> One thousands and three hundred percent) INCREASE OVER THE PERIOD CY2002-CY2017. Over the same period , the Gold price has increased from R105k/kg to R530k/kg , thus a 505% increase over the said period ( CY2002- CY2017). This production costs trend is bound to send any investor running for the hills , and the JGLDX( co. shares ) to the basement level ( more like Mponeng shaft bottom level!). This is so because the leverage to the gold price has been diminished , and there is no reward (profits for dividends) to reward such investor to await the favourable gold price environment.

      By March 2018, the levels of the indices are as follows :
      JSE Gold Index = 1102 , down 70% from peak
      TSX Canadian Gold =184 , a decrease of ±60% from top
      XAU = 80 , down 66% from glorious level of 233 when the spot gold was >$1900/oz
      All ords Gold= ±4891 , which is down 42 from 8499

      I hope to have provided some valuable input as to why the RSA gold miners will continue to be in the dumps until the OpEx escalations abate. This will undoubtedly require some technological breakthrough or innovation to enable the orebodies to be worked profitably.

      Yours Truly,
      GS

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