[miningmx.com] — DRDGOLD on Tuesday nailed its colours to the mast, saying it would focus solely on low-cost surface operations and let go of its high-risk Blyvoor mine, thereby shedding the last remnant of its erstwhile reputation as a leveraged gold mining business.
Although the market has for some time been informed of DRDGOLD’s intention to separate its assets, it was generally thought the company would separately list Ergo and in the process relaunch DRDGOLD as an underground, marginal gold producer with Blyvoor as its foundation asset.
Presenting the group’s results for the quarter to end-March, CEO Niel Pretorius played up Blyvoor’s turnaround over the last 18 months, yet remained cagey over the 70-year old asset’s ability to withstand either rising input costs or operational interruptions.
The mine achieved overall operating unit costs of R279,920/kg, reflecting profitability of around R50,000/kg at the current record gold price levels. However, the extent of its vulnerability was reflected in its cost for underground operations, which came in at R327,200/kg. It recorded an operating profit of R25m, down 41% from the previous quarter.
“If we don’t find a buyer, there won’t be a sale; we’re not tossing anything overboard,’ Pretorius said.
Yet, he was quick to point out three factors which may have a significant effect on Blyvoor’s viability over the next four months, namely Eskom’s winter surcharge (which added R27.8m to DRDGOLD’s overall costs during the third quarter of 2010), new wage levels as well as possible strike action during the forthcoming wage negotiations period.
“Prolonged strike action can without doubt force the closure of Blyvoor,’ he said.
Pretorius described a typical buyer as a corporate who wished to enter the South African market “once the honeymoon projects in the rest of Africa starts to show their true colours’.
He said that should Blyvoor find a new controlling shareholder with a firm balance sheet and access to capital, such a company could start buying-up the non-core shafts of other operators in the Carletonville region, and further away.
“I don’t see the fact that DRD wants to exit as a vote of no confidence in Blyvoor, it is probably the exact opposite,’ Pretorius said. “The limit of our capital raising ability implies most (funds) would go into the development of surface operations.’
DRDGOLD has however no clear plans of what it wants to do with capital gained from the possible sale of the mine. Pretorius said the company might spend it on acquiring more surface mining opportunities, or pay the money back to shareholders.
“UNNOTICED ASSET’
Pretorius admitted he took notice of what Gold One International achieved with the spin-off of its Megamine project into Goliath Gold, whereby Neal Froneman’s company managed to crystallise R450m in value for shareholders.
To this end, DRDGOLD has earmarked R37m to spend over three years at its ERPM 1 and 2 exploration programme.
“It’s an asset we already own that we would like to bring into account,’ he said, adding that while the group would focus on firming up the project’s ore body, it was highly unlikely that DRDGOLD would eventually develop a mine itself.
Looking ahead, the group said its core operational focus would remain on the construction of the Crown/Ergo pipeline and Ergo plant upgrade.
“We will also in the coming months be decommissioning the Topstar site and commence reclamation from two other sites, while work on the integration of the Crown Central and City Deep plants into Ergo will also get underway.’
