[miningmx.com] — DRDGOLD is to split its Blyvooruitzicht (Blyvoor) underground mine from its surface Ergo operations and use Blyvoor as a separate investment vehicle through which to build a new, leveraged gold mining business.
Announcing this on Thursday at a presentation for DRDGold’s December quarterly results, CEO Niel Pretorius said the intention was to use DRDGold’s established brand to attract the kind of investors who were prepared to put up capital for such a speculative gold play.
Pretorius pointed out a number of gold operators had already tried to do this and failed because of difficult operating conditions, tough investment market circumstances and the fact they had been unable to establish themselves as a brand name in this particular gold mining niche.
He said: “We have the brand name, because this company is like the movie Rocky in terms of the number of times it has made comebacks from being down and out.
“We have also turned Blyvoor around to the point where the production, grade and cost trends are going in the right direction.
“This is now a different mine to the one we put into judicial management. It is washing its own face and we have not put any capital in during the last two years. We could not attempt what we are now proposing without having turned Blyvoor around.’
What Pretorius is referring to as the DRDGold “brand’ is the company’s appeal to the kind of speculative gold investors who drove the share price to a peak above R50 in the early 2000s, when the collapse of the rand coupled with the strong dollar gold price created temporary boom conditions for the SA gold producers.
DRDGold was the “go to’ share in particular for the breed of US investor who believed in guns, gold and God and whose favourite investment function was the the annual New Orleans Gold and Hard Asset Investment conference.
Asked for specifics about possible mergers/acquisitions, Pretorius indicated that he had had “some informal chats with a number of individuals but, there are no formal plans and no formal prospects at this stage’.
He made it clear, however, that DRDGold was not looking to become the new bottom feeder in the industry, acquiring mines that nobody wanted to own because they were in such deep trouble.
That was the approach of Simmer and Jack Mines (Simmers) when it acquired Buffelsfontein from DRDGold several years ago, after DRDGold put that mine into liquidation.
If that’s the case, then what Pretorius must have his eye on is picking up any further assets Gold Fields, AngloGold Ashanti and Harmony may be looking at selling as those three majors continue to improve the quality of their South African portfolios.
Asked whether a separate listing for DRDGold’s Ergo surface treatment operation might not be viewed as “boring’ by gold investors, Pretorius replied there were a number of reasons why Ergo would be more than just an “annuity investment’ .
He said: “The costs at Ergo will be flat and predictable going forward but there will be no capital requirements, meaning that should the gold price continue to increase there is major upside here.
“At a $2,000 per ounce gold price without capital requirements, you would be looking at a $1,200/oz profit margin.
“There’s also upside in the other dumps on the West and East Rand, which we can access using our infrastructure of established treatment plant, deposition sites and the Crown/Ergo pipeline.
“That extends our economic life and we dominate this business because it would cost several billion rands for a potential competitor to build a plant to match Ergo.
“Then there’s the technical upside, because currently we are losing out on 0.19g/tonne of the gold in the dump material because it remains inert to our treatment process and we cannot recover it.
“There has to be a technical solution to that. We are working on it, and also considering throwing the problem out there on the internet to anyone who can help us come up with a solution.’
DRDGold reported a profit of R41.7m for the December quarter (September quarter – R8.3m loss) while gold production was 6% up; operating profit more than doubled to R151.5m and unit cash operating costs dropped 11%.
