[miningmx.com] – DRDGOLD CEO, Niel Pretorius, raised the prospect that the company may become a more active shareholder in Village Main Reef (VMR), the investment holding company founded by Bernard Swanepoel, the former CEO of DRDGold’s ex-stablemate, Harmony Gold.
In its interim results announcement today, DRDGold said it had recorded an impairment of R4.5m against its investment in VMR. This follows a decline in VMR’s share price.
DRDGold has a 9% stake in VMR after it sold its 74% stake in Blyvooruitzicht to the company in return for 86 million shares for R1.75/share. In February 2012, when the deal was announced to the market, the issue of VMR shares was at a hefty discount to the market price. VMR is currently trading at 45 cents/share.
In 2012, Pretorius said DRDGold was not a long-term shareholder in VMR and he again voiced the view that an orderly sell-down of its shares in VMR was yet an option for DRDGold. “The board has given guidance on this. There will be an orderly disposal. We won’t dump the shares,” said Pretorius.
“If not that, we will manage the share proactively; maybe get involved in it a little bit; maybe become more proactive as a shareholder,” he said.
Asked if he could clarify what he meant by this approach, Pretorius said: “We would voice an opinion in some of the strategic decision-making”.
VMR hasn’t had the best of times lately largely owing to the decline in the gold price which has rendered its investment in Blyvoor and another mine, Buffelsfontein unprofitable. Both mines have ceased gold production.
VMR also took a stake in Continental Coal which is currently working on plans to recapitalise its balance sheet after coal production at its new project, Penumbra, failed to ramp-up as quickly as expected.
One of the options for Continental Coal is a rights issue. Ferdi Dippenaar, CEO of VMR, said his company had not decided whether it would follow its rights in Continental Coal.
However, VMR has in Tau Lekoa a potential cash machine if it can keep costs contained and production steady, especially given the weakness in the rand which has taken the rand gold price to about R450,000/kg from the R415,000/kg average in the December quarter.
Pretorius said rand weakness would also work to the advantage of DRDGold although some costs, such as steel and chemicals, were import parity priced which meant inflation would catch up within a nine month period.
“That’s about 30% of our costs in steel and chemicals. Other costs such as labour and power are already locked in so the rand weakness will undoubtedly put us in good stead,” Pretorius said.
