[miningmx.com] — DRDGOLD may follow the lead provided by Gold One International by attracting investment from China. This follows meetings between DRDGOLD CEO, Niel Pretorius and some eight firms in Beijing earlier this month.
At least two are interested in taking discussions forward, initially with a view to buying a stake in Blyvoor, the group’s highly marginal underground mine. Pretorius is not blind, however, to the possibility that discussion could be broadened to DRDGOLD as a whole.
And why ever not? As Miningmx writer Brendan Ryan has observed, if Chinese investors are willing to trade the Jeanette and Evander 6 shaft properties, formerly owned by Harmony Gold, for billions of rands, they may as well also plump for DRDGOLD. DRDGOLD has 80 million ounces (moz) of inferred gold resource at its ERPM 1 and 2 sections, the old Sallies the company has often spoken about. There’s also Blyvoor’s 20moz gold resources and cash flow from Ergo and Crown, the company’s gold retreatment assets.
“The likelihood is that we couldn’t sell Blyvoor as a standalone,’ says Pretorius. “So even with outside investment, DRDGOLD would probably retain an investment. They would probably want to leverage the skills of a mining firm. I believe Blyvoor either has to consolidate or be consolidated,’ he says.
Pretorius is clearly disappointed Blyvoor couldn’t become a vehicle for consolidation in the South African gold sector. The plan was to spin the mine off into a separately-listed vehicle which would be branded DRDGOLD, set about attracting other marginal gold assets into it, and thereby begin to regain many of the shareholders the current company’s business model – which is essentially a gold recycling business – seems to have lost over the years.
That plan, however, seems to have been scotched by DRDGOLD’s board. According to recent statements by Pretorius, Blyvoor is now under the hammer, although there’s no knowing whether the mine can be sold. Analysts sniff at suggestions the mine could be valued anywhere near the R500m net asset value Pretorius imputes to it. In fact, the risk posed by Blyvoor attracts a negative valuation; in other words, DRDGOLD is worth closer to R5 per share without the mine against the R3.41/share today.
Leon Esterhuisen, an analyst for RBC Capital Markets, believes all’s not quite over for Blyvoor. “I’d be surprised if nothing comes from AngloGold (Ashanti) which has neighbouring assets and which needs Blyvoor as it helps pump underground water,’ he says of potential corporate action between the two companies. AngloGold’s Savuka sits hard by Blyvoor. Savuka does have its own pumping capability, however.
Says Esterhuizen on DRDGOLD: “It’s now a small company. It has shrivelled up, whereas it needs to be talking a growth story,’ he says.
Talking of growth stories, Gold One earlier this week unveiled a transaction which sees China’s Baiyin Nonferrrous Group buying at least 60% of the company and inject A$150m. Broadly speaking, completion of the deal may go some way to healing the damage to investment perceptions rumoured to have been caused by negotiations between Aurora Empowerment Systems and China’s Shandong Gold for Aurora’s East Rand and Orkney mines.
Sources say Shandong has not found the investment process with Aurora particularly easy and is now not as partial to additional investment in the country. One wonders whether Shandong Gold will decide to stump up the R450m that Aurora’s liquidators are hoping the East Rand and Orkney mines will attract, down from the R700m to R800m initial valuation.
Meanwhile, Blyvoor has to keep trying to wash its face. A factor that could make that difficult is the possible outcome of wage negotiations later this year. Initial meetings with the National Union of Mineworkers (Num) have already kicked off. Pretorius says the Num seems reasonable about managing expectations at national level, but regional negotiations can often move in other, unexpected directions.
“Wage negotiations are stressful but not difficult,’ says Pretorius. “The numbers are the numbers. Blyvoor is like a social endeavour. The market attaches no value to the mine but it does employ 5,000 workers. Num has to decide if it wants Blyvoor to stay open,’ says Pretorius on the prospect of wage negotiations evolving into a mine-threatening strike.
