DRDGold seeking east, west growth

[miningmx.com] — THERE’S an interesting discussion underway at DRDGold which perhaps provides some insight as to how the company’s management is going to tackle the massively underrated problem of dealing with cash in the up-cycle.

“One thing we are asking is whether we are a gold miner or a technology company,” says Niel Pretorius, CEO of DRDGold. “If it’s technology, then perhaps we could apply it to other minerals,” he says of the company’s gold dumps recovery business. “We’re opening our minds to this.”

If the sale of DRDGold’s Blyvoor underground mine to Bernard Swanepoel’s Village Main is approved, DRDGold will then derive 100% of operating revenues from retreating Johannesburg’s extensive gold dumps. But by looking at recoveries of other minerals, platinum group metals for instance, DRDGold is seeking horizontal growth, as it were.

This seems a more sensible way of spending cash than exploring for gold in Zimbabwe and, more recently, Mozambique. Although, to be fair, Pretorius describes comments about such new business as “just putting out feelers”.

Of course, shareholders and analysts want DRDGold to return excess cash to them, which Pretorius says could be anything over the R200m ‘buffer’ the company needs to maintain. There again, analysts say this kind of thing since the prospect of a special dividend is much better for investment ratings and their target prices. It’s not always best for management, however, which if they put money back sensibly into the business, will grow it for the long term.

Personally, it makes sense for Pretorius to be thinking long-term. Although a special dividend is a likelihood, it should be remembered that DRDGold’s out-performance lately is predicated on the dollar gold price and rand weakness, forces over which it has no control. Better to build a more diversified business for when these forces turn against one.

Some R320m has largely been spent upgrading Ergo, the company’s principle retreatment operation, and there’s a study underway about how it could improve recoveries a quarter which would eventually need capital. Pretorius also reveals the company wants to see if it can’t process some uranium from its dumps. A 12 month feasibility on this prospect is also underway.

Says Pretorius: “We’re looking east and west [in Johannesburg] for ways of growing our surface business. We are applying for licences,” he says.

Meanwhile, the company is conducting a review of its processes and controls, the kind of exercise that’s easier to do when the pressure is off. So instead of worrying whether to close Blyvoor, DRDGold can now consider if it’s properly skilled in certain areas. A consolidatin of the Ergo team is on the cards, I hear.