DRDGold in R450m extension of Ergo

[miningmx.com] – DRDGOLD is considering the R400m to R450m extension of its Ergo operation east of Johannesburg that will prolong gold production at the firm’s current 320,000 oz/year level for another 20 years.

“Our ambition as a company is not to mine only for the next seven years, but for the next 27 years at least,” said Niel Pretorius, CEO of DRDGold in a presentation on the sidelines of the Mining Indaba conference.

The plan, described as a conceptual study but which is likely to receive approval, is to mine the firm’s Grootvlei dumps which will increase total annual treatment of surface ore to more than 400 million tonnes.

The Grootvlei resource will take DRDGold’s average grade to 0.25 grams per tonne (g/t) from the current 0.31g/t and assumes a long-term rand gold price of R450,000 per kilogram than last year. The rand gold price didn’t fall lower than R438,000/kg last year and is currently at R627,445/kg.

“We won’t increase production with this but we will mine for much longer. The criticism of our company is that we don’t have any resource optionality, but this shows we do,” said Pretorius in an interview.

The project, which would take about three years to complete, would be funded from internally generated cash flow. DRDGold ended the second quarter with R254m in cash compared to R300m in the previous quarter owing to some R40m that was not received at 31 December, contrary to the ordinary VAT cycle, the company said.

It is also due to report interim headline earnings of between 2.4 cents and 2.8c/share, up to a 1,033% increase year-on-year partly owing to an increase in production.

These figures did not include the recent increase in the rand gold price, as the rand weakened heavily against the US dollar in December. Pretorius said the company would generate more cash but would be prudent with dividends.

“We paid a small dividend last year. For this year we will assess our options, but we also like to be pragmatic and see what we need to fund our growth,” he said.

He added that the company’s share register had started to attract institutions again. “We prefer this as the institutions make a proper appraisal of our business,” he said.
Shares in DRDGold have gained a fifth of their value in the past week taking 12-month gains to 104% and valuing the company at R2.3bn.