Boring is the new sexy

[] — THERE was a time when reporters would rub their hands at the crash, bang sound of breaking news from DRDGOLD. Roughly dated, that was after Roger Kebble had been ousted as CEO in 2002 by his family’s nemesis, Mark Wellesley-Wood, until Wellesley-Wood was himself ejected from the board in November 2006.

To be a shareholder of DRDGold during that time was an exercise in extreme faith as the firm skidded from one crisis to the next. And when I say crisis, I mean the type that would have split any normal company into pieces.

The ensuing war between the Kebbles and Wellesley-Wood was spectacular. For instance, Wellesley-Wood was once dubbed “that pin-striped bandit” on live radio by the late Brett Kebble who – irony of ironies – was busily at work in a legerdemain all of his own: the spectacular multi-billion-rand fiddling of accounts at JCI and Randgold & Exploration.

Phones were tapped, offices raided, reputations were rubbished for a blood-thirsty press to pick over. Lawyers and flak-catchers traded amply off the public display. The feud even reached into the echelons of high political office after the Kebbles found a way to have Wellesley-Wood’s work permit withdrawn effectively barring him from re-entering country.

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Did Wellesley-Wood call in a favour from Margaret Thatcher (who phoned then home affairs minister, Mangosuthu Buthelezi, to have his permit reinstated)? We’ll never know, but hey – anything’s possible. Weren’t the Kebbles popularising the view that Wellesley-Wood was a British government spy, well-known to the Iron Lady?

In the melange of controversy, where on earth did anyone at the company find the time to extract gold from the ground?

Turning the corner

Now, pared to bared bones, DRDGOLD could not be a more different company. John Sayers, Wellesley-Wood’s successor, was a steady if uninspiring presence, but at DRDGOLD boring is the new sexy, a sobriquet the newly appointed Niel Pretorius seems happy to accept.

Pretorius celebrates his first month in charge at DRDGOLD later this month, ahead of December quarter results that should deliver another solid performance. He obviously can’t say much about it, but it’s understood there’ll be no cash burn, again.

Perhaps “boring” is tad unfair to Pretorius and Sayers. In the corporate history of DRDGOLD, they have presided over its first dividend payment since the advent of television. More recently, Pretorius decided to shut the historic 115-year-old East Rand Proprietary Mines (ERPM) in Boksburg.

Its closure is bad news for its 1 600 employees, but the mine was partly funded by government and just couldn’t be relied upon to supply DRDGOLD with any kind of sustainable foundation. In truth, ERPM has been living a twilight existence since the end of the Nineties. (The tailings at ERPM, known as the Cason dump, will remain open.)

What’s left of DRDGOLD – it sold its Australasian assets in 2006/7 – is one underground mine called Blyvoor (Blyvooruitzicht) and a bunch of mine dumps held with Australian firm Mintails, which includes the Top Star drive-in lump of dirt, the removal of which by DRDGOLD’s team has stirred quite unreal resentment among Johannesburg’s heritage activists.

“Gone are the days of us buying deep-level mines from the likes of Gold Fields or AngloGold or Pamodzi Gold,” says Pretorius. If DRDGOLD is going to pick up new assets, expect more mine dumps which it’ll remine for remnant gold. Pretorius likes the way such assets respond to capital and how they almost immediately generate positive cash flow.

Blyvoor will continue but only because its underground production provides infrastructure to keep the adjacent surface operations profitable. There’s talk of lifting tonnages at Blyvoor underground but it’s not a show stopper if it doesn’t improve its current performance. The underground mine provides a function, finish and klaar (done and dusted).

Pretorius appears the right ilk of person for DRDGOLD in its current incarnation: a former lawyer, he’s methodical and unflashy, and genuinely interested in providing returns for shareholders.

Production sits at about 280 000 to 320 000 oz/year and he talks of wanting to get to 400 000 oz/year by improving efficiencies at current production. But there’s no talk of grand acquisition strategy or of breathing new life into the “Roodepoort Rocket”, Wellesley-Wood’s term to describe DRDGOLD’s infamous leverage to the gold price, itself a function of the marginality of the company’s mines.

Investors loved that feature of DRDGOLD which proved for years you didn’t need to be profitable to make them money. The firm’s stock was traded like an exchange-traded fund (ETF) is traded today. The management pyrotechnics were just added volatility that seemed to add to its overall allure.

Now, however, the liquidity has dried up a bit, particularly in South Africa. Pretorius observes funds are slowly returning – both RBC Capital Markets and Barnard Jacobs Mellet want to roadshow the firm shortly – but he believes the stakes are still high. “We’ve got one last chance to prove to the funds,” says Pretorius. “The failure of the Australasian strategy was a big disappointment,” he says.

DRDGOLD’s share price is off its sub-400c/share level of mid-2008 and is now past 600c/share, a positive move it’s enjoyed with other South African gold producers. But Pretorius is hoping continued consistency, which may be apparent at the upcoming December quarterly results, will drive the share higher.

With an operating margin of 25% in the September quarter, there’s talk of something “a little better”, and having started paying dividends, Pretorius acknowledges the importance of continuing them. End-December represents DRDGOLD’s interim. Positive surprises at DRDGOLD? How novel.