Rolling the dice again
DRDGOLD betting on its lumpy SA mines
DRDGOLD CEO John Sayers is hoping to have the beleaguered gold company recapitalised – without selling more shares – by end-March, but questions still persist about one of the JSE’s most battle-hardened companies. The major worry is that DRDGOLD is dying, in stages.
First, though, is how DRDGOLD intends remediating its balance sheet, which was badly struck by the R783m impairment charge it took on Vatakoula, the Fiji mine it mothballed in November and indirectly owns through its 79% stake in Emperor Mines.
In an interview with Finweek, Sayers said there’s a number of options remaining. But consensus among gold analysts is that DRDGOLD will liquidate its investment in Emperor Mines by agreeing to sell its 20% stake in the Porgera mine to Barrick Gold, a Canadian firm.
Barrick has applied additional pressure on DRDGOLD by declaring significant capital expenditure for Porgera, no doubt a negotiating tactic to whittle down what it must pay to DRDGOLD. “I’m acutely aware. That’s why we’re keeping the competitive process going,” said Sayers.
The other main asset in Emperor Mines – Tolukuma – is negligible, so the extent to which DRDGOLD’s balance sheet is remediated hangs squarely on Porgera. How much will the company get for the asset?
That’s difficult to answer with analyst estimates ranging from R1,6bn ($212m) to R2,3bn ($320m). Sayers indicates debt left for DRDGOLD to settle is about R600m. There’s also a hedge book in Emperor Mines estimated by JP Morgan in a 1 March note to total R200m. “That’s probably a bit high,” says Sayers.
But it’s reasonable to suppose DRDGOLD will emerge from the Porgera sale with net proceeds of at least R650m. The
firm’s Australasian strategy would then become a thing of the past, leaving it to kickstart a new internationalisation in Africa. In the meantime, it would have to survive on its SA mines that are old and lumpy.
Asked whether DRDGOLD can survive, Sayers comments: “We think we can. We’re already mining Sallies 1, which is an extension of ERPM (DRDGOLD’s 110-year-old mine).” Steve Shepherd, a JP Morgan analyst, won’t build in value for Sallies owing to insufficient information.
As for DRDGOLD’s other SA assets, it has had to withdraw from higher grade areas in Blyvoor owing to seismicity. ERPM is variable. And all this at record rand gold prices. You can see why DRDGOLD, though cash-flush, would be vulnerable to its own operational weaknesses and possibly to an asset-strip by a hostile party.
On Africa, Sayers says DRDGOLD is looking for exploration: “We’re veering towards exploration rather than an existing mine. But the approach is broad. For every 100 targets you may emerge with two,” he says.
“I’ve been the CFO of two major listed companies on the JSE. I’ve been through tough times before,” says Sayers, who was financial director at Nampak from 1996 to 2004 and Altron Ltd before that.
But these are extremely tough times for DRDGOLD.
The company is now worth about 45% less than a year ago, and it’s been in reverse for years, according to evidence supplied by JP Morgan.
It says that in 2001, when the gold price was about half its current level, DRDGOLD produced 1,1m oz compared with the 544 000oz it produced in its 2006 financial year and with a gold price around $600/oz. Over the same period, shares in issue have increased to 338m from 94m as the company has tapped shareholders for funds.
DRD GOLD... CAN IT SURVIVE?Source: I-Net Bridge
Hoping to have the company recapitalised.