Flapping hard but no lift off
DRDGOLD FOR JUST A FEW DAYS, DRDGOLD shareholders must have thought things were finally going their way. Its shares went up almost 30% in a matter of days, getting back to around 500c, while the shares of far more highly rated producers AngloGold Ashanti and Gold Fields headed south. Then the roof fell in yet again, driving the stock back down below 400c/share.
The reason for its sudden surge became apparent when DRDGOLD presented its September quarterly results on 23 October. Those revealed the flooding problems at its ERPM mine on the East Rand were so serious it was highly likely the mine would be closed, although CEO-designate Niel Pretorius spoke in terms of an “indefinite suspension of underground drilling and blasting”.
From where I sit that’s closure and the reason that’s good news is because shutting down ERPM removes a major potential drain on DRDGOLD’s precious R809m in cash reserves. ERPM was losing money. DRDGOLD kept it running to preserve “optionality” to the gold price, as its remaining ore reserves would be profitable at a higher gold price.
Management has decided it can no longer afford to be exposed to two ageing deep-level mines following the safety and pumping problems at ERPM and the loss of 15 days of production during the quarter at Blyvooruitzicht (Blyvoor). From now on management will focus on running Blyvoor and DRDGOLD’s profitable surface dump retreatment operations held through subsidiary Crown Mines.
DRDGOLD is using its cash to increase its exposure to the low-cost dump operations through taking advantage of the financial problems of partner Mintails.
Increased exposure to cheaper gold production has to be good for the company. All we need now is for the gold price to get going and DRDGOLD’s share price just might really start to perform.
Ryan holds shares in DRDGOLD.