Flap­ping hard but no lift off

Finweek English Edition - - Companies & Markets - BREN­DAN RYAN

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.

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