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Without Blyvoor DRD is a gold factory

The sale of the only underground asset in its portfolio significantly alters the South African gold miner's risk profile and enables it to focus on improving grades and volumes.

Author: Christy Filen
Posted: Tuesday , 14 Feb 2012


The imminent sale of DRD Gold's Blyvoor mine makes the group more like a "gold factory" than anything else, DRDGold CEO, Niel Pretorius says.

Speaking at the release of the group's results for the second quarter and half year, Pretorius said the sale of the only underground operation in its portfolio, enables the miner to focus on improving the technology in use at its surface ops to increase grades and volumes.

The focus on surface operations, where margins are 40% also lowers the risk profile of the company away from the traditionally negative sentiment accompanied with South Africa's deep level gold mines where the margins are also lower, 25% in the case of Blyvoor.

"Ongoing capital expenditure is expected to be approximately $42/oz compared to traditional underground mines that range between $150-$200/oz" Pretorius said.

The company has also recently completed a 50km pipeline linking up its retreatment facilities at its Ergo operation with the Crown and City Deep plants increasing processing capacity to 1.8-2mtpm. DRDGold intends to focus on optimising volume and density flows now that the pipeline is up and running.

Cash from operations for the quarter ending December 31 amounted to R244m which is slightly shy of the R250m DRD Gold plans to expend on a Fine-Grind circuit at its Ergo plant. The circuit could see an increase of 16-20% in gold production over the life of the operations said Pretorius.

"40% of the gold does not respond to our metallurgical process" said Pretorius. The bigger fraction pyrites will be pulled out into a concentrate and milled to liberate the gold particles for further processing via the normal route.

A desk top study shows potential upside from the circuit which could include uranium as a by-product using a resin/pulp extraction plant said Pretorius.

The CEO said the value of its East Rand exploration tenements (ERPM ext 1 and 2) are not included in its share price and needs to be separated to unlock the value therein. In likening the deposit to its neighbour, Goliath Gold, with a benchmark value of R500m Pretorius said the company was exploring three options for these assets:

Take it up the value curve and sell it;

Get an initial investor on board with seed capital to develop it;

List it separately.


The purchase consideration for Blyvoor is over 85m shares in Village Main Reef which gives DRD approximately 9% exposure to any potential upside in operational expertise that Village brings to the table as well as any future change in the gold price.

The sale agreement requires DRD Gold to hold onto the shares for six months post closure but CEO, Niel Pretorius said that thereafter the holding was not a strategic investment and it would ultimately sell it off responsibly so as to not detrimentally affect the share price.

Whether or not the ultimate sale would result in a special dividend remains to be seen. Pretorius said the cash received would be treated the same as any cash that the company has. Pretorius elaborated on the company's dividend policy:

"Because we market ourselves as a dividend paying company we have decided to set aside a percentage of free cash flow for distribution come year end". This would be after deciding on a cash buffer and capital expenditure requirements.

"The current buffer of cash is approximately R200m but with the disposal of Blyvoor we may shrink this to half" said Pretorius.

DRD Gold's share price slumped 1.23% today by 14h15 to R5.63 per share.


Tags: mining, investments, DRD gold, Niel Pretorius, Gold, bullion, Blyvoor gold mine

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10 May 2013


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