JOHANNESBURG (miningweekly.com) - Johannesburg-focused gold processor DRDGold is hoping that the addition of the West Rand tailings retreatment project (WRTRP), currently the subject of a R13-billion deal with Neal Froneman-led Sibanye-Stillwater, will attract longer-term investors, which might still be deterred by "extreme volatility" in the company's share price.
Speaking to Mining Weekly Online prior to a presentation of the company's results, on Thursday, CEO Niël Pretorius stated that, besides increased throughput and production, the project could also potentially attract investors with "slightly different portfolio mandates", which would support the share price's upwards trajectory and provide a degree of stability.
"This creates value for further acquisitions. The fact that we are growing our footprint to the extent that we do, should we manage to get the transaction through, means that it will provide us [an] opportunity for regional consolidation [of tailings]," he highlighted, adding that it could, ultimately, lead to a national consolidation.
"We might [become] the preferred partner [of] other companies to see their tailings [potential] unlocked," he said.
If the transaction is finalised, the WRTRP project will be rolled out in a phased approach. Pretorius emphasised that DRDGold's main aim was to avoid or limit dilution of earnings or value, through ensuring that its 38% dilution in equity would either be offset or avoided by earnings from the WRTRP from a "very early stage".
"The latter is not too difficult, because it's a higher-grade resource and more of that reserve will be processed and recovered."
The first phase, including early-stage production as well as design and planning over a 24-month period, would involve upgrading the Driefontein 2 and 3 plants to process tailings from the Driefontein 5 dump at a rate of between 40 000 t/m and 60 000 t/m, depositing the residue on the Driefontein 4 tailings dam.
The company was targeting commissioning within a year, while expecting to spend around R288-million on the project. This would deliver a net present value (NPV) of R1.3-billion.
Pretorius explained that this would also be a testing phase for DRDGold, that would pave the way to a second phase. Here, the company would build a high-volume central processing plant capable of processing at least one-million tonnes a month and develop a new regional tailings storage facility.
However, he could not indicate what the capital costs of building such a facility would be, as it would depend on its size, lining requirements and the technology used.
"It could be anything between R400-million and R800-million."
In this phase, reclamation would be from Driefontein 3, Libanon and Kloof 1 dumps initially and then from the Ventersdorp north and south dumps.
As an alternative option to the second phase, or should this phase be delayed, DRDGold could invest in an alternative option that would require only about R300-million in capital expenditure.
Pretorius said this option, which would see the blending of material from the Driefontein 3 dump would, however, only allow the company 12 more years of tailings reclamation, which would hold an NPV of R2.7-billion. It envisages the treatment of 77-million tonnes from the Driefontein 3 and 5 dumps and a further upgrade of the Driefontein 4 tailings dam.
"This option is a helluva downside," he quipped. However, he added that it would still double the company's market cap and was still very attractive.
GIVING UP CONTROL?
Pretorius was criticised by analysts for "giving up control" of his company, but he explained that, through the relationship with Sibanye-Stillwater, the company would gain access to Sibanye's proposed uranium developments, while also bearing the risk and capital costs of developing the tailings.
"You can't be in a relationship with Sibanye without being pulled into their wake with regards to deal-making. It's a very entrepreneurial company," said Pretorius.
He highlighted that, while the WRTRP could "easily" have been sold as a separately-listed entity on the JSE, the transaction allowed Sibanye to still gain from the project while focusing on the roll out of its platinum and uranium assets.
DRDGold further believed that it could raise capital easier, which would only be focused on this project, whereas Sibanye would have to use its capital raises for other purposes.
"It's not an acquisition, it's an investment," said Pretorius.