Dual-listed DRDGOLD CEO, Niël Pretorius, says the proposed transaction with Sibanye-Stillwater, based on the latter’s West Rand Tailings Retreatment Project “is well within DRDGOLD’s capacity to execute, and is capable of delivering both short-term value and long-term optionality”.
In November last year, DRDGOLD and Sibanye-Stillwater announced the proposed transaction, in terms of which DRDGOLD would acquire portions of Sibanye-Stillwater’s West Rand Tailings Retreatment Project (WRTRP) in exchange for approximately 38% of DRDGOLD’s ordinary share capital.
In addition, there is an option agreement in terms of which Sibanye-Stillwater can increase its shareholding in DRDGOLD to 50.1% for cash during the 24 months following implementation of the acquisition.
Pretorius says that, in assessing the deal, the company has been mindful of execution risk and dilution.
“While the doubling of reserves in a resource with a higher average gold grade is clearly value-accretive, our objective remains to avoid or limit dilution of earnings by doing our best to ensure that the 38% dilution in equity is either offset or, ideally, altogether avoided by earnings from the project from a very early stage.”
DRDGOLD’s proposed phased approach, says Pretorius, is intended to “bring this goal within range”.
Phase 1, including both early-stage production as well as design and planning, will involve the upgrading of the Driefontein 2 and 3 plants to process tailings from the Driefontein 5 dump at a rate of between 400 000 and 600 000 tpm and depositing the residue on the Driefontein 4 tailings dam.
Targeted for commissioning within 12 months of implementation of the acquisition, it is expected to be cash generative with a “modest” upfront capital investment of R288 million. Assuming this initial capital outlay, its NPV is estimated at around R1.3 billion.
“We believe the information we gain from Phase 1 test work will enable us to refine the original WRTRP process and engineering design, as well as financial and capital models for Phase 2,” explains Pretorius.
Phase 2 envisages the construction of a high-volume central processing plant capable of processing at least 1 Mtpm and the development of a new regional tailings storage facility.
In this phase, reclamation will be from the Driefontein 3, Libanon and Kloof 1 dumps initially and then from the Ventersdorp North and South dumps.
Phase 2, Pretorius says “will provide a compelling advantage insofar as future regional consolidation is required” – meaning the scale of the infrastructure established would allow for reclamation from other sources in the region.
As an alternative to Phase 2, or in the event that Phase 2 is delayed, Phase 1 will be capable of extension by blending in material from the Driefontein 3 dump.
It envisages the treatment of 77.7 Mt from the Driefontein 3 and 5 dumps and a further upgrade of the Driefontein 4 tailings dam.
The estimated NPV of the alternative option is R2.7 billion, assuming a capital outlay of R397 million in addition to the initial Phase 1 capital outlay.
DRDGOLD estimates the NPV of the entire WRTRP at R2.1 billion.
Feature image credit: Wikimedia