DRDGOLD has built a robust business model and has a sound understanding of how to mitigate current and anticipated challenges to ensure it is fully prepared should the market turn either way.
It is therefore no fluke that with the first phase of the company’s Far West Gold Recoveries (FWGR) in full flight and Ergo delivering as expected, the company is able to take full advantage of the current high gold spot price.
This is a position that that the DRDGOLD team has spent many years cultivating and which CEO Niël Pretorius believes stands the company in good stead in future.
The resilient DRDGOLD has carved a niche for itself in the South African gold market with its rare expertise in very effectively extracting gold from marginal surface gold tailings dumps across Johannesburg.
As a single asset company less than two years ago, the transformative acquisition of the FWGR project from gold and platinum producer Sibanye-Stillwater for a 38% stake in DRDGOLD (plus the option to acquire a controlling 50.01% interest), has earned the company an additional value-accretive asset (which generated more operating cash flows than its monthly operating costs in no time).
Read more about gold
Read more about platinum
This has placed the company in a very good position to expand its operations even further through growth on the back of the newly established relationship with Sibanye-Stillwater.
FWGR Phase 1 in steady-state production
The success of Phase 1 of the two-phase FWGR gold-from-tailings project on the Far West Rand can partly be attributed to the knowledge and systems already implemented, tried and tested through challenging economic and operational conditions at Ergo – DRDGOLD’s East Rand tailings retreatment operation which was partly acquired in 2007 (and fully acquired in 2010) to treat gold tailings deposited across the central and eastern Witwatersrand.
The company spent R330.7 million on new capital infrastructure and the refurbishment of FWGR during Phase 1, which reached commercial production in April 2019.
FWGR produced 333 kg at a 0.261 g/t yield (excluding the 151 kg of gold produced by FWGR before the date of commercial production) of gold during FY2019, which helped DRDGOLD realise a 6% increase in total gold production of 4 977 kg during this period.
Having gone from concept to production in a very short space of time, the FWGR project remains well on its way to becoming one of the lowest cost per unit gold projects in South Africa as it moves into Phase 2.
Phase 2 takes shape
Having commenced with conceptual studies on Phase 2, DRDGOLD has evaluated several options on how best to treat the remaining reserves at FWGR, with several possible development scenarios currently on the table.
“The overall vision for the longer term still remains the creation of a large, regional tailings storage facility (TSF) to mine the larger regional gold tailings mineral resource and produce more gold over a longer period and to rehabilitate a much larger footprint,” says Pretorius.
With a licence to build a TSF that is big enough to accommodate not only the tailings belonging to the FWGR project, but one that is considerably bigger than DRDGOLD’s current needs require and which can accommodate the deposition of all the surrounding tailings, the cost and size of the TSF will ultimately determine how ambitious DRDGOLD could be with regards to the size of the processing plant it may build to treat the tailings.
At this stage, the licence for the regional TSF entails that the TSF be lined, which DRDGOLD is opposed to from a safety perspective.
“Together with our consultants, we are conducting test work to demonstrate that there is no risk of aquifer contamination due to seepage, as the TSF will be located in an area with a layer of impermeable rock,” explains Pretorius.
“We would like to reach a point where we can have the licencing conditions amended so we can progress its planning and thereafter its development.”
In order to mine the entire FWGR resource, DRDGOLD requires the new regional TSF, but Pretorius explains that the size and scale of the TSF is such that in the long-term, if there is potential regional consolidation of tailings, that the regional TSF will play a necessary part in that.
While Pretorius maintains that there are a multitude of possible Phase 2 development scenarios, the more likely scenario at this stage is one in which DRDGOLD doubles the capacity of the existing processing infrastructure to treat the remaining FWGR resource, and in future, should the owners of regional tailings dams wish to partner with the company, the construction of a larger plant can then be considered.
If Sibanye-Stillwater exercises its option in DRDGOLD at the current +R6.00 share price, this would see just over R1 billion flow into the business as a result, and DRDGOLD would be in a position to act very deliberately in how it progresses at its operations.
The relationship with Sibanye-Stillwater could also see DRDGOLD unlock value from Sibanye-Stillwater’s non-core surface tailings, which otherwise would have remained obscured within the broader portfolio, as it is currently doing so with the FWGR project.
Moreover, DRDGOLD may also become the vehicle for the retreatment of other metals. These opportunities exist not only in gold but the other commodities into which Sibanye-Stillwater has expanded.
Pretorius believes that should DRDGOLD be commercially successful on the FWGR project that it could become a partner of choice for Sibanye-Stillwater’s other projects.
“Our association with Sibanye-Stillwater could be the start of a very exciting period for DRDGOLD, in terms of providing us with new opportunities to create value from assets that might currently not be receiving value recognition within the larger Sibanye-Stillwater portfolio,” says Pretorius.