Johannesburg - DRDGold is the outright winner in the latest round of negotiations with financially-strapped partner Mintails over their joint venture to recover gold from dump material on the East Rand.
Mintails, in the words of director Richard Revelins, "lives to fight another day" but its future now effectively lies on the West Rand because it will get no income out of the Ergo gold recovery plant for probably the next 12 years.
That fact is not spelt out in the Mintails ASX announcement released on Tuesday morning, which states that the latest deal allows Mintails to retain its 50% share of the larger Ergo JV. This comprises more than 1.5 billion tonnes of tailings materials containing gold, uranium and sulphur.
The statement is correct but the reality is that the 186 million tonnes of material contained in the separate Elsburg JV will be put through the Ergo plant first at a rate of 1.2Mt/month.
DRDGold now owns 100% of that JV after Mintails agreed to sell its remaining interest in Elsburg for R177m. That means DRDGold will receive all the income from treating the Elsburg dump material, which will take about 12 years to complete.
The only way Mintails will get any income out of its East Rand assets within the next 12 years is if the JV management decides to build a second carbon-in-leach treatment circuit at Ergo, or to start producing either uranium or sulphuric acid from the dump material.
Either proposal will require hefty capital expenditure, which Mintails clearly cannot fund and which DRDGold CEO-designate Niel Pretorius reckons DRDGold cannot afford at this stage either.
Pretorius said: "Setting up a uranium or sulphuric acid plant would cost about R3bn. Neither DRDGold nor Mintails has the capability to fund that, so it is likely we would have to bring in a partner which would dilute our stakes in the venture.
"It will take another year to carry out a proper feasibility study on such a plant, and then construction would take a further two to three years. It will take about four years before such a plant is in operation, assuming everything goes right."
According to the Mintails statement, the company will use part of the R177m proceeds to pay off all outstanding creditors, "following which the company will be in a relatively strong cash position".
The statement added that other, "non-core and surplus assets have also been identified for disposal and may provide additional funds which, in a climate where new equity and debt raisings are extremely difficult to complete, will provide a strong financial base for the company".
Revelins declined to specify what assets Mintails was looking to sell and which funds it hoped to earn.
Mintails previously announced it had put its West Rand Gold and Uranium plant on the West Rand on care and maintenance and retrenched the construction team.
CEO Dick Van der Walt said Mintails "is concentrating its efforts on facilitating regulatory approval for the Witfontein deposition site, which it sees as being the catalyst for consolidation and commercially successful tailings treatment on the West Rand".
Takeover bid on the cards?
The Ergo plant is commissioning and expected to ramp up to full capacity of 1.2mt/month during the second quarter of next year.
There's an obvious question: is DRDGold likely to buy out the rest of Mintails' assets or take over the company?
DRDGold's stated strategy is to expand its exposure to low-cost, low-risk surface dump retreatment operations and reduce its exposure to high-risk, high-cost underground mining.
A takeover looks do-able, given the collapse in the Mintails share price which is now trading again and sits at about 0.09 Australian dollars after being suspended at A$0.15 in mid-September.
At that price, Mintails' market cap is about R459m while DRDGold's is about R1.6bn and the company has an ADR listing in New York. DRDGold shares traded as high as 500c on the JSE on Tuesday morning.
Asked about the possibility of a takeover bid, Pretorius replied: "I will not exclude such a possibility outright, but the two companies do have different business strategies and operate in different market sectors.
"It would depend on what Mintails does on the West Rand, but there are no immediate plans for a greater consolidation of the businesses.
"We have enough on our plate at this point in time and I don't want to stretch our management by taking on more than we can handle."
* The writer owns shares in DRDGold and Mintails.
- Miningmx.com
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