DRDGold has hit a rare jackpot for the second time in the tailings transaction with Sibanye-Stillwater, securing good grades, water, infrastructure and a licensed deposition site while nearly doubling its gold reserves, says CE Niël Pretorius.
DRDGold has established itself as SA’s premier gold tailings retreatment operator, using its Ergo plant near Brakpan, east of Johannesburg, to treat old dumps around the city.
"I thought we were very fortunate when we got the Ergo plant and the Brakpan tailings dam, because that’s the perfect combination and it’s very difficult to put together or set up," Pretorius said.
"Here’s another one that’s very similar to that, with the infrastructure and ore reserves under a single blanket to get us into cash flow quickly. I thought Ergo was a once off, with all these right pieces falling into place," he said in an interview. The deal is one of half a dozen that Sibanye-Stillwater has cobbled together in the past couple of years. It does not require cash and it unlocks a tailings retreatment project that the company’s board had no stomach for in the prevailing uncertain regulatory and mining environment in SA.
Instead, Sibanye turned to the only company dedicated to processing tailings, extracting profitable ounces from minuscule traces of gold in old dumps. For DRDGold, the tailings around the Driefontein and Kloof mines near Carletonville, to the west of Johannesburg, are relatively rich in gold compared with what it has been mining to the east.
Sibanye will secure a 38% stake in DRDGold in exchange for its tailings, which will boost the tailings processor’s reserves by 91% to 5.7-million ounces.
The deal, at the prevailing DRDGold share price, is worth R835m. There is an option for Sibanye to raise its stake to 50% plus one.
"This is something we can do in a phased approach and it is entirely within our capacity to get this up and running and into cash flow without diluting our shareholders or taking on enormous debt exposure," Pretorius said, addressing investors’ concerns about the consequences of the projects on the company’s balance sheet.
The first R288m phase to unlock the tailings will focus on processing 28-million tonnes of tailings at Driefontein dump 5, which has a grade of 0.469g of gold a tonne and contains 421,000oz of gold.
The capital will be funded by debt and DRDGold has an "in principle commitment" from a financial institution for the facility to upgrade one of the plants to process 500,000 tonnes a month and a network of pipelines and equipment.
The new processing plant will recover all but 0.18g per tonne, which will come out the back of the plant and be put onto the active Driefontein 4 tailings dump.
This means DRDGold will extract 0.289g per tonne through the existing plants that are part of the Sibanye deal.