A R900m deal to take an asset off the hands of mining firm Sibanye-Stillwater, which was unlikely to develop it any time soon, and one that will change the fortunes of tailings recycling specialist DRDGold, is finalised, leaving two satisfied companies.
Sibanye’s consolidation of the South African mining sector continued unabated as it completed swapping tailings, a gold processing plant and an important tailings storage facility for shares in DRDGold, giving it a 38% stake in the smaller company and lining itself up for potential control.
Sibanye is by far the most active mining company in the mergers and acquisitions space in SA, mopping up a number of companies in gold and platinum group metals (PGMs), and it has grown into a major force in the latter sector.
The company will cement its position as one of the world’s largest sources of PGMs later in 2018 if its all-share takeover bid for world number three platinum miner Lonmin and its South African mines, concentrators, smelters and refineries proves successful.
The transaction with DRDGold was one of the smaller deals for Sibanye and one that resolved how best to unlock value from enormous piles of tailings and dumps that CEO Neal Froneman had made clear was not a priority on its project list. It was a clever way to pass on the bill to unlock the gold in the tailings to a third party while retaining the benefit of the assets, giving itself a lion’s share of dividends sure to flow from the project.
No cash call
For Sibanye shareholders, the critical aspects of the deal are that there is no cash call on Sibanye, which has laboured under a heavy debt burden since its $2.2bn cash purchase of Stillwater Mining, a palladium and platinum miner in the US.
It recently sold a portion of its future palladium production and all its gold output from Stillwater for an upfront payment of $500m to bring its balance sheet under control.
Within the next two years, Sibanye may exercise an option to buy more shares in DRDGold at a 10% discount to the 30-day volume weighted average price, giving it up to 50.1% of the company. The deal was a "company changer" for DRDGold, its CEO Niël Pretorius has said, boosting its reserve base by 90%.
Now that the deal has been concluded, DRDGold would push ahead with the first phase of developing the assets it has secured in a project it is calling Far West Gold Recoveries.
It has raised a R300m loan to upgrade the Driefontein 2 plant to process tailings at a rate of between 400,000 and 600,000 tonnes a month.
First production is expected in the first quarter of 2019.
The deal was akin to lightning striking the same place twice for DRDGold, with complex and difficult pieces of a gold dump retreatment strategy falling into place for the second time since it bought its Ergo plant near Brakfontein, to the east of Johannesburg.
"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," Pretorius said in a recent interview with Business Day.