Interview with Niël Pretorius, CEO of DRDGOLD Ltd (JSE/NYSE: DRD).

We like tailings as an investment category. It's de-risked mining. No geological risks. It's safer. You could argue it's greener. And there are hundreds of millions of tonnes at surface all over the world waiting for value to be extracted.

DRDGOLD is a South African NYSE/JSE-listed gold producer and a large player in the recovery of gold from surface tailings. They have a network of assets across South Africa, which they regard as 'unrivaled.' The company was founded in 1895 and pioneered mining methods in South Africa. Pretorius states the company has now come "full-circle," and is focusing exclusively on the recycling and re-mining of tailings, both around the Johannesburg area and now, more recently, the Carletonville area. DRDGOLD attempts to provide a unique combination of processing extremely high volumes of material and nano-extraction methods.

DRDGOLD started the year with a share price close to a 5-year low of USD$2.20. However, DRDGOLD has fully capitalised on a good second half of the year for gold, rising to an impressive peak of USD$5.01 at the end of September, before settling down at a still impressive USD$4.60 today. DRDGOLD has a market cap of US$330M.

DRDGOLD decided to transition to the tailings space around 10 years ago on recognising their own assets at the time were at the "lower-end" of the quality scale. Their conventional tailings strategy positions the company for stable growth. Pretorious is first keen to talk about the Ergo Project; DRDGOLD obtained Ergo Mining Proprietary Limited outright in 2010. Ergo’s assets include access to 750Mt to 900Mt tonnes of tailings deposited across the western, central and eastern Witwatersrand. The company’s flagship metallurgical plant, Ergo, with a 25.2Mt annual capacity, treats material from a variety of sources. DRDGOLD recently underwent a rationalisation process in order to simplify its structure and form a single retreatment business that is more synergistic with reduced costs.

Sibanye-Stilwater, a name of immense pedigree in the mining world, obtained 38.05% of DRDGOLD on 31 July 2018 in exchange for 250m tons of reserves from some of the highest grade mine dumps in Africa. By doubling DRDGOLD's reserves, Sibanye-Stilwater will be looking to DRDGOLD as the key to unlocking the potential of this resource. However, Sibanye-Stilwater has the option of taking their stake to around 51% before February next year: reassuring in the sense that Sibanye-Stilwater wouldn't seek large ownership if DRDGOLD was a Christmas turkey, but will investors worry about a reduction in liquidity? Pretorius is keen to see Sibanye-Stilwater take advantage of this option, to bring an extra US$1B of capital into the company in addition to capitalising on DRDGOLD's stellar operating performance.

Pretorius points to DRDGOLD's expertise in gold as an element that sets them apart from the significant tailings competition. In addition, the large size, vast experience and overall quality of the management team when combined with the value system Pretorius is implementing, renders DRDGOLD an intriguing proposition for any prospective investor.

DRDGOLD provided a recent three-fold increase on dividends: incredibly generous to shareholders. We were keen to find out if they were being as generous to themselves, but Pretorius is insistent salary has adjusted in line with inflation and the company's bonuses are nothing to write home about. DRDGOLD's remuneration matrix seems interesting, but not necessarily in a positive way. Being rewarded based on what could happen rather than what has happened might be a problematic system for some investors. As Pretorius elaborates, the executives at DRDGOLD are far from underpaid. Maybe investors will let them off with this one given their impressive market performance and dividends.

What did you make of Niël Pretorius? Is the Sibanye deal a game changer? Are the dividends getting you excited? Does DRDGOLD have enough going for it to separate it from the swathes of tailings competition? 

Interview highlights:

  • Company Overview
  • Tailings and The Technical Aspects
  • Business Model: Why Choose Tailings?
  • Ergo Project: A Detailed Overview. What Min. Gold Price do They Need to Operate it?
  • Sibanye-Stillwater Transaction: What's the Plan?
  • How Does DRDGold Differ From Other Companies and Why Should You Consider Investing?
  • Team Remuneration Principles

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