In the media

DRDGOLD Q3 results: Niël Pretorius (CEO, DRDGOLD) & Peter Major

24 April 2012


‘A safer gold play than almost every other one we've got.’ - Peter Major

ALEC HOGG: As a gold factory valued at R2bn and generating annualised profit of R300m after tax, it works out to a price/earnings ratio of somewhere between six and eight times. Now, for a gold company that’s not really what you are looking for. But if you are a factory, well, who knows? I put it to Niël Pretorius, the chief executive of DRDGOLD, that his rating is now starting to look appealing once more.

NIËL PRETORIUS: I think it’s definitely dipping to below ten in the not too distant future if we can maintain these current numbers and current margins. I think there’s still an element of risk built into the share price. I don’t think we’ve done everything that we wanted to do in order to present a real factory to the investor community, but hopefully over the next few months we’d be able to do that.

ALEC HOGG: And you’ve also started buying back shares.

NIËL PRETORIUS: We did, we bought back some shares earlier in the year and I think it’s the sort of thing that we’ll probably want to do from time to time. It’s not in order to actually do something about the share price. It’s just that a whole lot of my colleagues hold share options and from time to time they exercise those, and we don’t want to bring additional dilution into the market and issue shares at higher prices when, in fact, we could buy them at a lower price and, I suppose, protect the capital of the business to an extent. So I think it’s the sort of thing that on an ongoing basis we’ll do. If there’s a good opportunity for us to buy, if the price is low, we might buy some shares and then, come dividend time at the end of the year, whatever’s left we could give to shareholders as well.

ALEC HOGG: And you’re sitting on a good cash pile, R380m at the moment. Is that primarily – well, after you’ve paid for your share buybacks, after you’ve paid for your new plant – all going to be distributed?

NIËL PRETORIUS: Alec, we’re going to maintain a small cash buffer. We’re talking about a $15m, about R100m cash buffer that we want to maintain just to address cycles, if there are any. We do have a high fixed cost in our business, so we want to be able to make sure that we do have some money in the bank just for a rainy day – if short-term cycles become adverse. In addition to that, we also want to make sure that we don’t run out of cash while we’re implementing these projects. So we’re carefully looking, we’re scrutinising future cash flows, the probability of those cash flows. We were going to keep a substantial amount of money aside also to cover premature closure liability, which is a requirement for purposes of getting new-order mining authorisations, but our insurers have come to the party and we’ve reduced the amount of money that we need to keep for that purpose quite significantly. Yes, I think increasingly, hopefully, we could become something that you could model based on probable cash flows and we’ll have transparency in so far as the amount of money that we want to retain is concerned.

ALEC HOGG: Peter Major of Cadiz joins us now. Interesting discussion. Niël’s in fact in New York at the moment, Peter, no doubt drumming up support for his company from investors in the United States. Is it a stock that you look at closely, DRDGOLD?

PETER MAJOR: Not closely, but more than a little bit because we don’t have that many gold shares and this is a substantial share. As you said, Alec, it's a R2bn market cap, and this is really the old Ergo reincarnated. I think three-quarters of its operations were original Ergo operations. It's strictly a surface-dump operation now, not underground. It's not working at underground. The only difference with it and Ergo is really is Ergo used to pay out virtually all of their earnings, and Niël’s holding quite a few back because he’s got a lot of interesting ideas and projects that could probably use that money.

ALEC HOGG: He was saying – and the podcast we had ran into around 10 minutes – that he’s taking a tip from Pan African, which is treating a platinum dump. So he reckons what they’ve been doing with gold dumps they might be able to do with platinum in future, which I guess brings a different angle to the business, doesn’t it?

PETER MAJOR: Well, it makes a lot more sense because it's a lot more related to what he’s currently doing. So you are right – whether you are treating platinum or gold, the similarities are so much there. And that would extend its life, ja.

ALEC HOGG: Peter, a 3.75% improvement in the share price today on these results – I guess somebody’s happy.

PETER MAJOR: I think everybody is. The gold price has jerked up today as well. But ja, these results are good and it's just such a safer gold play than almost every other one we've got.

ALEC HOGG: What's happening in your company? The Cadiz share price down 20%. Is that a mistake today?

PETER MAJOR: Well, we decided to pay out a big chunk of our earnings.

ALEC HOGG: Ah, OK. So that’s the reason. Is it ex-dividend then?

PETER MAJOR: Ja, ja. Ex a very big dividend.

ALEC HOGG: Ah. Well, let’s not get too terribly excited about that one. Peter Major giving us the inside there, also giving some insight into DRDGOLD – a nice low-risk play if you are a gold bug.