In the media

Gold mining 'fallen flat on its face' as investment, says DRDGOLD CEO Sayers

[Miningweekly] - John Sayers at Africa Mining Congress 2008
The gold-mining industry had "fallen flat on its face" as far as return of capital to shareholders was concerned, DRDGOLD CEO John Sayers said in Johannesburg on Tuesday.

John Sayers at Africa Mining Congress 2008

The gold-mining industry had "fallen flat on its face" as far as return of capital to shareholders was concerned, DRDGOLD CEO John Sayers said in Johannesburg on Tuesday.

Sayers told the Africa Mining Congress 2008 that gold mining’s failure as an investment had been driven "in major part” by an urge to grow both reserves and resources rather than to support existing operations.

“We don’t believe that valuation parameter works particularly well,” the former financial director of Nampak and Altron Limited said.

DRDGOLD’s debate with investors currently revolved fundamentally around the sustainability of the business and the ability to support and maintain existing operations and existing reserves and resources.

The higher gold price had reinforced this standpoint, which made the sheer purchase of reserves and resources expensive.

The lack of focus on existing operations had resulted in failure to deliver and reduced output across the board, Sayers said.

Previous management’s attempt to convert the medium-to-small DRDGOLD into a global mining company had damaged the business and stripped out shareholder wealth.

The gold-mining sector’s lack of delivery had resulted in investor disenchantment, as companies either merged expensively or took on significant debt in order to increase their reserves and resource bases.

“The classic example is the stampede into Papua New Guinea, which DRDGOLD was part of,” he said.

There had been an underestimation of the difficulties of mining in Papua New Guinea and also an underestimation of the impact of the dollar-denominated costs of mining there.

“The entire sector has been a disappointment,” Sayers reiterated, resulting in investors moving from gold-mining companies to diversified majors such as BHP Billiton.

That could be seen in the JSE index underperforming the gold price.

DRDGOLD’s attempt to go global in 2003 had sucked cash of its balance sheet and resulted in South African operations being starved of capital expenditure.