Something relevant to DRD in my in-tray
On May 12, 2020, at 6:49 PM, J wrote:
Thank you for that catchup.
On May 12, 2020, at 6:26 PM, H wrote:
Yes, today's DRD is not comparable to its year 2000 incarnation. Keep in mind that the old management issued truckloads of shares over the years, inter alia to pay for ill-fated acquisitions (a 50% stake in Porgera for example that immediately went south when a pit wall collapsed).
So at the beginning of the rally in 2000 - 2002, the share float was very small, which explains why it went up so much at the time.
The other part of the explanation is that the ratio of HUI or XAU to gold soared from 17 or so to more than 60 - people were prepared to pay for "gold price optionality", of which DRD seemed to offer plenty with the stable of high cost underground mines it ran at the time (consisting mainly of Hartebeesfontein, Buffelsfontein, Blyvooruitzigt and ERPM - plus they owned a few old mines that had been closed many years earlier, but were considered potential reopening candidates).
The surface treatment operations were basically an afterthought at the time. The management was not very good, but it was also dogged by really bad luck - Harties and Buffels had to be closed after an underground quake buggered their deep level infrastructure and they became unsafe to operate. Then the Porgera pit wall problem struck - so more than half of the company's assets basically went up in smoke with no compensation.
The new management has completely transformed DRD into a specialist for surface treatment, which they have gotten really good at (no other surface treatment operation is capable of making money at the grades they are "mining" at ERGO). They decided to completely ditch underground mining, which was a wise move (it generated more headaches than profits, that much was certain). DRD has been paying dividends every year since the transformation was accomplished. Right now it enjoys huge margins, has zero debt, a huge chunk of cash on the balance sheet and prospects for growing production substantially in coming years, as it gradually takes over all of Sibanye's surface assets. I reckon DRD will also consider taking over other surface treatment operations if an opportunity presents itself.
Pan African (unfortunately not listed in the US) is a mixed surface/underground operation that would be a great fit - would be great if they could take them over and spin out the underground assets. But that is just my idea, I don't know if they have ever considered it. Probably not, as they will have their hands full with the FWRG phase 2 expansion.
On Sun, May 10, 2020 at 3:41 PM G wrote:
schrts.co
last major high in 2002 following the money printing that started in 2000.. from 4.59 to 38.54 on the closings.
one could say the share price along with all of the miners are trailing the price of gold hugely. DRD's business model is far safer than it was back 20 years ago one might say it was a completely different company in the end. |
