John Sayers: CEO, DRDGold
moneyweb.co.za
09 January 2008 23:07
MONEYWEB: Well, will that be music to John Sayers' ears? Not necessarily the Ojai's [Moneyweb's new theme tune], but the $881/oz gold price. John, thanks for joining us. I know you are in London at the moment - the chief executive of DRDGold. Are you out there talking to shareholders, investors, or perhaps a little bit of private time?
JOHN SAYERS: No, we're doing a bit of strategy work here, and re-formulating our strategy going forward for '08 on the basis of the new company, Alec, the way it's structured.
MONEYWEB: But the back-to-basics strategy that you've employed already has worked pretty well for DRD in the last little while, including picking up a couple of new converts in the duo from Investment Solutions, who last night gave a thumbs-up for you for 2008. Seems like the story's finally getting through.
JOHN SAYERS: Alec, I think what we've done is we've cut off the loss-making, and we've got, as I said before, our reserves and resources. And we're very bullish on the gold price, which hasn't let us down so far. And we also have the money now to invest in our existing operations. I think that's very much our fundamental strategy going forward.
MONEYWEB: John, just to pick up on what Imtiaz Ahmed was saying last night - and perhaps you could tell us whether his analysis is in line with the way you're seeing it - he said that there is R2.85/share in cash now in DRDGold. Is that accurate?
JOHN SAYERS: Yes that's about it.
MONEYWEB: That's about right. And then he was working out on 400 000 ounces. He said last year, at a cost of $680[/oz], even with inflation going, and he said even to be highly conservative take that to $750, at an $850/oz gold price that makes a huge difference, making $100/oz times 400 000 - very easy, $40m profit in dollars, R280m in rand. Is he on the right track? Is that what translates into about R1/share in profit?
JOHN SAYERS: You know, unfortunately we're in a closed period, so I can only talk some generalities. But Alec, the thing is that we have resolved our wage negotiations, so we fixed at least 35% of our costs for the next two years. We've been investing fairly significantly in our existing mines, and putting more money in, and we can support that all the way through. And with our ERPM 1 and 2 we can bring the best part of almost double our reserves. So I think that the margin improvement is very much embedded in the business. The other thing we're doing, Alec, is we've moved - we've accepted there is a risk, as has been mentioned, in terms of deep level mining, and we've worked very hard to spread our surface operations. And in fact our surface operations will now be a much larger part of our operation, in fundamentally the Mintails JV. So that takes a lot of risk our of the operation.
MONEYWEB: The other point that Imtiaz made last night was that American banks are big shareholders in DRDGold, and have lent script to speculators who have a huge short position. Can you enlighten us more on that?
JOHN SAYERS: Well, fundamentally around about 75% of our shares are quoted on Nasdaq, and it's amongst the highest traded shares on Nasdaq. We are an open unhedged company, and a lot of American individual investors like that. So there's a lot of trade goes through Nasdaq at the moment. It doesn't affect the company, and it doesn't affect our capital-raising. Those shares are issued already.
MONEYWEB: Looks like Imtiaz Ahmed and Chris Hart might be onto a winner here, Dave?
DAVID SHAPIRO: It looks like that, and I think you could pick that up - that the costs are under control. So short of the money that's put aside for capital expenditure - well, certainly they'll show that as earnings - whether they'll pay it all out is another thing. But I think as an expanding mine they'll probably keep back a lot of that.
MONEYWEB: And they've also sold the...
DAVID SHAPIRO: Ja. I think the market was a little too heavy on them when the problems arose. I think the price almost halved. So you know, like Harmony, it's coming from a very low base.
MONEYWEB: We have confirmation R2.85 in cash, sitting at about R6/share. So you're buying the stock for R3 a share. On Imtiaz's calculations you're going to get R1 of earnings this year.
DAVID SHAPIRO: Against that, yes.
MONEYWEB: P/E of 3 in a rising gold market. Smart man! |
