[miningmx.com] – SHARES in DRDGold are 13% stronger in the past 30
days. As one of the few South African precious metals not embroiled in strike action,
the African Spring has been a time in which its cash flow has blossomed.
According to estimates by broker Imara SP Reid, DRDGold is currently producing
R200m in operating cash flow per quarter, equal to R800m on an annualised basis,
although this is to exclude the capital required for the R650m fine-grind circuit.
The weakness in the rand, which earlier this week tested R9 to the dollar, is the factor
behind DRDGold’s good fortune although it’s the negative outlook on South Africa’s
economic growth as a whole, itself a function of the strikes that has been forcing the
currency weaker. At R508,000/kg earlier this week, the rand-gold price was some
19% higher than last year’s average.
Based on its June quarter figures, DRDGold has costs per kilogram of R302,221
against a record rand-gold price of about R500,000/kg, which, assuming a repeat of
last quarter’s production of about 1,000kg, yields the estimated operating cash flow
bonanza.
“Revenue is really running away with the R50,000/kg improvement in the rand-gold
price in the last month,’ said Niel Pretorius, CEO of DRDGold. “We haven’t had any
industrial action, a fact that we’re grateful for rather than proud of,’ he says. “We
have some extremely attractive numbers.’
Pan African Resources is another company largely unaffected by strike action
(although it is involved in wage negotiations).
“The rand-gold price is approaching record levels, and with Barberton and Phoenix
reporting uninterrupted production, if the group can manage the integration of
Evander successfully, there are significant earnings yet to come in this stock,’ said
Imara’s analyst Percy Takunda. Pan African Resources bought Evander from Harmony
Gold earlier this year for about R1.5bn.
Another company to have so far escaped strike action is Northam Platinum. However,
unlike Pan African Resources and DRDGold, Northam’s share price is hardly changed
in the past month and is down from its January start this year. Why would this be if
price received conditions are so helpful currently?
In the case of Northam, it could that as a single lease company – the Zondereinde
mine – it’s particularly vulnerable to strike activity. In other words, one strike dries
up all the cash flow and in the current environment, strike action is difficult to
forecast – it’s sudden and unheralded.
Perhaps that’s why management has focused on the labour structure. Unlike the usual
50%-plus recognition agreements among Northam’s peer group, Northam provides
organisational rights for any union with 15% representation.
It is also interesting to note that Northam’s rock drill operators earn more than
R12,500/month, although that’s on a total cost to company basis. An increase in RDO
basic salaries to R12,500 would imply a 3% increase in Northam’s unit cash costs,
according to a report by SBG Securities.
