DRDGold subsidiary Emperor Mines sold a 20% stake in the Porgera gold mine in Papua New Guinea to Barrick Gold Corporation for $250 million. The sale will generate enough free cash flow, so DRDGold can pay off $140 million in total debt and focus on DROOY’s prime South African Gold Assets.
DRDGOLD’s Biggest Obstacle: 78% Stake in Emperor Mines
In the February 2007 quarterly report, CEO John Sayers said, “DRDGOLD’s operating and financial performance continues to be married by ongoing difficulties of DRDGold’s 78.2% stake in Emperor Mines.” Apparently, the 20% Porgera stake was one of the main difficulties. Check out these key statistics on the 20% Porgera stake:
- Gold production fell 19% from 29,379 oz in Sept. 06 to 23,664 in Dec. 2006
- Cash operating profit fell 27% from $4.5 million in Sept. 2006 to $3.3 million in Dec. 2006.
- Cash operating costs rose 1% to $401 per ounce from $396 per ounce.
Under these conditions, it would be difficult for any gold miner to overcome these abysmal growth percentages. John Sayers made a good financial decision by liquidating the underperforming Porgera assets to concentrate on the Witwatersrand Basi, the world’s richest known gold deposit. Once the sale of Porgera mines finalizes, Sayers should continue to liquidate the Emperor Mines stake until it fails to degrade their balance sheet.
DROOY Shares Are Highly Undervalued
DRDGOLD has been operating for over 112 years; they have dealt with hard times before. All the negative talk surrounding DRDGOLD presents a good buying opportunity for patience investors. DROOY looks like a huge bargain at $0.69 per share. My limit trade is set to execute tomorrow at a limit of $0.75 per share. The remaining DROOY shares will be purchased in subsequent intervals of 100 shares a piece. Once the company is financially stable, DRDGOLD will finally benefit from the current gold bull market.