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Alberto Abaterusso
Alberto Abaterusso
Articles (1343) 

Drdgold Completes Phase One of Far West Gold Recoveries Project

Surface tailings will begin to produce the precious metal beginning in 2019

December 05, 2018 | About:

Sibanye-Stillwater ADR (NYSE:SBGL) jumped 2.78% to $2.59 per share on Tuesday after the company announced Drdgold Ltd. (NYSE:DRD), in which it has a 38% controlling interest stake, successfully completed the first phase of the Far West Gold Recoveries project.

The completion of the project will enable Drdgold, which specializes in the recovery and sale of gold from surface tailings in South Africa, to deliver the Driefontein 2 gold concentrator with the tailings from the Driefontein 5 dump of waste rock from previous mining activities in the area.

Driefontein 2 will process approximately 500,000 tons of waste per month, or about 1,500,000 tons of waste per quarter, which should, according to a gold grade of approximately 0.185 to 0.2 grams per ton of ore, deliver about 9,005 to 9,650 ounces of gold every quarter.

Driefontein 2 targets the first production to commence in the first quarter of 2019. The asset will contribute 20% to the company's total quarterly production. The estimate is based on the results of the first quarter of fiscal 2019, which ended Sept. 30, showing gold production of about 37,600 ounces retrieved from the processing of 6.249 million tons of tailings. The residue will be deposited on the Driefontein 4 tailings dam.

Sibanye-Stillwater’s adjusted earnings before interest, taxes, depreciation and amortization, which is already being affected by lower production rates in South Africa, will be underpinned by the Driefontein phase 1 project as a result of Drdgold’s inclusion in Sibanye-Stillwater’s operating and financial results.

Following the third-quarter results, Sibanye-Stillwater’s adjusted EBITDA margin is standing at around 18% compared to an industry median of nearly 24%. Driefontein will boost the profit margin of the South African gold producer starting in the first quarter of calendar 2019, so a positive impact on the market value of the stock will likely follow.

Investors can benefit from the catalysts of the Driefontein phase one project through an investment in either Sibanye-Stillwater or Drdgold. Sibanye-Stillwater’s closing price was $2.59 on Tuesday on the New York Stock Exchange for a market capitalization of about $1.42 billion. Drdgold’s price was $2.12 at close on Tuesday, for a market capitalization of about $147.64 million.

These valuations are the result of 45% and 30% declines in the share price of Sibanye-Stillwater and Drdgold for the 52 weeks through Dec. 4, as illustrated in the chart below.

Sibanye-Stillwater’s closing share price on Tuesday was below the 50- and 200-day simple moving average lines, but slightly above the 100-day line. The 14-day Relative Strength Indicator is 49.32, suggesting it is neither overbought nor oversold. The stock has a price-book ratio of 0.21 versus an industry median of 1.74 and an EV-to-EBITDA ratio of 5.18 versus an industry median of 9.3.

Drdgold’s closing price was below the 50-, 100- and 200-day SMA lines. The 14-day Relative Strength Indicator is 44.69. The stock has a price-book ratio of 1.03 versus an industry median of 1.74 and an EV-to-EBITDA ratio of 35.92 versus an industry median of 9.3.

Disclosure: I have no positions in any securities mentioned in this article.

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About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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