South Africa's No. 4 gold producer, DRDGold SA, said it has acquired the remaining 50% interest in the Elsburg Gold Mining joint venture from Australia's Mintails.
Initially a 50/50 joint venture between DRDGold and Mintails, DRDGold raised its stake to 65% in October and paid R177m (US$17.6m) in cash to acquire the remaining 35% in December.
The Elsburg JV will focus on the production of some 1.7m ounces of gold over the next 12 years at Ergo.
While DRDGold is acquiring more territory and planning more production in the long run, the closure of its ERPM mine has forced the company to retrench thousands of workers.
When asked how DRDGold could afford to buy 100% of Elsburg during a period of layoffs and declining revenue at its Boksburg-based East Rand Propriety Mines (ERPM) operation, the company said the funding had come from its holding company DRDGold, which had sufficient cash.
Funded by its shareholder DRGGold, ERPM owns 65% of the investment in the Elsburg JV (funded by its shareholder DRDGold) and the remaining 35% is held by DRDGold SA. As a result, 65% of the profits will flow into ERPM which has a large assessed tax loss, which means a large portion of those profits will be tax free. DRDGold also has an assessed tax loss and a portion of its Elsburg's profits will also be tax free.
Craig Barnes, DRDGold chief financial officer, said, We believe this acquisition is a very good deal for us, because it gives us access to all of the cash flows from the initial gold production of the Ergo project.
Barnes added that a feasibility study is still underway on how much uranium and sulphuric acid Ergo could also produce. However, DRGGold will not proceed with the project in the short term because uranium and sulphuric acid prices have fallen, and significant capital is required to construct the plants.
ERPM lays off 1,355 workers
DRDGold said it would lay-off 1 355 workers at its Boksburg-based ERPM operations; this comes after the closure of its loss-making mine last November.
A total of 1700 workers are going to be affected by the closure of the mine, including 109 workers who have accepted the company's voluntary retrenchment offer. Of that group, 101 have been transferred to DRDGold's Blyvooruitzicht mine and five to the ERGO JV. The company announced that 150 other workers had been retained at the mine to provide care and maintenance services.
The 1 335 workers that are being laid off will be paid retrenchment packages as has been agreed on with the representative unions.
The company has reported that it is working closely with the unions to identify and implement re-skilling programmes. Also, where possible, it has engaged other mining companies which have expressed an interest in recruiting employees and has established lines of communication between them and the unions.