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Junior gold producers outshine bigger firms

Dineo Faku

JUNIOR gold mining companies had outperformed their counterparts at the top of the sector not only because they were “flexible”, but they were also easier to manage, Peter Major of Cadiz Corporate Solutions said last week.

The junior mining houses had turned the corner from their disappointing showing a few years ago “because the little gold companies are cutting costs better”, he added.

Last week DRDGold, which now focuses on the treatment of surface dumps, reported cash equivalents of R380 million at the end of the quarter to March. It also posted a 3 percent increase in production at its newly consolidated Ergo and Crown surface retreatment operations.

Percy Takunda, an analyst at Imara SP Reid, said juniors were expected to outperform major firms this year. “Since January, DRDGold and Pan African Resources (share prices) have outperformed the majors. DRDGold still looks cheaper and is generating impressive cash flows while Pan African continues to do well. Both are paying better dividend yields than the majors.”

But there were high risks for small groups, such as the performance of the gold price.

“Pamodzi Gold would still be in operation today under the robust gold price environment,” he said.

Pamodzi Gold’s assets at the Grootvlei and Orkney mines were liquidated in 2009. Subsequently, controversial junior gold company Aurora Empowerment Systems, whose directors included Khulubuse Zuma, Zondwa Mandela, and businessman Michael Hulley, became the preferred bidders for the assets in 2009.

At the time the mines were fully operational, but Aurora failed to keep the mines running.

Pan African, which is listed in London and Johannesburg and produces 100 000 ounces of gold a year, is a shining example of a well-performing junior mining house.

“The management team at Pan African not only dealt with the problem of illegal mining, but it rationalised the company’s assets and the company (now) produces higher grades,” Takunda said.

Pan African, with its partner Wits Gold, recently bought Harmony Gold’s Evander mine in the Free State for R1.7 billion. Pan African has focused on pursuing a low-cash-cost operating culture to exploit significant margins and mitigate the risk of a commodity price downturn.

“At Pan African’s Barberton mine, total cash costs are less than $800 (R6 200) an ounce, making it one of the lowest-cost underground gold mines in South Africa,” the company said.

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