Mintails Accepts DRDGOLD’s Offer

Based in Johannesburg, South Africa, DRDGOLD Limited (DROOY - Snapshot Report) announced that Mintails Limited (Mintails), an Australian listed public company with management and operations in South Africa, accepted its offer to acquire Mintails’ South African business, excluding the underground explorer West Wits Mining Limited (WWI). The purchase consideration is based on the 30-day Volume Weighted Average Price (VWAP) of Mintails shares over the 30 trading days terminating on 24 June 2009, less the value of Mintails’ holding in WWI based on the WWI trading VWAP for the same 30 trading days to 24 June, 2009. DRDGOLD in a stock deal has proposed to issue shares payment for the acquisition, calculated by a 30-trading day VWAP to 24 June 2009.

However, the offer is subject to a written approval of the boards of both the companies by July 31, 2009. The offer also requires approval of both Mintails and DRDGOLD’s shareholders by August 31, 2009. In addition, the deal is also subject to the regulatory approvals in both countries.

Mintails Ltd. produces gold from two dump retreatment schemes on the East and West Rand in South Africa. The company owns more than 1.5 billion tons of tailings dump material in these regions, which can be treated to produce gold, uranium and sulphuric acid. DRDGOLD and Mintails are equal partners in the Ergo project on the East Rand.The acquisition is in line with DRDGOLD’s strategy is to increase gold production sourced from surface material, which is cheaper and is less risky compared to underground mining.

DRDGOLD is generating healthy cash flow from operations and has lower debts. It benefits from rising gold prices. However, increasing operating costs as well as power shortage and labor issues do not bode well for the company. Thus, we rate the stock a HOLD with a six-month target price of $10.00.