South African DRDGold approved Wednesday a deal proposed by Sibanye-Stillwater (JSE:SGL) (NYSE:SBGL) to exchange some its assets for a 38% stake in the mid-tier gold miner.
The transaction, valued at R1.3 billion (roughly $110 million at today's rates), also gives Sibanye the option to buy another 12.1% of DRDGold shares - enough to give it control of the firm.
The assets the precious metals producer is transferring have probable gold mineral reserves of 3.82 million ounces, Sibanye-Stillwater said. And while it plans to retain long-term exposure to the West Rand tailings retreatment project (WRTRP) in South Africa, it's leaving the development of such endeavour to DRDGold.
Deal grants Sibanye-Stillwater a 38% stake in DRDGold, which receives some assets that boost its gold reserves by 91% to 5.7 million ounces.WRTRP is a large-scale, long-life surface tailings retreatment that will retreat material with a 35% higher gold content than the material treated by DRDGold at its flagship Ergo metallurgical plant on the East Rand.
The transaction virtually doubles DRDGold's gold reserves, giving it immediate access to facilities that can generate cash for it in a matter of months. It also cuts overhead unit costs through increased production and puts an end to DRDGold's single asset operating risk.
For the company, tailings around Sibanye's Driefontein and Kloof mines near Carletonville, are relatively rich in gold compared with what it has been mining so far to the east.
The first phase to unlock the tailings will focus on processing 28 million tonnes of tailings at Driefontein dump 5, which has a grade of 0.469g of gold a tonne and contains 421,000 ounces of gold, DRDGold has said.
It will be funded by debt and the company has indicated it has an "in principle commitment" from a financial institution for the facility to upgrade one of the plants to process 500,000 tonnes a month and a network of pipelines and equipment.
DRDGold has established itself as one of South Africa's top gold tailings retreatment operator, using its Ergo plant to treat old dumps around the city.
Sibanye-Stillwater is South Africa's largest gold producer and the world's third largest producer of palladium and platinum.
The deal, which is expected to close in the second quarter of the year, remains subject to, and conditional on environmental permits for DRDGold to operate the selected Sibanye-Stillwater assets.