Mark Wellesley-Wood: CEO, DRDGold
DRDGold’s non-performing Vatukoula Mine in Fiji is being closed – how has that accounted for the share price’s fall?
Alec Hogg
Posted: Wed, 06 Dec 2006 18:00 | © Moneyweb Holdings Limited, 1997-2006
MONEYWEB: Mark Wellesley-Wood, chief executive of DRD, joins us now. Mark, ordinarily we wouldn’t be talking to you about closing a small little mine in Fiji, but the share price of DRD dropping 25% in a week – started last week at R8.70, today R6.40 – suggests something more might be going on behind the scenes. How are you reading it?
MARK WELLESLEY-WOOD: I want to check into one of those wellness centres, I think.
MONEYWEB: (Laughter.) But you are retiring soon, Mark.
MARK WELLESLEY-WOOD: Well, ja I should have gone a couple of months earlier, shouldn’t I?
MONEYWEB: Couple of weeks would have been OK.
MARK WELLESLEY-WOOD: Aargh. But, look, you’re right, it is a small mine. It produced 20 000 ounces in the last six months. In the last quarterlies it lost $4m, and it was losing more money. And at that rate it is probably only 10% or under 10% of the group’s potential production. I say “potential” because Vatukoula never really reached its potential. And the losses account for all the negative figures that were coming out of our Australian subsidiary Emperor.
MONEYWEB: Which would suggest to you, or it certainly would suggest to me, there you’ve got a problem child. You’ve got rid of it now, you closing it down. Maybe investors would say, OK, that’s a good thing, push the share price up – but it’s gone the other way. Is there anything else that is happening that we should find out?
MARK WELLESLEY-WOOD: Well, not really. In fact, just to do a sort of sanity check before I came on the show, and just to show I haven’t lost my touch, on the 2nd of November I said that after one of the shaft incidents at Vatukoula, quote: “This is an unfortunate and serious setback for Emperor.” And that was on the 2nd of November. And the fact that we’ve done something about it, as you say, is the right response, I believe. We brought in some of the best brains that we could in the mining business, Brad Gordon joined us from [indistinct], and they were quite confident to start with, but a number of operating difficulties faced them. The commercial losses were not going in the right direction and the cherry on the cake was a coup in Fiji. Fiji’s just about to be chucked out of the Commonwealth. We don’t know whether we can get equipment, supplies, whether we can get credit – a lot of the projects that we wanted to improve this mine, like getting involved in an IPP power project are now merely fanciful. Given four coups in 20 years, Fiji is not going to be a pronounceable prospect for some time, I suspect. So, operationally, commercially, politically, I think the board of Emperor – and I supported them in this decision, so it must be my responsibility as well – made entirely the right decision, and we’d be heavily criticised if we hadn’t taken action. I think you’re right, the converse should have applied.
MONEYWEB: But it’s an old mine, It was established in 1934. And in Wikipedia on the internet it says the reason why they’ve closed it down or it was being closed down was because of absenteeism by Fijian miners! Has that been a real problem?
MARK WELLESLEY-WOOD: It has been in the past, and indeed one of the deals that we were trying to negotiate with the unions, or Emperor was negotiating, so it was their project, was seven-day working. And, yes, we couldn’t get them to work seven days.
MONEYWEB: So, no conops in Fiji?
MARK WELLESLEY-WOOD: No, no conops.
MONEYWEB: Too much beach.
MARK WELLESLEY-WOOD: Ja, they actually had a strike once for having shorter lunch breaks.
MONEYWEB: OK. Mark, why then are we seeing your share price under such pressure?
MARK WELLESLEY-WOOD: I wish I knew the answer. I’ve now looked at the charts, and about a week before I announced my retirement the share price has fallen 30%. So maybe that tells me something or told somebody something. There is an unfortunate period here where I think we’re in a succession or transition mode at the leadership level. We’ve still got businesses to fix and a little bit of the rumour machine has been running around.
MONEYWEB: Mark Wellesley-Wood, chief executive of DRDGold.