DRD Gold's stockpiles of misfortune

DRDGold Limited, a once very succesful South African mining company which had a share price peak of USD 50 in 1980, might need some four leaf clovers. Today's announcement that the company will restructure its 79%-held subsidiary Emperor Mines after the Australian company shut its Vatukoula gold mine in Fiji, saying it was no longer economically viable to continue operations, was certainly not the first bad sign this year. A fire at its South African Blijvooruitzicht gold mine led the company to halt production, leaving investors worried. Just prior to that, investors swallowed news on a gold production halt at Tolukuma, the Papua New Guinea mine wholly-owned by DRDGold's 79% subsidiary Emperor Mines. In addition to that, there is the uncertainty regarding a new successor for soon to retire CEO Mark Wellesley-Wood as it is a well-known fact that investors are generally not too keen on management instability. All this has led the share price to drop 35% this year and almost 25% in the last month. In the 2006 financial year gold output of its Vatukoula mine decreased by 81% as all sections of the mine were temporarily closed. The Fiji mine was to contribute practically one third (!) to the 2007 output target of the company's subsidiary Emperor Gold. On a more positive note, most of DRDGold's restructuring costs have been made, leading the company to drastically narrow its losses in FY2006. But one should wonder what is left of its new strategy to focus more on its Australasian mines, which leaves only a 20% stake in the Porgera joint-venture and its fully-owned Tolukuma gold mine, both located in Papua New-Guinea. There is certainly a lesson to learn here: investing in mining companies knows many risks other than geopolitical risks or price fluctuations in metals. But it must be said that with so much misfortune, there aren't many risks left for DRDGold. With a share price below one US Dollar (NASDAQ:DROOY), we can only wait until better news comes. For the moment, this is certainly a stock that needs to bottom out, but things can really only get better from here. And that... is the reason for me to start putting this stock on my watchlist as of today. Update: This post has also been supplied as a column in Dutch to edelmetaal-info.