Sayers, who delivered a keynote address to Terrapin's Africa Mining Congress 2008 in Johannesburg, says that an urge to grow both reserves and resources rather than to support existing operations is at the root of gold mining's failure as an investment

The former financial director of Nampak and Altron Limited wants gold-mining companies to be like normal business and avoid valuation parameters that do not work particularly well.

Sayers says that DRDGold's own debate with investors currently revolves fundamentally around the sustainability of the business and the ability to support and maintain existing operations and existing reserves and resources.

He says that the higher gold price has reinforced this standpoint, which makes the purchase of reserves and resources expensive.

The lack of focus on existing operations has resulted in failure to deliver and reduced output across the board, Sayers hypothesises.

Previous management's attempt to convert the medium-to-small DRDGold into a global mining company damaged the business and stripped out shareholder wealth.

The gold-mining sector's lack of delivery has resulted in investor disenchantment, as companies either merged expensively or took on significant debt in order to increase their reserves and resource bases.

"The classic example is the stampede into Papua New Guinea, which DRDGold was part of," Sayers concedes.

He says the difficulties of mining in Papua New Guinea was underestimated as was the impact of dollar-denominated costs of mining there.

"The entire sector has been a disappointment," Sayers reiterates, resulting in investors moving from gold-mining companies to diversified majors such as BHP Billiton.

That could be seen in South Africa's JSE index, which is underperforming the gold price.

DRDGold's attempt to go global in 2003 sucked cash off its balance sheet and resulted in South African operations being starved of capital expenditure.

DRDGold has enough cash to fund all existing projects, with the exception of the ERPM phase two project, for which it will have to raise between R8-billion and R6-billion. But that is still years away, when hopefully its market capitalisation would have moved beyond the current R2-billion-plus mark.

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