Gold One Production Update

After an interrupted production schedule during FY12, Gold One (GDO) is pushing on with its strategy of ramping up Modder East, completing the integration of the Cooke 1-4 and growing production at the Randfontein. Notwithstanding that Neal Froneman has resigned as CEO to join Sibayne Gold, effective 31 December 2012, we do not expect any change in strategy as current CFO Chris Chadwick is now acting CEO. We also see the JV with Sibayne Gold moving forward with results from the PFS expected during Q313. GDO remains focused on increasing its production in FY13 to 300koz, and further normalising its cost profile through the implementation of its uranium co-product strategy by Q413.

Q412 operational details
GDO released its Q412 operational details, having produced 57,584oz Au, which was only 2% below its Q412 forecast. Production for FY12 of 241,755oz Au was 9% lower than the revised 265koz guidance provided in Q212. However, unit costs were 6% lower q-o-q as a result of continued normalised production at Modder East and Cooke 4 operations, following last year’s illegal industrial action and suspensions of operations, respectively. We expect further production improvement and lowering of the cost profile now that management has negotiated a new two-year agreement with the National Union of Mineworkers (NUM) at Modder East and signed an MOU with the Congress of South African Trade Unions at its Cooke 4 operations.

Ramping up Modder East and restructuring Cooke
Modder East continues to ramp up, with a new wage agreement with NUM in place. Restructuring at Cooke 1-3 has been completed, with a return to profitability during Q412. Continued integration of Cooke 4 into Cooke 1-3 operations will further normalise the operational cost profile as GDO implements its uranium co-product strategy. Randfontein surface operations continue to deliver strong performance and GDO has plans to increase capacity from 300kt/m to 400kt/m by December 2013.

Valuation: At a discount, but operational risks remain
Previously, we valued GDO at A$0.57/share, including the benefits of the uranium co-product strategy. Given the current focus of ramping up Modder East and normalising costs for the Cooke operations, we have for now excluded the Cooke uranium tailings and underground resources, which we equate to A$0.8/share. In absolute terms, we estimate GDO’s NPV to be equivalent to A$0.48/share. Relative to its peers, GDO trades at a 23% discount when considering our 2013e EV/EBITDA multiple of 3.6x, compared with a weighted average of 4.7x. We will review our valuation parameters once GDO’s uranium strategy becomes firmer.

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