JOHANNESBURG (Business Day) -- The fourth-largest gold producer in SA, DRDGOLD, confirmed at the weekend that it would be defending a class action suit in the US that alleges it failed to fully inform investors of the problems it was having with its North West operations.
The mines were put into provisional liquidation in March after several quarters of loss making and an earthquake, which damaged infrastructure.
When DRDGOLD published its results for the December quarter, it revealed that its auditors had been concerned that the two mines in question, which are near Klerksdorp, might not be able to remain in operation.
The company said the class action alleged that DRDGOLD had made "certain false and misleading statements between October 23 2003 and February 24 2005".
An initial suit was filed on June 13 and has been followed by two further suits. DRDGOLD said it expected to face three or more class action lawsuits that are likely to be consolidated and would proceed as a single case. The lawsuit was filed in the US District Court for the Southern District of New York against DRDGOLD CE Mark Wellesley-Wood, finance director Ian Murray and the company itself.
DRDGOLD said that it denied the claims and believed the suits to be entirely without merit and intended to "vigorously defend against the allegations of the lawsuits".
Wellesley-Wood said that in his understanding, class actions "are not claimant-led. These are contingency fee lawyers, who work on a success basis". He said the legal case would provide work for "a gaggle of lawyers" as more and more people sought a piece of the action. He stressed that as the class action's period ended in February "there is no link to the liquidation of March 23".
"They say that between October 2003 and our results announcement on February 24, Ian Murray and I lied about the situation at North West, and we vigorously deny that," he said.
An analyst said that DRDGOLD would be likely to defend itself by pointing out that the fortunes of its South African operations were strongly dependent on the strength of the rand, and it was well reported that the strong currency was having a devastating effect on marginal gold miners. DRDGOLD has positioned itself in SA as a marginal miner, and has made an investment case on that basis.
If there is a fall in the value of the rand, the company's profitability could be expected to surge. Wellesley-Wood said the more recent value of gold of R95000/kg meant profits had improved.
Meanwhile, the growing dispute that arose after the liquidation of DRDGOLD's North West operations continues to fester.
After the liquidation, the water affairs department ordered four companies mining in the Klerksdorp gold mining area to begin pumping excess water out of the remaining mines so as to avert an environmental disaster.
While AngloGold, Harmony and DRDGOLD complied, Stilfontein did not. The dispute turned nasty when the entire Stilfontein board, headed by Brett and Roger Kebble, resigned two weeks ago.
The department began arguing in the Johannesburg High Court last week that the former Stilfontein directors should be held in contempt of court for not following the regulation.
