DRDGOLD Ltd (DRD) 2005 Q2 法說會逐字稿

Good afternoon and welcome to the DRDGOLD conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask your questions at the end of today's presentation. (OPERATOR INSTRUCTIONS) Please note that this conference is being recorded. At this time, I would like to turn the conference over to Mark Wellesley-Wood. Please go ahead, sir.

Good morning and welcome to the DRDGOLD conference call covering our financial results for the six months to 31st of December. I have with me Mr. John Sayers, our Chief Financial Officer, and Mr. Ilja Graulich, our Strategic Development Officer. We will be taking the call between us.

I will follow approximately the presentation which is available on our website and be referring to the slides as we go through this. I would now like to ask John to introduce the results. Then the rest of us will contribute to the rest of the presentation. So John, over to you.

Thanks, Mark. Good morning, everybody. Firstly just to touch on the key features of the six months, the Emperor consolidation has been approved by all shareholders, and that will then give us, when final, 88% of Emperor; and will bring at least US$30 million cash into DRDGOLD.

We also have firmly established our presence in the BEE company with the formation of DRD SA with Khumo Gold. We matched the SA Mining Charter requirements; they have 15%, and we have 85% of DRD SA at the moment; but they have the right to go to 26.

As far as our cash operating costs are concerned, they were steady at US$375 an ounce. Net operating profit was up 6%. Our cash margin was 16%.

We have obtained new order prospecting rights for Argonaut and Sallies. Those two together we think will bring about 11 million ounces of resources to us. I think that Mark will touch on the later on in the presentation.

If we then go to the accounting policies adopted, we have now adopted IFRS. The interims were prepared on the basis of IFRS. At the moment this is the high standard of consistent global accounting. The interims meet the best practice for disclosure of information.

The net effect of the adoption by IFRS has been minimal. Obviously the policies and the numbers have been discussed fully discussed with KPMG, our auditors. But I would just caution investors that IFRS is a continuing; there are still standards to come which may result in further accounting policy changes and further possible restatements.

On top of that, the IFRS U.S. conversions exercise also affects best practice in some areas. So I think this will be an ongoing change in the numbers periodically. That is why we have adopted the fullest possible disclosure in the interim results which we (technical difficulty).

Finally from my side, discussion on the Group structure following the Emperor deal. DRDGOLD Limited will have 85% of DRDGOLD South African Operations; Khumo Gold will have 15%. DRDGOLD will own 100% of Blyvoor, Crown Surface, and ERPN. Please note that for this interim period, DRDGOLD SA only earned 100% of Crown and ERPM from the first of December 2005.

DRDGOLD has 100% of DRDGOLD Limited Offshore, domiciled in the Isle of Man. Following completion of the Emperor deal, DRDGOLD will have 88%, and there will be 12% minorities. Emperor is listed on the ASX. It will then own 20% of Porgera, 100% of Talukuma, 100% of Vatukoula, and will be driving regional exploration in PNG and Fiji, where combined we have 9.5 thousand kilometers -- square kilometers to explore.

With that, I will hand over to Ilja who will pick up on the operational (inaudible).

Thanks, John. Good morning, everyone. As usual with our interim and final numbers, we give you a brief operational overview, and splitting it into Australia and South Africa.

On the Australasian side, Porgera's numbers were okay but nothing exciting. But I guess these numbers were to be expected in the market, given that Porgera announced some six months ago already that they were looking at implementing a wastewater remediation. They have started that program. That is going quite nicely. But that is obviously having an effect on the open pit. As a 20% minority shareholder, there's obviously very little we can do.

But we are still very excited about Porgera. The reason we are excited is that you would have seen in Monday's results or Placer's last results, they announced that Porgera -- or their share of Porgera, i.e., 75% -- they have had increase in reserves of 1.3 million ounces. Obviously that is just their share; you can work through what our potential increase in reserves would be with regards to Porgera.

And that is certainly something that we have always indicated we were excited about, is the potential for reserve increase at Porgera. Mark will talk to you a little bit more about that later.

Tolukuma had a steady quarter. Tolukuma was affected by what we call the La Nina effect; basically a lot of water hitting that area. Those of you who would have seen the news lately, you would've seen that the Philippines have been hit by mudslides. These are events that are premised by or the result of the high rainfall in those regions.

Emperor, I will leave that pretty short, because Mark has got quite significant detail on Emperor and where we see the future of that mine on its own.

In South Africa, Blyvoor, I think that was well signaled to the market that costs would be slightly up, given that we had to withdraw some of the crews from the higher areas or higher grade areas at the mine due to safety and increased seismicity. We are well on track of achieving our target of 70,000 tons per month at that mine. We are currently just shy of 60 and we should hit that target by September.

Crown continues to be the top performer in the Group. You'll see later on that the surface operations including Crown is a very strategic direction that we have taken. We are looking at acquiring more assets for our surface operations.

In ERPM, again, Mark will talk to that. ERPM, the exciting part is not what happened in the last quarter or the last six months. ERPM has just been granted the Sallies rights, which we are going to call ERPM extension, to the east of the mine, which could increase the life of the mine to 20 years.

Just a little bit about the strategy of the business that we're looking at. You would've seen from the Group's structure that we have basically four distinct companies. One is DRDGOLD Limited, or DROOY for the U.S. shareholders, the listed vehicle. That company has various stakes in three underlying businesses.

One, a South African company, which is as John mentioned fully BEE equity compliant. That business is looking to grow into Africa or looking at acquiring potentially more assets in South Africa, specifically on the surface side.

We DRD Isle of Man. It is an Isle of Man registered company of which DRDGOLD owns 100%. So that company has its own strategy.

Then I guess Emperor is pursuing its own strategy.

But just to follow on, on what South Africa is looking at doing, the most important part is that we need to protect our gold reserves. I think the commentary from analysts and investment community and any commentator on the gold market have been talking about the fact that it is there is a need to preserve your assets in the ground.

That Barrick-Placer merger took place in order to make up for the ounces that these companies are losing, as it becomes more and more difficult finding reserves in the global environment. I think we are all aware of why there is such a reserve shortage.

South Africa, we are going to continue with the on-line development and infrastructure replacement in order to ensure that our reserves are supported by this infrastructure. We are going to increase surface production in our operations.

Top Star has been announced; we are looking at finalizing that deal. Top Star is a great little asset. We could add some 4,000 ounces a month from Top Star at very nice grades.

Cost increase is something that is affecting the business quite extensively. We are looking at containing these, whether it is on the microlevel at the operations through business improvement strategies, i.e. using better explosives, using explosives more sparingly, and (technical difficulty) mining better; right down to much bigger articles such as challenging some of our suppliers such Iscor as on the steel prices.

And then, yes, we're looking into increasing our gold resources into the future because that is the beginning of your pipeline, which will hopefully be converted into reserves. With that, we did announce today that we have increased our resource by 11 million ounces. This is a significant increase. This is one-third of the ounces in South Africa that we showed in our June reserve base. So this is quite a significant amount of ounces.

As previously indicated we're looking at moving into Africa. It has been a hard slog. We have put in some offers, so we are waiting to hear back on how that is going. I think we have some very nice ideas how we can grow into that region.

New Emperor, obviously, is a completely different company having just acquired two major assets in Papua New Guinea. The most important part about Emperor is, A, it wants to -- the business needs to be de-risked. Secondly, it is a company that is going to focus on epithermal deposits. Epithermal deposits are very high-grade deposits. These are not big volume mines, but very high, grade, low volume mines. That's, we believe, a specialty that Emperor can pursue specifically in the Pacific Rim of Fire.

However, the New Emperor will need to deal with high energy costs. With that in mind we are installing a new hydro at Tolukuma. We are looking at what we call a biofuels plant in Fiji that could replace some of the energy costs that we are currently suffering on the back of high oil prices. The biofuels plant is quite an asset there as it takes into account environmentally-friendly policies including Kyoto Protocols and carbon credits etc. etc. So that that could be quite a nice little project.

Secondly we're looking at opening up reserves at both Tolukuma and Vatukoula. Mark will talk to you specifically about Vatukoula. But Tolukuma continues to impress. Obviously our reserve numbers are only out in June; but we're quite comfortable with the way this mine is going and hopefully will show increase in reserves yet again for another -- for a sixth year running at Tolukuma come June year-end.

We are busy with that bottom access that we have addressed in the past at Tolukuma. That is costing some $6 million. At first we thought we would just pump the water out through the bottom; but it's now becoming a much bigger exit tunnel that we are looking at, due to allowing for mining?

Then Philip Shaft at Vatukoula is looking for infrastructure upgrades. Philip Shaft is where we believe the pot of gold is at Emperor. We are spending quite a bit of time and management time and money on Philip Shaft.

Exciting for us at Emperor is that our suppliers are working with us and we have a fleet management program in place that encompasses all our fleet, a continuous renewal program at Emperor. Which those of you who follow mining closely will obviously understand, that it's very important to have continuous operations at these mines. Downtimes cost a lot of money at these mines. So with a proper fleet that we hope to (indiscernible) the downtime to the minimum.

Then something that we have spoken about in the past, but that is a much bigger focus now, now that we understand the mines that we operate in Australasia a little bit better. We have brought in two new geologists, one very senior guy from Rio Tinto, who are looking at these exploration programs that we're undertaking. We've got the Tuvatu project in Fiji, which we were looking at selling but have now taken back; the Basala project which Mark will refer to; and we have identified 10 targets in Papua New Guinea that we're moving up the value curve and hopefully find some more answers in those regions.

If you do have the presentation in front of you, we just referred to the new Emperor production profile. It's about 375,000 ounces on the June numbers. So Emperor is a significant producer in itself. The increase in reserves for new Emperor is threefold; we've moved up to about 2.2 million ounces reserves there. Obviously with the Porgera upgrade that could add another 10% to Emperor.

But the exciting part at Emperor remains the resource profile that is sitting at about 7.6 million ounces, of which Vatukoula make up nearly 5 million ounces. That is the opportunity that we have at Vatukoula, and hopefully we can turn those resources into reserves in the coming months and years ahead.

We just, for information's sake, ranked Emperor compared to Australian and ASX listed peers. It is the third biggest producer on the ASX. However, more importantly, it is one of the few companies that is diversified in terms of mines. The biggest play in Australia is Newcrest; it is reliant on one mine, Telfer. Lihir is a single mine operation, Emperor.

[Bonini] has a number of mines, but it's spread across two different countries, so you have all the geopolitical issues and [lesson and de-risk]. So I think Emperor in itself is a much more stable company into the future; and that is the premise that this company is going to be growing on.

With that in mind and sort of just presenting the picture, I will hand over to Mark who will give you some more insight into the operations in Australasia.

Okay, thank you, Ilja. Turning to our Australasian overview, we have already mentioned Porgera, where gold production during the half-year was down 17%. This was in line with the West Wall remediation program which Placer has in place, and at this moment in time that program is 26% complete.

Because Placer was on a December year-end, their reserve statement for Porgera came out this week. It shows for our attributable share of the Porgera project an 11% increase in our attributable reserves, or 344,000 ounces. So our reserves at Porgera have gone up from 1.46 million attributable to 1.62.

I think what is important about this, beyond the obvious, the ability to increase reserves over and above your depletion rate, is that 50% of this increase arises as the result of underground drilling. Now, it is that underground higher grade feed that blends in with the open pit material and which will enable Porgera to enjoy a longer mine life.

So under the current 8 million ounce total mine plan, Porgera's mine life is at least 10 years. Many of you will remember when we bought our stake in Porgera some three years ago, but then it only had a life of eight. So this Porgera asset is still a growing asset, and therefore its value contribution to the Group is still capable of expanding from here.

At our Tolukuma mine in Papua New Guinea, Ilja touched on the La Nina effect. High rainfall or unseasonal rainfall has been a feature across the region. It is also a subsidiary reason why the West Wall at Porgera needs to be cut back. It is to do with water and slope stability.

At Tolukuma the immediate impact from this is actually on pumps and pumping costs as well as land instability. This is why the program to put in the bottom access, that will shoot all the ore out the bottom of the mountain together with all the water, is so critically important to both lowering the costs and expanding the reserves at Tolukuma.

We're not announcing reserves and resources at this point in time. But is the case that on the current information, we can be reasonably confident that both reserves and resources at Tolukuma will expand beyond the depletion rate this year.

With all of the geological work and studies that we have done at Tolukuma, I am pleased to announce the Oscar -- Tolukuma has got to the Top 30 of world epithermal ore bodies, and that is just based on current known structure. So there is still a lot of growth still in this asset, we believe.

Turning to Emperor on Fiji, we are looking at a new approach at Emperor. There is really one based on the assessment in our investigation work that we initiated when we took over control of the operation, as opposed to the company. But we had operational control back in June.

Since then, we have been doing in-depth geological reinterpretation, and looking at all the projects that comprised the previous management's Phase II program. Critical to this is accessing the higher grades around the Philip Shaft area in the southwest area of the ore body. This resource is now indicating some 1,300 million tons at 21 grams a ton, for nearly 1 million ounces of gold contained. It is the driver to access this higher grade material which supports our infrastructure plan to improve access to that area through Philip Shaft.

Now the next two or three slides in the presentation are probably quite difficult to discuss over a conference call. I will just try and give an overview, and those of you that are looking at this on the website can look at the pages. But obviously I don't have any means of pointing to you, so I will just give you an overview.

Firstly, the area of northern Fiji lies in that Rim of Fire belt denoted by the plate movements between the Indo-Australian plate and the Pacific plate, and is therefore the boundary for major epithermal gold deposits, just as the boundary exists in Papua New Guinea.

Vatukoula itself is a very large collapsed caldera structure. It is a form of volcano, hence its epithermal origins. As an ore body it is either mined or has identified gold resources of nearly 8 million ounces. That is from recorded production and stated resources.

So is quite legitimate for us to go back and re-examine the oregenesis, the gold flows, the mineralization trends, etc. In the first slide you can see the effects of the airborne low-frequency mags that have been flown over the Vatukoula caldera, showing a zone of deep demagnetization. Or in other words a feeder source into the various ore bodies that are comprise the Vatukoula ore body.

It is now the case that this -- it is now identified that this feeder source sits approximately below Philip Shaft. It spreads out along the rim of the caldera, tending towards the northeast, to where the Smith Shaft is located.

If you look at the cross-section for the Philip Shaft targets, you will see that Philip Shaft sits immediately above the Basala structure and has hanging wall and footwall repeat structures. It has been part of the infrastructure and capital expenditure to clear out Philip Shaft, re-equip it, put in proper pumping system, hot water controls, environment, ventilation.

In doing this we have now gained access to these new hanging wall structures and, indeed, have now been able to get drill platforms to test the Basala structure and the first of these footwall repeats. Recent intersections have already shown that grades in those first two footwall repeats of the Prince William and the Prince structure have intercepts over 35 centimeters at grades in excess of 30 grams a ton.

Now the inferred resource for that immediately is nearly some 30,000 ounces of gold to the resource account. But as we drill and understand this structure more clearly, we are becoming more confident that we have a higher grade reserve; and the feeder structure in the gold pot is set immediately below Philip Shaft.

Turning to the third slide in this sequence, it is now clear that a lot of the previous management's work in terms of Smith Shaft and going to the Northeast was clearly going in the wrong direction, as indicated by the mobilization flows.

You can see from the caldera edge there that around the contact grades, running between 88 grams a ton and 217 grams a ton; substantiate that with the underground drilling program; substantiate that with the work that is happening in developing around Philip Shaft; and that whole Basala prospect area is now offering the potential to double the reserves of Vatukoula at double the grade.

So the emphasis at the moment is on these infrastructural programs, on this drilling program, and moving crews [onto] the lower grade [Patia] Smith Shaft areas and into the higher grade zones of Philip Shaft. This really will form the core of our strategic plan now for the Vatukoula mine.

Turning back to South Africa for a moment, our gold production from DRD SA rose by 11% in the six-month period. Some of that obviously is due to having higher equity proportions in some of the subsidiaries, as John alluded to. That is the 100% of ERPM and Crown.

But I think there are some important operational trends we need to understand. Firstly now is the preponderance of lower-cost surface operations. Reclamation through the Blyvoor Slimes Dam project, through the Cason project with Crown Surface. Half our production now comes from lower risk sources.

We announced to the market and indeed at Blyvoor we have been active in changing the mining mix. We have moved out of some higher grade highly -- high site (technical difficulty) areas around the B 5a section, and are now targeting 70,000 tons a month by September. Ilja has already alluded to it; we are achieving just shy of 60,000 tons a month as it is at a grade of about 4.8 grams a ton.

So it's a lower-cost, higher volume plan. But it is supported by the surface sources both in terms of the rock dump and in terms of the Slimes.

ERPM is having a very interesting time. Out on the eastern mining areas where our longwalls are approaching the boundary with the Sallies or ERPM extension area, grades are now averaging about 20 grams a ton. This augers extremely propitiously for going through the boundary and getting into the prospecting areas of Sallies, which I will talk about in little bit more detail in a minute.

Meanwhile, the Crown's role in the Group for the last six months was really as a consistent cash generator. The business has been stabilized very nicely and is continuing to build up its strategic position in the East Rand, now that Anglogold Ashanti has closed the Ergo plant.

Moving on to the Sallies prospecting rights in more detail, we have secured a very large block of land, 1,250 hectares. This is now possible under South Africa's new mining dispensation, where we are the neighboring mine and under the use-it-or-lose-it we have the right to claim that from the government for no cost. Because we are pretty well at the boundary with those eastern longwalls, excess tunnels can be driven immediately through the boundary. Indeed it is planned to mine as much of this extension area as we can from existing infrastructure. So the effect of this route will be to extend ERPM's mine life to 20 years.

There is a very complicated section on the website. I'm not going to do through this in detail. (indiscernible) to say the large orange area represents the prospecting permit, 1,250 hectares; and the pink blobs in the middle represent our current infrastructure at the [V] shaft below 72 level. You can obviously see that it is a very easy matter for us to mine through on those contours and develop infrastructure into this new area.

Turning now to our exploration overall, I think you will have all already gained an impression that there has been an awful lot of geology and reinterpretation going on in the Group. This is really reflecting the industry's drive to not only preserve reserves but increase resources and to bring new gold to account.

We have now looked methodically at all our operations and all the opportunities where we can actually find more cheap gold. At Tolukuma, our historical reserve finding cost is $15 per ounce. I think in my descriptions of some of the other programs, I think that on brownfield expansions we are able to bring more gold at this kind of cost into the Group.

Specifically, though, in Australasia we do have budgets now to target areas of our PNG exploration tenement. A lot of work has been done with satellite imagery, airborne, on the ground identification. Now we have at least 10 targets. Of these about four are in the Tolukuma corridor to the south of the Owen Stanley Range. Three or four of these are also major copper gold porphyry systems. Then the balance are on the northern side of the ranges, where we will probably be seeking joint venture partners to bring those properties to account.

But back to Fiji, one of the advantages of the Emperor acquisition is that the geology of Fiji has been very poorly explored, and indeed the previous management of Emperor spent nothing on exploration for the last five years. So we have brought the Tuvatu project. Tuvatu, just to sort of reference it, is another caldera structure of almost equal footprint to the Vatukoula structure. Although it carries a minimum resource, we believe that there is now potential for a small high-grade open cut; and we will be looking into that in the next couple of months.

Then of course there is the major opportunity of this Basala area, which is testing that main feeder structure into the Vatukoula Goldfield.

We will also be exploring further in South Africa. We have got the Argonaut prospecting permanent back into the Group. There will be a hole which will be sunk to test that with its deflections in the very near future.

So really, looking across the Group, the conclusion is that there is still massive potential in our portfolio for further conversion of resources into profitable reserves.

Moving on, our strategy of developing lower-cost production in South Africa has borne further fruit. Both our projects, Blyvoor and Cason, have over the last two years added significant production to the Group. They've been instrumental not only in reducing our cost but lowering our risk. We are now going to add Top Star to this portfolio. Top Star will be capable of delivering 4,200 ounces of gold per month.

Turning to our costs overall, the first slide in this sequence of cost measures shows the impact that the West Wall and Porgera's lower production have had on the Group. The principal source of cost increases over the last 18 months has really been attributable to (technical difficulty) Porgera and to the other Australasian operations, to the increase in the price of diesel and oil. Within South Africa, the trend has been somewhat erratic, but at least steadier.

As it is a Group as a whole, we have been able by strategic initiatives to actually contain our overall dollar per ounce cost.

Looking at this against our peer group, you can see that we overtook Harmony back in March '04; and we have been able to stay beneath them primarily because of our better diversification. Equally one of the other South African groups have been suffering slightly higher rates of cost increases. The DRD cost containment has been of some benefit to us over the last 18 months.

How does that look against our margin? Our gross margin for this period actually reduced slightly; slightly below our 20% target at 16. We have had better quarters. But overall, our results continue to show that we can deliver gold profitably and generate cash.

At the moment, most of that cash is being reinvested in the business. But our margins do enable us to support our business, to develop our strategic programs, and to obviously make the essential capital investments we need to sustain our gold production.

So with that concluded, I would like now to invite Ilja to go through the market position of DRDGOLD, as the market has been seeing us over the last six months. Ilja?

Thanks, Mark. The first slide that I pulled out is just a comparison of us against the other 80-odd companies globally listed in the United States, whether this is on NASDAQ or the NYSE. You can see that we were seventh highest traded ADR in the world. There are some very big companies, very big names to the left and to the right of us, quite a few of them to the right.

We believe this is a significant asset that we have. We have a very loyal retail shareholder base comprising some 60% of our shares. We have a diversified institutional shareholder base with some 120 institutions the last time I checked, who own the remaining 40%, spread globally.

The volume that we trade is certainly something that we will continue working hard. We believe the volume is very good for the Company. Like I said, this is an asset that we would like to keep going forward.

Just on the share side, I have just drawn for six months relative of the period under review. I think there's two important points to point out in this, is following the Northwest situation at the beginning of last year and the cause of the Company's going into liquidation, and also some other issues that we were facing, there was significant pressure on the share price. It took a lot of talking and a lot of flying around the world to speak to our shareholders.

A lot of new shareholders came in, believing in the story, believing that we could manage the turnaround, believing that we could manage the Northwest situation. In August when we announced very keen results, and when we announced that the Northwest situation was gone forever and that there were no legacy costs, you can see that the share price reacted quite strongly.

This reaction came in line with the movement in the U.S. dollar gold price upwards. You have seen a strong movement since then. Obviously we have had some pullbacks over the last couple of weeks which has affected the share price. But we are certainly in a much nicer range now than where we were about six or seven months ago, when the market really didn't believe us anymore. Those shareholders who stuck by us, I think we thank those.

Just sort of ending with the positioning of the Company, I know the South African gold industry has been plagued by a huge amount of problems and not least of all the strong rand which is having a major effect on the companies.

But we are still positioned in a major geological address called the Witwatersrand Basin, which has produced about one-third of the world's gold. We have a significant land position in here, making up some 4.5 million ounces in reserves and some 40 million ounces in resource. We believe this is something that we will continue to preserve and continue to look after, as this is a very important part of our business.

At the same time in Australasia, as I have mentioned before, we will focus on epithermal ore bodies. We have a significantly land position there already with 9.5 thousand square kilometers of tenement in PNG and Fiji. If you want this differently, we actually own 3% of the country; that is how much land we have. As Mark explained, that is land that we are exploring.

Those of you who believe in a declining U.S. dollar currency, obviously there is a significant [gradual] proportion of U.S. dollar costs in these regions, which means that that should be helpful to our margins. As we have mentioned these are high-grade ore bodies so that is a very nice region to be in for the future.

So in summary, the restructuring is complete. We've had overwhelming support for that strategy, to look at creating a self-standing entity in Australasia. We are expanding our resource base. Mark might have mentioned we have got project [Hot Steel RE] showing the resources of steel and drilling property. That is something that we would like to firm up over the next 12 months.

It is not something that happens overnight. I think that is pretty much known by the market. But we are willing to put money into the answers, because we still believe these are some of the cheapest answers one can acquire.

We have obviously had a very nice increase in market cap over the last 12 months, following the tough times we went through at the beginning of last year. We are quite comfortable to say that we're positioned for growth, both in Australasia and in South Africa.

We have shown you what we believe are exciting projects. It is now up to us over the next couple of months to bring these projects to bear fruit. So with that in mind, I will hand over two questions. John, Mark, and I are willing to take any questions from the audience.

(OPERATOR INSTRUCTIONS) Heather Douglas of BMO Nesbitt Burns.

I have a couple questions, a couple of small ones, one larger one. You went over your strategy for Emperor in the slides about the Basala. The Basala. I found it was a lot to absorb. Can you maybe give a couple more details?

And focusing on where you think you have said that the phase II that the previous management had planned has not been really working, do you think you will achieve the production levels they had proposed?

How much CapEx did you spend this last half? How much CapEx do you spending for the next couple of years? Do you see costs coming down? They were over $500. Where do you think a steady-state level of production and costs might be?

(inaudible) You just asked me for the entire business plan in question. Let me try and be brief. With the benefit of hindsight, Smith Shaft and Cagi Vou ventilation shaft are in the wrong place.

With the benefit of hindsight, it was pretty clear that that mineralization was getting weak, thin, pay chutes variable, [ash bangs] that made it hard to mine. In other words, they were beating their brains out going in the wrong direction.

Fortunately, we have concentrated on Philip Shaft, as the previous management didn't do. Philip Shaft was in a great state of disrepair, so they were having to fix it. We fixed a lot of it. We put in the hot water pumping system, we put in new guys, new cage, new ventilation.

And we are winning. We are dropping the hot water levels. We have got the ventilation back under control. We have got our drilling platforms up. And we are hitting these super high grades, which is spurring us on and telling us that we're going in the right direction.

The downside is, yes, there is 8 million CapEx here in the forecast, which is why we are telling you about it. I did tell the market about it in the Emperor results. It should not be new news.

What I think is the good news is that the pot of gold sits right under the hot water. God was obviously having a joke with us. Once we have actually got the pumping right and the access right, the grades are going to be fantastically better than before.

So to answer your question, then, of what is the production level, let me reiterate. This is not going to be a volume mine; this is going to be a value mine. At those high grades even Blind Freddy can make money. How much would you like us to make?

I assume that was rhetorical.

Yes. Until we have actually got that full Basala prospect drilled out, we are now talking about ore reserve grades of 21 grams a ton. That is double; and that is all accessible through a single [salve] system. (multiple speakers) So the costs will drop away dramatically.

What is the capacity of Phillips?

1,000 tons a day currently.

Sorry. How many tons per day?

1,000.

1,000? Sorry.

Now obviously, yes, there will be questions about whether -- I think with the upgrade of the winder we could probably get to 2 to 2.5 thousand tons a day. But then we may have to way that out, depending on exactly how Basala pans out with a completely new access route.

But as I said, at those high-grade I don't think this -- justifying the capital is probably the least of my concerns.

I am going to take advantage and ask a second question. What are your plans for your convertible debt at this point?

Okay, John and Ilja can step up to the plate. Perhaps John will start.

Yes, Heather, at the moment, we're planning to roll the convertible debt under its 3/9 exemption. That involves offering effectively to your existing bondholders, but not to new bondholders.

We had indications that a rollover of a substantial portion will be interesting. In fact, 60% of the bonds [that we have] to holders. So Ilja will be over in the States talking to the bondholders -- next week, Ilja? -- with some outline terms before we formalize the entire process.

However, Heather, we have looked at it on the most pessimistic basis going through to December '06, which is not rolling the convertibles. We have with our existing facilities and the free cash flow that comes up from the Emperor due, which will be at least US$30 million, we have more than adequate funds excluding the use of equity to repay those bonds should we have to.

But at the moment, our plan is to roll them over. Our advisors indicate that in a program like this it is normal for 80% of the bonds to be rolled over.

Okay, thank you.

(OPERATOR INSTRUCTIONS) [Stephen Roman], private investor.

My question deals with the restructuring and the several entities that are under DRDGOLD now. When that restructuring takes place, how does it affect the private investor on the type of equity ownership they will have in those other units?

It's Ilja. The effect is minimal, I guess, on a DROOY shareholder. Let me start at the top, at DRDGOLD Limited. All we have done is grouped our Australasia assets into a single entity that is listed on the ASX of which we still own 88%.

Obviously, that company now has access to its own capital through an ASX listing. DRDGOLD Limited, the company, will look at diluting its stock in Emperor, should Emperor come up with a value proposition, i.e. through an acquisition or similar, that would dilute us down but obviously create value for the top vehicle.

The DRDGOLD South African company is unlisted. However that company is fully compliant with the BEE equity side of the new mining dispensation in South Africa.

So it's pretty much business as usable for the top shareholder. Just that the upside for Emperor is that they are able to tap into the Australian market, whether that is debt or equity, in terms of raising money.

The reason why I asked the question was approximately a year ago I remember an article that Mark had given an interview that he had given to mind Mineweb about unlocking the value of the various assets, South Africa and the Australian and New Guinea assets. Has that changed from the game plan a year ago? Or is that pretty much still the plan?

This structure is designed specifically to do that. Because now all our Australian assets are grouped in a single listed entity, that has a share price. It is now possible for the market under valuation transparency to ascribe the value to Emperor, because that will be traded into the market; and therefore, impute by difference the value of the South African assets.

In addition, there is an uplift in value because the Australian market will value the reserves of Emperor and our PNG reserves at a higher multiple than the South African market will value South African reserves.

So if I can sort of try and give you an estimate, the reserves that have just gone into Emperor, the 2.2 million ounces, if they were on a South African valuation basis, the market would ascribe a value of let's say $75 an ounce; and the Australian market might ascribe $150.

So you have doubled your valuation and you have improved your valuation transparency. So (indiscernible) reason, what I spoke (technical difficulty) talking about a year ago, we have now done, delivered on, and hopefully that will improve market efficiency, lower our cost of capital, and spur resulting growth and growth for the future.

Very good, thank you.

(OPERATOR INSTRUCTIONS) Heather Douglas, BMO Nesbitt Burns.

I might as well ask my question on accounting on the line. I assume going forward you're going to be consolidating DRD SA and the Emperor results. Is that true?

Yes, that is correct, Heather.

Then this current half, you only started consolidating starting in December; so it's very hard to unpack.

But that is (inaudible).

Our question is about the loss from associates, it was nearly 80 million Rand. Can you -- was there in impairment or is there extra charges in there?

No, no; is no extra charges. That is all Emperor, which was accounted for as an associate and will be until the deal is finalized and we own more than 50%.

Okay, when do you expect to close the Emperor deal, restructuring?

I think March, early April.

Yes, shareholders have voted for, as we have said, Heather. The financial close will be during mid to end of March. We had a few regulatory consents still to come through, Papua New Guinea and Central Bank, for example. Then it's just the term sheets finalization.

So it will go through. Shareholders have voted for it now. So it will be by the end of March.

There is also an impairment -- it looks like an impairment reversal. What is that for?

Heather, can I give you the makeup of that?

Yes, please.

We impaired an IDC loan as part of the KBH deal; and that was 28.9 impairment. We reversed the impairment (technical difficulty) the KBH 2% repaid us as part of the deal; that was 5.3 reversal.

We reversed an impairment on the Emperor investment, because the share price moved up very strongly once the merger was announced. That was 75.8 million Rand; and that reversal was to $0.30 per share. Emperor is currently trading at $0.38 per share.

If you add those up, you come to exactly the 52.2. So the bulk is the Emperor write-off reversal.

Okay, good. Thank you.

Gentlemen, we have no further questions. Would you like to make some closing comments?

Yes, thank you all for joining us on this call. I think that you can -- I think the overall compression I would like to leave with you is that the Group is in a much more stable condition than 12 months ago. That strategically we have repositioned in the way that we had indicated that we would; and this is receiving strong support from all external parties.

And that within the business, not only are we able to take advantage of growth opportunities as they come to us, but we are creating value both within our capital programs and with our front-end resource drilling strategies. So we are sure that we can continue to push forward from here.

So on behalf of the team here in Johannesburg, I would like to thank you for your attention. I very much look forward to updating you on further progress when we next meet.

Thank you very much, sir. On behalf of DRDGOLD, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.