DRDGOLD Ltd (DRD) 2009 Q2 法說會逐字稿

Good afternoon and welcome to the DRDGOLD conference call. (Operator Instructions) At this time, I'd like to turn the conference over to Niel Pretorius. Please go ahead, sir.

Thank you very much. Good afternoon and it's really good to hear that we have some familiar participants in our conference call. So welcome to you all again. I want you to, after you've had a look at our disclaimer, please click forward to the third slide, key features. You will see that thanks to a very good gold price we saw a 65% increase in operating profit this quarter and also a 30% headline earnings per share.

The production was down by 15% and we'll go through that in greater detail later on during this presentation. But while costs per unit were up, actual costs went down by 2%. And we could spend a little bit less in producing the gold that we did. We were very fortunate in also acquiring the remaining 35% of Ergo, which means that the entire gold circuit with a lot of production of 12 years now belongs to the DRDGOLD crew.

The first phase of this project has been commissioned and we believe we would be able to commission the second phase towards May of this year with full production during June and July. ERPM, the mine which we had to suspend after [the turn piece] in our pumping chamber resulting in suspension of pumping operations in the [demoting] of the mine. That suspension continues and we have retrenched the entire labor force of European with only 150 employees remaining for maintenance services and for care and maintenance services. In our numbers for the quarter, the entire retrenchment provision has been brought in against [income].

Operational review for the quarter, if you would move onto the next slide. Blyvoor, you would see that thanks to a very good boost in production from the surface circuit managed to produced slightly more and also a favorable rate of $590 per ounce. It's the tendency early in the quarter and then also the Christmas break towards the end of the quarter, caused its underground production to suffer somewhat. Had a very good November [due] to our underground producer at [$650] an ounce during November. But the beginning of the quarter coupled towards the end of the quarter made its numbers suffer.

Crown only managed to get the Top Star circuit up and running. There was a four-week switchover gap which had an impact on volume, which I can also talk to you a little bit more when I do the Crown slide. But it did come in at $575 per fine ounce. We saw a reduction of roughly 6,000 ounces in Crown's production, quarter on quarter. We are of the view though that this is due to an event and not indicative of a new trend. And I'll take you through some further details once I deal with Crown.

ERPM, you see the costs went up quite significantly and this is obviously as a result of the suspension of underground workings and the 5,000 ounce drop in production from ERPM. The ERPM underground is unlikely to recommence production for the foreseeable future. I'll talk about the future of ERPM further down.

Ergo didn't see any production. You will, however, see ERPM's underground costs, an increase in those costs and that is because of the initial commission of the Ergo circuit were the costs associated with that commissioning were recognized as ERPM surface costs because the assets, which are going to be treated at Ergo, surface assets, situated on the European footprint. As one commission is on track, the assumptions, the project assumptions which accompanied this investment are all panning out and we are confident that we are heading and will soon get to the operating targets of the circuit.

Average production costs for the quarter, $654. It is an indication, as I said earlier, probably of certain events as opposed to the two capacity reassets and the Crown surface circuit in particular had a very poor December, which have come right to bottom line and certainly not consistent with the trends that we've seen since December and after the Top Star circuit came online.

I'd ask you to click onto the next slide and ask Craig Barnes, CFO, to take you through the financial review and the balance sheet.

Good afternoon, ladies and gentlemen, and just on the income statement, first of all, you'll see that our revenue for the quarter has basically remained unchanged on the previous quarter. Even though production was down 15% due to the suspension of operations that [happened] in this quarter and also due to reduction of volumes at Crown, this production reduction was offset by a -- basically higher rand gold price, which is why our revenue remained unchanged.

Now operating -- our cash operating costs, as Niel mentioned, were down 2% and that was also the result of the suspension of operations at ERPM. We've also seen now, in this last quarter, a reduction in commodity prices, especially in steel prices. And this resulted in an operating profit of ZAR94.3 million, which is 65% up from the previous quarter. The investment income line contains mainly the interest received on our cash holdings. The payment that we showing for quarter related to the small amount of CapEx that was spent at ERPM during the quarter, which was in place. These financial liabilities relates to an adjustment to the preference share liability held by -- or liabilities held by our [black empowerment] partners. And included in the other costs line is our entrenchment costs of approximately ZAR34 million, mainly relating to ERPM.

That resulted in a profit before tax of ZAR63 million compared to a cover of ZAR5.5 million in the previous quarter and a net profit of ZAR33.4 million compared to a loss of ZAR8.8 million in the previous quarter. Over to the balance sheet slide, you can see that still maintained quite a strong balance sheet with cash of approximately ZAR609 million. And this has given us the acceleration of capital that went into Ergo in the last quarter.

Not only capital, but also cash for a portion of the acquisitions that we made with regard to the Elsburg joint venture and also the payments of a dividend. And our balance sheet contains, a small amount which is owed to AngloGold Ashanti relating to the acquisition of the effort for Ergo. That's approximately ZAR20 million. Other than that, we have not interest-bearing borrowing and we still have quite a strong or healthy current ratio. Now to Niel for the rest of the slide.

Thank you, Craig. If you'll go to slide number seven, please. This sets out the key performance features of Blyvoor for the quarter. The kick-in production is a result of many of the shippers contribution or contribution made by the circuit. A very handsome rise in cash operating profit. It could have been considerably better, but for the fact that we had the 30 quarter stoppage due to [special] considerations.

If you would go to slide number eight, ERPM. That pretty much tells the story of a mine that's been suspended. Going forward and having fully accounted for the -- or fully provided for the retrenchment costs, we envisage monthly maintenance cost of [using] of ZAR2.5 million. Surface operations at ERPM will continue. That is the case in [there]. In fact, through the numbers you'll see that there was a decline in ERPM surface production.

That is mainly because of a increased focus on one of the other dams that goes into this same circuit -- the mine circuit and which is on the Crown resource where land -- arrangement with the land owner required that we produce more of the material from this dam in order to clearly site and its slightly lower [times] coming from location site. This has since been readjusted. We are seeing more [times] the quarter to date coming from [case in] and very much a restoration of former trends product to the December -- November, December adjustment in the [adjacent] volume flows.

As also I pointed out earlier, when you through the numbers in the release itself, ERPM surface numbers, we would have seen quite a kick in those numbers in the cost and that is as a result of the commissioning costs of Ergo Phase I being recognized in ERPM, European being the license bearer of that site.

Onto the next slide, Crown, slide number nine. Crown announced in the previous quarter that it's had to revisit the deposition right onto its deposition facilities, the Crown tailings facility. These deposition facilities are nearing the end of their life and have approximately another [15] months left before they will be going to be commissioning. That is essentially because of the fact -- that we started looking around for alternative opportunities and which led to the Ergo venture, which is now just about ready to go. Because of the diminished size on top of these dams, there are -- they go higher and higher and, of course, because the side slopes inwards, the top surface becomes smaller and smaller. We've had to adjust the rate at which we deposit onto these dams and we now do 400,000 tons per month as opposed to previously 600,000 tons.

Two of the three Crown circuits do make use of this deposition through our facility -- the Crown Central facility where we treat Top Star and the City Deep facility where we treat the [Menos]. The tailings go onto the Crown tailings complex, marks the other Crown business units or the other Crown plant. Then materials go up to the dam adjacent to the Brakpan facility. Brakpan is part of the Ergo setup. So there's the Central -- Crown Central and Crown City Deep lines that have been affected by this reduction in terms.

We are seeing, however, the -- as with Top Star having come on target or having come on stream and especially since the beginning of this calendar year, is a very swift and steep recovery of former trends, or towards former trends, and throughput very much consistent with the desired [perimeters] at the volume four cost we envisage at the time when investing in this project.

The reason why Crown's production for the previous quarter came down, it's pretty much to do with the events in the last month of the quarter. Top Star was intended to come online on the first of December or towards the end of November, rather, and because of that, one of the slime circuits was -- slime -- one of the slime circuits feeding into Crown we discontinued for maintenance work to a portion of the tanks, receptacle tanks that receives these slimes.

Maintenance work had already started when we realized that we need to move the reclamation site for the Top Star down from the toe of the dam further up, more towards the middle of the dam. This took us approximately three weeks to construct and another week to commission. And that, of course, opened up a volume flow gap and a gap in the switchover. It was not as seamless as we had hoped it would be and, of course, a very sharp top in Crown's production for December. For the first time since I can recall, Crown produced fewer than 200 kilos for the month of December. It's usually at the 260s, 280s per month. And it's only off for the Top Star circuit was up and running that we are again seeing a recovery towards those kilos.

If you would please go to the next slide, slide number ten. These are the project assumptions which we are improving in this presentation only to give some sort of an idea of what we assumed at the commencement of many of the projects that we are running with. And then also to give some sort of an indication as to where we stand. When we say that none of our project assumptions to date, only the key function have turned out to be flawed and these are mostly the assumptions that we refer to.

Ergo Phase 1. This line or this circuit is designed to accommodate 1.2 million tons a month. It consists of two lines. You'd probably better understand that if you click onto slide number 12 and I'll deal with it in slightly more detail when I get to slide number 12. But these -- this is ultimately what we are aiming to achieve in the design and the engineering and the costing is intended to -- are intended all to achieve these assumptions.

Top Star. Top Star is up and running. It's running at nicely towards these tons. Ultimately we believe we will achieve 220,000 tons per month as opposed to the 260,000, due to the adjustments on their volume onto the tailings. But for the rest, we are pretty much seeing these numbers. In fact, the [rate] is slightly higher. Blyvoor Way Ahead project. Nothing that's happened at Blyvoor up until this stage, up until this point suggests that we need to deposit these assumptions for -- consider them as flawed. That's been pretty much on line with what we have seen.

Turning to slide number 11, Ergo project update, I'll briefly go through this and then I will ask you to go to slide number 12 because what I'm explaining on slide 11 becomes slightly clearer by looking at the actual layout on slide number 12. So very briefly, the reclamation site, the [only] reclamation site and the CIL circuit have both been commissioned. Our carbon treatment plants will be ready by year -- by the end of February of 2009. The timing of this plant we to coincide with the commissioning for -- it was coordinated rather with the commissioning of the Elsburg tailings complex. We wanted it ready when Elsburg comes in because that's when the bulk of the volume flow would start flowing into the circuit.

The Benoni dump license was approved according to our source of the Department of [Minerals & Energy], in January 2009 and that license will now be executed and registered. Critical supplies, this is an important consideration in [selecting] today. Critical supplies -- gas, cyanide, electricity, water. Those have all been secured. Elsburg dump civils. This is the second phase of the circuit which carries ultimately 50% of the volume flow. That's on schedule for commissioning by May and full on production by post-June or July of this year.

Onto the next slide, this explains the layout of the Ergo circuit and maybe just repeat that this entire gold circuit is now the property of DRDGOLD. Looking towards the left-hand corner, top corner of the slide, of this plan, you will see the Elsburg tailings contracts. These tailings contracts will [be slimes then] in paying 187 million tons of material, just under 1.7 million tons of gold. We believe we will recover approximately 48% of that over the next 12 years. Towards the right is the Benoni tailings then, which is the first site which we are accessing in order to get the Ergo [place] up and running. Elsburg is intended to some on line in May, full production in June.

Benoni has been fully commissioned and will initially contribute on the lower 600,000 tons of material into the Brakpan plot, where the value, the gold contacts of these tailings there, the source is in line with assumptions, project assumptions of just under 0.4 grams a ton. Recoveries are about 48%. And once the revision contact is running, of course we'll be able to start expecting gold out of the circuit as well towards the end of February. From there the materials go onto the Brakpan tailing stand, which you'll see in the little circle right there at the bottom. And just to the left of Brakpan tailing stand where you see the word Roolkrael, that is the tailings facility of the mine circuit, all of last product is stand onto that circuit.

Okay. Finally, if you were go onto the 13th slide, looking ahead. We are told by those in the know that [year] inflation, the hyper inflation, in fact, and currency volatility of very real probabilities going into the next 12 months. We believe that gold may continue to provide a safe haven for those who are totally exposed to both inflation and to currency volatility, depending on the currency which they're invested. We believe that we have now traded a very good platform to continue to develop towards the next assets, which we think is optimal for selecting a currency, namely an increase in surface retreatment, whilst managing and maintaining the size of [ultra deepening off] exposure. We also believe that with the suspension of ERPM on the plant, our risk exposure significantly down. Top Star is a very impressive and very attractive circuit, currently a star performer.

Blyvoor account is venturing increasingly towards Main Reef. Blyvoor has three production charts and we are seeing an increasing volume from charts number four and six, particularly number four, complementing chart number five, where it is mostly the higher [piece], but also the -- most of the interruptions, particularly due to [size] where it occurs. So that balance, it would seem is slowly shifting, as I said in November, and most of them are similar to November where there were few interruptions. Blyvoor underground contribution is actually pretty impressive, especially in the current [climate]. And of course, it does have a benefit of in-house surface circuit to offset and soften the impact of those months where there are interruptions.

Our plan going forward for the near term will be to continue to optimize what we have. We want to see Crown regain its efficiencies. We firmly believe that the drop in ton in the last quarter was not indicative of a trend, but rather the result of certain specific events that have since been address. But we will continue to manage various risks, risks associated with security issues. We take [approach] to that. Risks associated with an ability to [detail] underground mining by spreading the load somewhere and becoming less and less dependent on high yielding, but also volatile areas.

Controlling costs -- our costs are really fully under control and we do take a very cautious approach as to how we spend our money and the way we invest it. And also taking a disciplined approach to growth. At [early], future targets would involve four bodies that are either shallow or that are on surface. We have managed to grow our Company over the last year quite significantly while waiting for a joint venture and then ultimately purchasing the share of our joint venture, our joint venture party, and there is no reason why we cannot do that again.

We have an open invitation and continue to extend an open equipment invitation to our colleagues in this industry to team up with us on shallower deposits and also on surface deposits. We recently took an investment in our properties, in a piece of property in a faraway [plant], upward between the old [West Bets] mine and [Morforetsa]. This site was picked because it is very suitable to the construction of an ultra size deposition facility and where it was in getting the licensing requirements of that site approved. And that's we're working on another point in two to four years from now for surface [calculation] activities to [pick].

Onto the next side, you should see some video material of the Top Star site and current activities at Top Star. Give you some sort of a feel for the engineering and the process flow at Top Star. Thank you very much.

Thank you, Mr. Pretorius. (Operator Instructions) Our first question is from Victor Flores of HSBC. Please go ahead, sir.

Yes, thank you. Good afternoon. Could you unravel for me what the actual cost structure for the ERPM surface operations will be going forward, excluding any of the costs associated with the Elsburg project?

Victor, I think the easiest way of explaining that, really, is to give you some sort of an idea as to what would we recognize as the RPM surface or other surface costs and that is basically if you take ZAR1.2 million and multiply it by 22. That would be the cost that we recognize as far as the surface circuit is concerned. And then after that ZAR2.5 million in respect of holding and maintenance costs to the [other] side.

Sorry, so that's ZAR1.2 million multiplied by ZAR22 rand a ton.

Yes, ZAR1.2 million times ZAR23. That should be the [right] of the over circuit, which essentially is ERPM surface.

Okay. And what do you expect the ongoing maintenance costs will be for the underground?

It's going [to open within a month].

I'm sorry, I couldn't hear you.

ZAR2.5 million per month.

ZAR2.5 per month. Thank you.

Yes.

Now, just turning to the ramp up at Elsburg, could you be a bit more specific by what you mean by commission? Does that mean that you're now sending 600,000 tons per month to the processing plant?

Not quite. Not quite. We're getting there. At this stage, all the tanks have been full. Our carbon circuit is in the process of becoming saturated. I think the easiest way of explaining how exactly this will work going forward is by the time that we're in a position to start [valuing the carbon], the circuit would be fully saturated. And it's essentially like, I suppose, having a really large sausage. Or maybe putting meat through a mincer. You put your meat in at the top and then the inside of the mincer gets filled up and then the meat gets pushed up in front. Now, we are about ready for that meat to be -- gets start -- getting pushed up in the site.

Okay. So what you're saying is that your elution circuit is -- I think you said will be functional at the end of February. And by that time you'll have enough loaded carbon to start producing gold.

That is correct, yes. The circuit will be fully saturated by then.

Okay. And what do you expect your CapEx will be for Elsburg, say, this quarter and the next?

CapEx up until the end of July is ZAR177 million.

Right.

Of which ...

That is the acquisition.

Yes, that is the acquisition cost. Yes.

But actual capital, Victor, is -- we're looking up until the end of June, the remaining capital on Elsburg will, Ergo Phase 1 is about ZAR110 million. And in addition to that, as Niel mentioned, the consideration for the [part] is the same, which is around about ZAR177 million of which, up to December, we have funded ZAR20 million already. So around about ZAR157 million remaining on that.

The total cash up is ZAR110 million plus ZAR150 million.

Okay. Perfect. Thank you so much.

Thanks, Victor. Thank you very much for dialing in.

(Operator Instructions) Mr. Pretorius, we'll just pause for a moment to see if there are any further questions.

Thank you.

There are no further questions at this time. Would you like to make any concluding remarks?

No, I'd just like to thank everybody for dialing in. We will continue with these dial-ins going forward and hopefully I'll get to see you or to meet you at some of the conferences and some of the road trips that we'll be engaging in, in the next few months.

Thank you. On behalf of DRDGOLD, that concludes today's call. You may now disconnect your lines.