DRDGOLD Ltd (DRD) 2009 Q4 法說會逐字稿

Good afternoon, and welcome to the DRDGOLD's results conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note that this conference is being recorded.

I would now like to hand the conference over to you, Mr. Niel Pretorius. Please go ahead.

Thank you. Good afternoon, everybody, and thank you very much for joining us. It's myself, Niel Pretorius, and Craig Barnes, our CFO, who will be taking you through this conference.

May I please ask you to take note of the disclaimer at the beginning insofar as forward-looking statements are concerned.

What we decided with our presentation this time around was to, instead of going directly into the numbers, share with you some of the key features of the quarter and some of the dynamics that most profoundly impacted us in our performance during the quarter.

I'm happy to report that we are capable of declaring another dividend. It's the second one or it's a dividend second year in a row. Obviously, this dividend is decided to be slightly smaller than the previous one because of the ongoing impact that the strong local currency is having on revenue flows.

We're also happy to report that our surface production for the quarter remained steady at 35,000 ounces or thereabouts. The precise numbers are in the presentation. We're also pleased to confirm that we completed the acquisition of the remaining 50% in the ErgoGold project.

Operating profit for the year is 282 million, and we finished the year with ZAR33.8 per share, headline profit for the year. It's also the decision to share some of that with our shareholders.

Moving onto the next slide, we decided to include this profit trend just to give an indication as to what the performance of our Company has been over the last few quarters. And you can see that we have had several quarters of good returns and good operating profits, especially at the beginning of this year with the higher Rand price of gold, the price of our product turned in around ZAR300,000 per kilo, which is roughly ZAR60,000, just under ZAR60,000 more than what we receive on average for our product for this year.

I think these dynamics, the impact of the strong Rand, but also the dollar price of gold, both of these do have an impact on our decision-making insofar as securing our position towards future revenue flows are concerned. And in the looking-forward portion of this presentation, I will talk a little bit more about that.

Moving on to the next slide, slide number 5, the reasons why you saw the sharp drop-off in profit for the quarter, firstly we made ZAR82 million less during the quarter because of the lower average price of our product in our local currency. In other words, if we could sell our product for the same price that we did last quarter, we would have been ZAR82 million to end up.

Then, because we purchased the balance of the ErgoGold project, we were responsible for 100% of its consolidated costs. I emphasize the word Ergo project because it is still very much in a project phase, having, at the end of the quarter, only brought in roughly 50% of total volume flows.

I'm pleased to advise that on the 3rd of August, we did commission the second line and that from pretty much this time onwards and more specifically in September, you would see 100% of ErgoGold's volume capacity coming through.

But getting back to the increasing costs, we spent ZAR18 million more during the quarter because of the fact that we picked up the balance of the Ergo costs, as well, having purchased it from our [viswell] partner, Mintails. And then we also had roughly ZAR7 million or about $1 million more due to the higher electricity costs.

Blyvoor saw a 5% decline in underground gold production. It did take off quite well at the beginning of the quarter. But early in May, we had a very large seismic event in one of its higher-grade production areas and more details follow in the slides below. But the impact of the decline in underground production, obviously, also flowed through to the bottom line.

And then at ErgoGold, our elution plant was only commissioned in March and April of this year, so we had the benefit of eluting gold for roughly half of the entire quarter. And there were some initial engineering issues that we had to sort out, more specifically the volume flow of the elution circuit itself appeared to be inadequate to get the elutions done at the required rate in order to achieve the recoveries that underscored this project.

While elution efficiencies are significantly higher as we speak, we believe that certainly from about September that we will see elution efficiencies that are consistent with the project parameters, with one minor additional engineering adjustment that requires to be made after which we should be in the ballpark.

Going to the next slide, slide number 6, this is a picture. Each one of these little balloons, which are superimposed over the workings of the [fire] shaft area of Blyvooruitzicht of our underground mine represent a seismic event. And most of these seismic events occur during what is referred to as the blasting window, and are, therefore, pretty much under our control. Some of them though, the larger ones, are the consequence of pressures that build up over significant periods of time and that are transmitted by the various geological features that you see depicted in green. And one of those at the beginning of May, [knock out] 7 of the higher-yielding panels in the 3831 section of Blyvoor. Those panels are going to require approximately six months of rehabilitation before they're back into full operation.

Moving onto the next slide, slide number 7, those are three of the larger seismic events that occurred during this exact period. And you can see there may have been quite a significant buildup of pressure which has caused this. Fortunately, nobody was injured or killed during these incidents. Blyvoor achieved 1 million fatality-free shifts in the past quarter. But it did cause extensive damage to that particular area, and hence, the need for further remedial measures.

On the next slide, slide number 8, I talk a little bit more about the measures that are required to be taken. 2.5 thousand square meters on average production. Went down to 200 meters. The reason being that we need to mine around the southern tip, which is at the bottom of that slide, of this particular block, and then develop back up again from south to north. And then mine that particular block both from the east and from the west in order to fully destress it.

Going back -- moving on to the ninth slide, outcomes and actions, this slide, we included to give investors some idea as to what we think we need to do in order to counteract some of the dynamics that impacted on our performance during the quarter and also to give them some sort of an idea as to what is happening on what we believe to be our upside circuit, ErgoGold.

Firstly Blyvoor, the rehabilitation of the damaged panels is not likely to be completed prior to the third quarter. We spoke earlier about the opening up and developments of Main Reef for greater flexibility. The Main Reef we said in previous presentations is 90 meters up in the hanging wall of the carbon leader, carbon leader having been mined, and is therefore destressed. We are still committed to a very robust opening up and development program that will bring greater flexibility through accessing this particular ore body.

And then we are also considering the right-sizing of Blyvoor in order to bring its production costs to below -- underground production costs to below 245,000 grams per kilo. The surest way of achieving that is not by reducing the number of rock breakers, but by changing the ratio of support staff versus rock breakers.

And this is the process which we will engage our unions and going forward over the next few months to see whether we could bring numbers down and also bring the ratio of employment of the employees to within that specific ratio 60/40 favoring rock breaking.

And at ErgoGold, as I said ErgoGold was still pretty much in project phase during the quarter, having only commissioned one feeder line into the plant. The second feeder line from really the principal resource, the Elsburg Tailings Complex, that was finally commissioned on the 3rd of August, and we are very pleased with the volume flow rates from this particular site. We haven't had any interruptions, nor was it necessary to make any adjustments to the [let out] in order to get to achieve and maintain flow rate.

We also designed this dam, or rather this reclamation facility, the reclamation station, in such a way that it can contribute more than its initial intended 50% of total volume flows into the Brakpan dam. The reason being that the other site, the L29 site, that we've been working over the last nine-odd months, that site is pretty limited in scope. We've mined to more than 50% of that particular dump. And once it's got in order to maintain flow rates, it would be necessary to do the entire 1.2 million tonnes per month from the Elsburg Tailings Complex.

What the opportunity this provides or the options this provides to us is that we can now manipulate volume flows from these two dams to assess the metallurgical characteristics of each of the resources and see to which extent we may have to favor the Elsburg Tailings Complex, which is a first-generation dam over the Benoni or L29 Tailing Dam, which is a second-generation dam.

By second-generation, we mean that the dump has been treated once before through a plant similar to ours. First generation means that the only previous occasion when the materials were treated was after they came up from underground the first time.

Now whether or not the fact that it's been treated before, L29, is impacting on recoveries, we will establish now that Elsburg has also come online. If we achieve better recoveries, and early indications that we are, it would suggest that at least the quality of the material coming off L29 may in part be the cause for lower recoveries. And then, of course, we will manipulate volume flows in order to mitigate the impact of that.

Contractually, we have another four years over which to clear the L29 site, which is much the more than we need. As I said earlier, we've cleared probably in excess of 50% of that dam over the last nine-odd months.

Then going to the next slide, ERPM, we said to investors earlier that we would retain the option now if you will, preserve the optionality associated with ERPMs deep-level underground ore body by applying not more than ZAR2 million a month towards its sustenance.

We've been unable to do that. We wanted to achieve that particular number by offsetting the costs on site and the cost of care and maintenance with limited revenue flows from small remnant mining or cleanup mining so to speak on the site itself. And then we initially estimated that we would be able to do that for roughly two years before we take a final decision.

What has subsequently transpired is that the recoveries from these remnants were below estimates and we have, as a consequence, decided to bring to an end, to terminate, the care and maintenance program. The plant has been closed. The stores have been locked and the remaining 140 staff members that were there for care and maintenance have since also been engaged in a process aimed at bringing about their retrenchment and the termination of their employment.

Moving on to the next slide, slide number 10, as you can see, our production is down 2%, and this is by and large attributable to the drop in production at Blyvoor. Blyvoor had established a very good [drink] early on in the month. And but for the setback in this particular section, this number in all likelihood would have looked different.

Surface production, as you could see, exactly the same. Because of the additional items towards costs, more specifically electricity, the winter tariffs and also the additional Ergo costs, our costs per unit went up quite a bit.

I do invite investors though to have a look also at the release, the press release with the details on financial information and take a look particularly at the average costs of our surface reclamation units. On average, including the ZAR620-odd per production unit, or kilogram, notwithstanding, we still managed to come in at below ZAR190,000 per kilo, which is in part the reason why we are optimistic about the prospects of our business towards the end of the year. We have more of these surface answers will come through, through the Ergo circuit and the Ergo plant.

And then at the bottom of the next page, you see what our net profit looked like. Obviously, helped on by deferred tax, recognizing deferred tax of ZAR120 million, and then also what the remainder of the CapEx looked like.

The next slide, we also have the financial review and income statement. And I would like to hand over to our CFO, Craig Barnes, to take you through these numbers.

Thank you, Neil. Hello, everyone. I'm going to first deal with the quarterly results and then just have a brief look at the 12-months, well, the full-year results.

Our revenue for the quarter decreased by 22% or approximately ZAR116 million to ZAR420.7 million for the quarter. AS Niel mentioned, ZAR82 million of the reduction in revenue is really because of the lower Rand gold price. And the balance is attributable to the lower gold production for the quarter.

Our net operating costs increased by 3% quarter on quarter or approximately ZAR13 million. As Niel mentioned as well, ZAR18 million of that is due to the 100% consolidation of ErgoGold's costs effectively from the 1st of April 2009. ZAR7 million of the increased costs related to the higher winter tariffs for electricity and operations. And the balance is made up of gold in progress movement in the income statement. That resulted in an operating profit of ZAR1.3 million for the quarter, which is 99% down on the previous quarter.

Investment income of ZAR3.3 million includes interest on our cash holdings of ZAR10.3 million. And dividends and other investment income of roughly ZAR3 million, which is offset in part by a ForEx movement through our income statement of ZAR10 million included in that line.

The impairment of ZAR19.4 million for the quarter relates to the city plant at Crown, and that was effectively brought about because of a reduction in volumes going forward coming from that plant.

The financial liabilities number or adjustments in the income statement of ZAR8.8 million relates to the preference shares held by our BEE partners, which are disclaimed as financial liabilities on our balance sheet. Included in other costs, which is basically flat, are admin and other costs depreciation, the movement in our environmental provisions, finance expenses and also some retrenchment costs. Reflects there for the profit before tax -- I mean a loss before tax of ZAR81.2 million compared to the previous quarter's ZAR95 million profit.

Included in the taxation line of ZAR123 million, as Niel also mentioned, is a movement on our deferred tax asset of roughly ZAR121 million credit, and then the balance being made up of adjustments to current tax specifically at Crown for the quarter. That left us with a net profit of ZAR42.6 million, down 2% on the previous quarter's ZAR43.5 million.

For the full-year results, our revenue increased by 4% to just over ZAR1.9 billion, and that was brought about because of the 30% higher Rand gold price for the full year, obviously, offset by lower production for the full year.

The net operating costs for the full year were up 11% to just over ZAR1.6 billion, and that's really the result of inflationary increases in our costs, higher electricity costs, as well as the -- as we explained previously, a 100% consolidation of ErgoGold's costs for the last quarter. Left us with an operating profit of ZAR282.7 million for the quarter, 26% down on the previous quarter.

Included in investment income line for full year of ZAR82.5 million is interest received of ZAR 75million on our cash holdings, and the balance is made up of sundry investment income.

In payments, ZAR25.1 million for the full year, as I said at the last quarter, included an impairment of ZAR19.4 million for the city plant. The balance is made up of previous impairments of ERPM underground operations.

The financial liabilities again included is the preference shares held by our BEE partners. That movement was ZAR44 million for the full year, adjustment to their financial liability on our balance sheet.

Other costs, as I stated when I talked to you about the quarter, relate mainly to admin and other costs, depreciation, movements in environmental provisions, retrenchment costs, finance expenses. Also a negative goodwill number included in it relating to the ErgoGold transaction.

The increase in the cost there is mainly as a result of higher depreciation charges coming to the income statement for the full year. We have higher rehab costs, a provision for [per share] tonne medical liabilities, which is an increase for the year. The retrenchment costs at ERPM. Those are the main reasons for that increase.

That sets us for the profit before tax for the full year of ZAR80.3 million, down 4% on the previous quarter. The taxation number includes current tax of ZAR42.6 million, mainly from Crown, and deferred tax adjustments of ZAR75 million, a credit, due to deferred tax assets, as well as [FDC] of ZAR3.6 million on the dividend. Left us with a net profit of ZAR110.7 million for the year, 28% down on the previous quarter.

Moving over to the next page, the balance sheet, just some numbers I want to highlight, including non-current assets, the most significant number obviously, property, plant and equipment of just over ZAR1.7 billion. That has increased significantly mainly as a result of the add-acquisition adjustments that were made for ErgoGold, where we fair value the assets and abilities at the date of acquisition. And the fair value adjustment included in property, plant and equipment relating to ErgoGold of roughly ZAR540 million.

And the other numbers included in that noncurrent asset line are deferred tax asset of ZAR165 million, the investment in our rehabilitation trust funds of roughly ZAR130 million, and various other investments of just over ZAR40 million.

Our cash, we ended up just over ZAR350 million with the cash on our balance sheet at the end of the year, down significantly from the ZAR846 million in the previous year. The biggest movements obviously relate to the significant capital expenditure on the Ergo project, and also the acquisitions of the additional 15% and 35%, in total, 50% of ErgoGold during the year. Other current assets include inventory of ZAR94 million, [debtors] of ZAR88 million, assets held for sale of ZAR15 million.

Included in the long-term liabilities number, the biggest number included in that ZAR716 million-odd is the provision for our rehab liabilities, which is about ZAR412.5 million, yes, ZAR412.5 million. There's also a deferred tax liability of ZAR195 million included in there. And that really, the majority of that comes from the add-acquisition increase for ErgoGold, again, relating to value adjustments, that were made to the balance sheet acquisition.

Also included in that number are post-retirement employee benefits of roughly ZAR44 million and the preference shares that I alluded to earlier, which are treated as financial liability of roughly ZAR65 million. There are no interest-bearing borrowings included in that number.

The current liability number is ZAR326 million. That is mainly creditors of ZAR324 million and a ZAR2 million debt still owing to ErgoGold, which was for the initial acquisition of the Ergo assets from AngloGold. And that obviously will be settled within the first quarter of 2010.

Okay, that's what I wanted to mention on the balance sheet, and I will hand back to Niel to take you through the rest of the presentation. Thank you.

Thank you, Craig. If I might ask (technical difficulty) slide number 13, which depict our mineable ounces or our attributable reserves. You can tell the biggest movement there really is the 2.6 million ounces of the ERPM, producing to 1.5 million ounces. These 1.5 million ounces are all on the surface as part of the Elsburg Tailings Complex, which we intend to treat through our ErgoGold venture.

The production is as a result of transferring the underground ounces of ERPM into resource after our decision to place ERPM [initially] on care and maintenance, bringing about (technical difficulty) of the underground workings.

Slide number 14 gives an indication as to how the resources moved year on year. As you could see, at Ergo in particular there was quite a bit of an increase of some additional (inaudible) test work there is obviously being surface [artist].

In the next slide, slide number 15, shows the split between surface reserves, those of tailing stems and underground reserves. Those still at underground and the swing from last year to this year in underground as a consequence of the ERPM situation that I alluded to earlier.

Moving on to the 16th slide, attributable resource surface and underground, still have 46 million underground resources, but we now have 10 million, just under 10 million, surface ounces in resource. These mainly in dumps in and around Johannesburg, over which we exercise control and which could, in the long term, be converted into reserves as and when we put into effect the synergies between Ergo and Crown, by way of the pipeline that links up these two distinct sites. There's a slide further up that shows how this should be achieved.

Moving on to slide number 17, the operational review of Blyvoor. I think most of the important information that I wanted to share insofar as an event that impacted on Blyvoor I've done in the initial few slides. I do want to point out perhaps the 7% rise in surface production after the new pipeline was commissioned. Provided a bit of consistency of volume flow into Blyvoor surface circuit.

Blyvoor surface circuit remains our most profitable circuit with operating cost of ZAR100,000 per kilo or just under $360, $370 per ounce.

It came in with an operating profit of ZAR19.2, $2.5 million. But as you could see, the trend was generally downward in production, and that was as a consequence of the event that I described earlier on in the underground circuit.

Which I think we see here is a pretty accurate indicator of where we believe production should be hovering around going forward at least until after the rehabilitation of those underground sites has been achieved.

Moving on to the next slide, slide number 18, Crown, I think this slide needs to be interpreted in conjunction with the next slide, slide number 18, the operational review of ERPM. And I explain.

Crown manages three plants -- the Crown Central plant, the City Deep plant and the Knights plant. A large percentage of the surface material processed at the Knights plant originated at ERPM's Cason Dump. And, therefore, on slide number 19, where you see a 59% increase in ERPM surface production, that is surface production associated solely with Cason Dump; has nothing to do with the Elsburg Tailings Complex, which will be channeled towards Ergo.

The combination of Crown, Crown Central, City Deep and Knights managed to achieve exactly the same ounces this quarter as they did in the last. This was achieved by way, as I said, of an increase in the Cason ounces and a 13% drop in the Crown Central and City Deep ounces.

The Crown Central and City Deep drop in production, that which you see on slide number 18, shows a consequence of a planned and managed or a controlled, rather, production in volume flow as the result of the phasing out of the Crown Tailings Complex, which is now started and should be completed once we finish mining the Topstar dam. Operating costs are still (technical difficulty) the gold price in Rand terms.

At ERPM, the next slide, slide 19, we came to the conclusion that underground care and maintenance costs remained unsustainable by virtue of the fact that we were incapable of offsetting that with remnant clean-up, and as a consequence, the ERPM gold plant was brought to closure as are the underground operations.

Moving on to the next slide, slide number 20, the operational review of the ErgoGold project. At the end of the quarter, ErgoGold was receiving 50% of its volume throughput. This changed on the 3rd of August when the second line was commissioned off the Elsburg Tailings facility. That's now running at 100% or moving towards 100% I should add. We are targeting September to achieve steady state at the circuit.

What has had an impact on the ErgoGold numbers is the fact that whilst we are only achieving 50% of throughput, because of the project schedule, we are picking up 100% of the costs as a high overhead, fixed overhead component and costs. Obviously, we also purchased Mintails' share in this project prior to the project coming into full commissioning.

We are not seeing the recoveries from the L29 Gold Dump, which we had hoped to achieve. And we believe that this may be a combination of being materially soft, which whilst the grades are exactly what the project assumptions assumed and whilst the gold that goes into the plant is consistent with what we had assumed, we're not getting the gold to come off the carbon in the plant itself to the specified rate. We achieved 0.04 grams a tonne in the quarter under review.

And we managed to push that up prior to the Elsburg materials coming into the plant. We managed to push that up to just under 0.1, right about 0.08, but that's still not consistent with operating specks.

There's one final adjustment to be made to the elution circuit, which we believe will be completed by August and involves increased capacity in the elution tanks and the heat exchanger designed to heat the water going into the elution tanks. We believe that once those are done, we will get much closer to project specifications.

Also, with the added benefit of the Elsburg Tailings Complex materials now coming into the plant, the unit costs obviously are going to drop unit costs per tonne. Hopefully we will also see the better recoveries and the significant improvement on the operating costs per unit, both per ounce and per kilo.

We do not anticipate, though, reporting anything resembling project specifications prior to the second quarter of this financial year or the calendar quarter, in other words, by December.

Ergo Phase 2, that is the uranium and sulfuric acid component of this project. We still have a full-time metallurgist who is working on this and who is sequentially sampling and laboratory testing all of the dumps under our control to get some idea of the full extent of the uranium upside associated with this particular project.

It is not something which we are bringing into the value consideration of this project just yet. We are pretty conservative on what the outcomes here might be. We know that AngloGold Ashanti [250] uranium at this plant and recovered roughly 13% of the uranium in the materials. There is lower testing work still to be done before we can definitively say to shareholders and interested parties what we believe the uranium upside is.

Something that I should though point out is that once again if you were to look at the detailed financial information of the various circuits in the quarterly release, you'll see that the unit costs per tonne, Rand per tonne costs of this circuit is ZAR25 per tonne, which is consistent with what project assumptions initially suggested.

So in summary, ErgoGold has reached the stage now where the engineering and the reclamation capacity are such that we can deliver the volumes required on this project to work into the plant. Both lines are running. Both lines are running smoothly.

What we need to tweak and what we hope to start achieving more consistently are better recoveries out of the elution plant.

I can say to shareholders that we have seen the gold content of our carbon and pulp increase from roundabout 300 grams per tonne to 500 grams after the introduction of the Elsburg Tailings material. It spiked at roundabout 700 grams. So we're all set to start delivering the recoveries which the project assumptions suggested we ought to.

If it were to turn out that the recoveries from L29 remain below project assumptions, by virtue of the fact that we have a long time horizon within which we could mine this resource, we almost certainly, by utilizing the search capacity of the Elsburg Tailings circuit, manipulate the volume flows into the plant in order to favor more of the materials from the Elsburg Tailings Complex.

I've confirmed that there were 15 million tonnes on L29, the second-generation dam. We have 186 million tonnes on the Elsburg Tailings Complex. More than half of L29 has been treated. Most of Elsburg still lies ahead in the future and is to be treated over the next 12 years.

Moving on to the next slide, slide number 21, looking ahead to things that we want to do, in order to get through this period of lower gold price, Rand gold price, the one thing that we are still not considering and this was confirmed at our recent board meeting, is hedging our gold sales.

The reason why gold in South African terms, South African currency terms, is under pressure is because of the strong performance of our currency. If one were to hedge now and our currency weakens, we believe that there's a higher probability that inflationary pressures will wipe out whatever margin we may achieve. And therefore, we will wait for the cycle to turn, as it usually does. We have the asset mix and the means and also the balance sheet, we believe, to do that. We certainly have the resolve to deal with the pressures of our underground circuit at this point in time. We agreed and [come to] certain very clear decision markets on how best to deal with the situation of our underground operations; to ensure that the balance sheet of our business does not come to harm, to ensure that our employees do not suffer unnecessary hardship, and to ensure that neighboring mines are not harmed or prejudiced by any decision-making or lack of decision-making that occurs at this site.

We have some challenges going forward, specifically with regard volume flow. We obviously also have challenges with regard costs, most notably that of our electricity supplier, Eskom, which increased their tariffs by 32%. We're engaging them in discussion to see if we could get this deferred until after we've rehabilitated our hydrate areas and access Main Reef.

And then we also have wages lying ahead. Wage negotiations are undergoing. Wage increases are immanent. We have made an offer to our employees through their recognized labor unions of an increased condition upon a change in gold price. We are hoping that good sense will prevail and that they will see that this is an honest offer aimed at achieving a preservation of job opportunities and also sustaining the business. Whether or not it will be accepted, we don't know, but we certainly hope that they will in order that we could avoid a labor action or strike action. If there were to be strike action, it would occur on the basis of no work, no pay.

We also have the means to continue to [create] our surface footprint at ErgoGold. And I've spoken extensively about how we want to grow volumes and hopefully achieve numbers that are closer to project specifications by the second financial quarter and the upside of our search capacity.

The Crown Ergo pipeline feasibility is well and truly underway. Our contractual dispensation with Mintails, who still earned some of the uranium and asset upside in our Ergo project, is such that we have spared their position capacity.

What that basically means is that not only can we deposit the tailings or the residues from our ErgoGold project onto the tailings facilities of Ergo mines but we can also bring the residues or tailings from our other Crown circuits onto the tailings facility. so as Crown gold recoveries' tailings facilities are increasingly phased out, we could start depositing residues onto these.

And the feasibility study that is underway, and which we hope to report on by calendar year end, involves the costs and the practicalities of building a residue pipeline to the Brakpan tailings facility on an established [line-right] route, which is under the control of both Ergo and Crown.

And these new synergies we hope would enable us to maintain the sort of surface production run rate that we aim to achieve or that we target to achieve by year end.

That concludes the presentation. Craig and I are ready to take your questions. Thank you very much.

(Operator Instructions). Charlotte Matthews, Business [Day].

The first question is, if you are talking about rightsizing at Blyvoor, how many jobs could be lost? And second question is about your creditors of ZAR324 million; that seems quite high. Could you give us some detail?

Listen, Charlotte, I'm going to ask Fred to deal with the crediting side. I don't think it's inconsistent with what we've said in the past. It's more or less consistent with what our operating costs are, but he'll deal with that in more detail. Look, it's very difficult for me to say to you how many people will be affected because it's very much a matter of consultation. And we prefer to do these things on the basis of consensus.

So what we said to -- what we placed in front of our organized labor and their representatives is these are the outcomes that we want to achieve. This is the ratio or the split between surface and underground that we want to achieve. Let's work together and see whether we could get to that. And in the past, these measures have been successful and we hope that they will be successful again.

We are, of course, a little concerned that the fact that this in the middle of wage negotiations might be interpreted as some [attack] in their stake or strategic measure on our part, which I can assure you it's not. It's a good-faith measure aimed at dealing with the new pressures that the Rand and Eskom, and the fact that this is a wage here that brought about.

Craig, do you want to just deal with the costs?

Charlotte, the creditors are pretty much in line with the ZAR387 million of the credit that we had at the end of June 2008 and also roughly ZAR300 million as at the end of March. So they are pretty much in line with what we experienced previously.

Okay. Thank you.

Victor Flores, HSBC.

Thanks. Good afternoon, Niel. A couple of questions for you. First of all, regarding the recovery issues that you seem to be experiencing at ErgoGold with the L29 Dump, could you perhaps give us a bit more color on that? It seems that once you get the gold into the carbon, it can't get away and you should be able to strip it and get it -- basically get it out. I'm just curious as to why it seems that you are having those recovery issues because the recoveries are well below where they should be.

Certainly. Thanks for dialing in again. The top (technical difficulty) design, the (technical difficulty) pretty much on the specifications that it was built on when AngloGold Ashanti was running it at Ergo. And hence our project assumptions were pretty much based on the sort of recoveries that they achieved.

Now, at the time when we -- at quarter end, this particularly elution circuit had only been in operation for about six weeks. So whilst we were hoping to achieve the recoveries that support the project model right from the outset, we weren't surprised that we weren't exactly on target. You do initially have your engineering [beagles] and so forth and so on.

However, what concerned us was the fact that they were so far below project assumptions. And this prompted us just to look at every portion of that elution circuit. And what our engineers, in addition to certain other changes that have been made with regard to densities and flow rates and so forth, what they have concluded could be the problem is that in order to get the gold out of the carbon, you have to heat it under pressure. It's a combination of pressure and heat that drives the gold out of the carbon and back into solution again because before it goes into the electro winning process.

Now, we have initially, and this was consistent with the fact that only 50% of materials were going to come in. We had initially only refurbished one elution tank. And the carbon mix is heated by water that goes through a heat exchanger into that elution tank. And it would appear as though the rate at which the water was being heated by the heat exchanger, by the well heat exchanger, was inadequate to support the flow rate, which the elution circuit required in order to get the number of elutions first of all and also the efficiency of the elutions. So what we will have in place by the end of this month, at the beginning of September, would be a second elution tank. And then we also made some adjustments to the heat exchanger.

We think the reason why this manifest itself when Anglo was running the circuit is obviously they were running much higher volumes. But they were running six tanks and six heat exchangers in specifications similar to that which we have now. But we believe that because they were running it through more of these elution tanks, they did not have the same flow rate challenges that we are experiencing. So from an engineering perspective, there's one particular aspect that we are now dealing with.

And then, of course, the L29 Dump, which was a dump which I must admit now was brought in after we had already set out the project parameters for the Elsburg Tailings facility. That dam is a second-generation dam which was brought in because we purchased the entire Ergo footprint from AngloGold Ashanti, whereas, initially, we were only going to purchase the plant and deposit onto the [Dugofontain] tailings. And because it's so small and because we got it for nothing, we thought that this was a good way of accelerating the commissioning of the project.

Now, the Dump has been variable really only in respect of one aspect, and that is that it taught us a lot about flow rates, about densities, about automated pressure controls, about the qualities and the characteristics that are screens and are common leach tanks, what they ought to look like. For about three months after we commissioned this one in December, we had quite a number of engineering challenges to manage the volumes and the flow rates.

So at least the one thing that came out of that dam is that after we switched on the Elsburg Tailings facility, which is considerably further away, on the 3rd of August, we had not had a single glitch insofar as flow rates are concerned.

But, it does seem though, and it's a probability or possibility that we are certainly investigating and that we will continue to investigate by manipulating flows from the two sites, that maybe that the recoveries of the second-generation dam, which has been through the plant in the past, understanding the fact that the grades are high enough to treat, at 0.32 to 0.34, it might just be that the materials' inspection characteristics are such that it just doesn't sit well on the carbon in the same quantities as first-generation material does.

If that turns out to be the case, as I said, going forward, we will obviously manipulate flows from the two sites. It is a very, very small site. We've mined through more than half of it. And we see this as something which obviously disappoints us. We would have been very, very excited to report to you that also from this dam, we were achieving the sort of recoveries that are [the front] -- the project. But it's not the sort of setback that is going to undermine the integrity of this project as a whole. So we're very bullish about the project as a whole.

Great. Thank you so much.

(Operator Instructions). Percy Takunda, Imara SP Reid.

Good afternoon, Niel. I just got a couple of questions for you here. The first question has to do with the total cost of care and maintenance that you've just stopped now. I just want a number there for the full year, the previous year that we just passed.

Then the second question is, with regard to the same project, do you guys have any water pumping obligations? And what's your environmental rehabilitation liability on that?

On which project is that?

On your underground ERPM operation?

Oh, yes, certainly. The Maintenance costs I think average between ZAR500 and ZAR700 a month depending on what time of the year it was, in electricity costs. But that's obviously now come to an end by and large, and it started in September of last year. So from September through to now, roughly the outflow is that I think you could bring into your calculation.

Yes.

Insofar as underground water is concerned, the void is filling up. The Central Rand basin is certainly filling up. And it will reach critical level of 150 meters in roughly three years from now if the current rate of increase was to continue.

What we anticipate doing is, and this is one of the reasons why there is one piece of ERPM's underground infrastructure we will definitely not relinquish, namely Central Shaft, what we anticipate to do is we could adequately feed our recoveries at the Elsburg Tailings Complex with water from the water that we had on the Brakpan Tailings facility. We have several hundred cubic meters of water on the Brakpan Tailings facility, but that will run up in a few years. And then we are going to require water. So we consider the water, the rising water at ERPM and access into that water as a vital strategic asset, which we have every intention of preserving. We are going to need the water in order to drive the Elsburg reclamation process.

In addition to that, we've concluded agreements with an entity called the Central Rand Utilities Corporation. This is an entity funded by offshore funding, UK funding, UK-sourced funding, which is aimed at establishing infrastructure and treatment capacity adequate to pump from underground, all the water that drives us in the central basin at a rate of roughly 80 million liters per day, and then treat the water, amongst other things, through some of our infrastructure. We have a high density separation point, at the RPM capability in those volumes, and then selling it for a return to the investors.

Now we have made the bits and pieces of our infrastructure, amongst other things, this treatment plant, available to this corporation on the one condition that our water supplies are always provided for at cost. So we consider the water to be important for the future of our operations.

All right. And environmental rehabilitation liability?

There again, the biggest rehabilitation liability on a site like this is your tailings dams. They need to be vegetated and they need to be managed. And both those rehabilitation footprints so to speak, namely the Cason Dump and the Elsburg Tailings Complex, both of those are being mined away over there in the foreseeable future. So it's a diminishing liability which is actually part of our mining operations.

Oh, okay. Then just one last question. On the statement here that you gave us on your resources, in terms of, with regard to Blyvoor, what gold price was used to declare those resources? And what are the working costs? Now I just want you to just give me a rough number here in context of what Askom has been talking about, about the 34% increase in cost and all those things.

The estimate or the assumption that we use for our reserves and resources was [ZAR241,834] per kilo. The impact of the Askom increase, we believe, will translate into roughly ZAR11.5 thousand per kilo of underground production.

Okay. So that won't change the resource statement, would it?

It wouldn't change the resource statement, no. Because this was declared at the beginning prior to the implementation of the increased tariff.

All right, all right. Thank you very much.

(Operator Instructions). We have a follow-up question from Charlotte Matthews of Business Day.

Hello. You say that you would hang on to the main shaft at ERPM. Does that mean you could sell some of the other underground resource if there's some kind of salable value there?

Yes. [If at that time].

Have you got a buyer lined up?

No, we don't. But there are people sniffing around and making up their mind and so forth. But we don't have anybody lined up.

The reason being that we're not just going to let it go for nothing. And I want to answer this within the context of the question that the previous caller asked, namely what are the rehabilitation liabilities?

Traditionally, what you see with a situation like this that people would come, we've done it, and you buy it for a nominal amount because you assume [boss] liabilities. Environmental, rehabilitation, a retrenchment and so forth and so on. Those have all been taken care of. So anybody wanting to buy it needs to know that he's going to pay fair value for the equipment.

Great. Thank you.

We don't seem to have any more questions, Mr. Pretorius. Would you like to make any closing comments?

Just once again, thank you very much for everybody, for dialing in, and for taking an interest in our Company. Thank you for your questions. We hope that our efforts, our continued efforts, would ultimately reward you. We hope that over the next six months we could show you progress in the things that I spoke about. So thank you very much again.

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