DRDGOLD Ltd (DRD) 2010 Q1 法說會逐字稿

Good afternoon, and welcome to the DRDGOLD conference call. Please note that all participants are 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 call is being recorded.

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

Good afternoon, everybody. Thank you very much for joining us for this conference presentation. This has been a quarter fraught with various challenges. You all probably know that we had a labor strike. You also know that we had a pretty significant increase in electricity prices. And I hope that the various graphs and slides that we prepared for this presentation will give you an indication as to how we managed to get through all of this, and how we are positioned going forward.

Please take notice of the disclaimer on the second slide, and then please turn to the third slides, which is the one -- the first of several slides showing trends quarter on quarter.

The first one is Tonnes Milled. As you could see, the line at the bottom is underground tonnes, and the line at the top is surface tonnes. Because Ergo is finally starting to deliver on call with regard to tonnes, you could see that there was a significant increase month on month and also quarter on quarter with regards to (technical difficulty).

(technical difficulty) [and the contents] were slightly down in September, and that was mainly due to the fact that we had a four-week long labor strike at our Blyvoor mine.

Turning to the next slide, slide number four, Gold Produced, both underground and surface -- this shows monthly trending. But if you were to consolidate these into two quarterly trends, you would see that surface gold actually went up for the quarter, whereas underground gold produced in kilos went down for the quarter.

Surface went up, thanks to a significant increase in production at the ERPM surface circuit -- it is now a (inaudible) surface operator. And also, a very handsome increase at Ergo, of 181% in production. Underground production went down, once again, because of the prolonged labor strike. You can see the sharp decline between August and September. September was when we had the labor strike. And so, having to work through the lower grades as a consequence of the seismic events that we had in -- earlier this year, during May.

Turning to the next slide, Yield, grams per tonne, it's important that I point out here what the yield from underground was in April of '09. That was the grade at which we were mining from underground at Blyvoor just prior to the various seismic events which knocked out a number of our higher grade panels in No. 5 shaft. The reason why we specifically decided to include this slide was to demonstrate, really, what the quality of the ore body is, and where we want to develop back into towards January and February of this year.

We've had a three-year opening up and developing program at our Blyvoor mine, specifically into the high grade areas, and those are now starting to kick in. We will also -- we will have rehabilitated the panels in 5 shaft, which were knocked out in May, by January and February of this year. And we certainly plan to have our recoveries back to -- very near the five grams of tonne at our Blyvoor mine.

At surface operations, grades are marginally down, and that is because of the greater quantities of material coming from the Ergo and Elsburg [slab] circuit.

Moving on to the next slide, slide number six, this slide depicts the actual amount of money that we spent mining [ore] gold. So this is not a graph which shows unit costs, or costs per ounce, cost per tonne, cost per kilo. This shows the actual amount of money that we spent in order to produce gold.

And I think what this graph depicts, if anything, is that we have a very firm -- that we have very firm control over the amount of money that we do spend. The sharp decline in September of actual cost, that is associated with the wage strike. We have labor strikes in South Africa, work on the no work, no pay basis. At Blyvoor, it was approximately a ZAR21 million saving on costs, and also a significant saving at Crown. Of course, Crown, and at Ergo, there was no interruption in production. At Blyvoor, we lost roughly 80 kilos of gold, but that was by and large offset by the saving in costs.

Turning to the next slide, slide number seven, Cash Operating Costs, rand per kilo. Now, this is really where lower production starts to hurt. As you could see, on surface, with production slightly up, cost per unit went down. Underground, because production was significantly down due to grades and the labor strike, costs, particularly towards the end of the quarter, went significantly up. Of course, with the restoration of volume, resumption of production and ultimately also next year getting back to the high grades, we hope to be closer to margin.

Something that we do have to factor into our calculations, though, is that another power increase is set to set in -- plans to set in, and that, of course, will have an impact on our cash operating costs, insofar as particularly the underground section is concerned.

Maybe also on this point, I must add that after it became apparent in June that Blyvoor would have to take measures in order to reduce actual costs, we started engaging labor in a 60 day statutory process aimed at the reduction of the labor force, versus predominantly services. In other words, not aimed at the operating personnel, those working in the (inaudible) itself, but more the service side. And that process will come to an end during the course of this month, and should further reduce our total (inaudible).

Moving on to the next slide, slide number eight. This slide shows us the unit costs in dollar per ounce, US dollar per ounce. There again, you could see towards the end of the quarter, in September, underground showed a slight decrease, whereas cash operating costs from underground went up in dollar per ounce terms, unit costs.

Moving on to the next slide, slide number nine. We were quite pleased with the costs at our Ergo operation in particular. They were targeting below ZAR23 per tonne, and we in fact came in at below ZAR20 per tonne, due mainly because of the fact that we are drawing most of the water that we require for the reclamation of materials from the Brakpan Tailings Facility, and we will continue to do so for roughly the next year.

Cash operating costs, rand per tonne, at Blyvoor and at Crown, went up for the same reasons that I mentioned in the earlier slides.

Moving on to the tenth slide, we wanted to show exactly where we managed to get to with the development of our ErgoGold project. We have told the market in the past that we are targeting steady state by the end of September. We did not achieve steady state. Steady state means mining 1.2 million tonnes of material per month, at a recovery of around 0.15 to 0.16 grams per tonne. We haven't achieved that yet.

But many of the issues which inhibited us, or prevented us from achieving steady state, I think are in the process of being addressed, and these slides are intended to show progress against previous months' performance. Tonnes, for example, towards the end of September, touched [the -- barely] of 1 million tonnes for the month. We need to now mine approximately 40,000 tonnes of material per day to get there, and we are now starting to regularly see 40,000 tonnes per day.

Moving on to the next slide, slide number 11, Gold Production. There, too, you could see that since May of '09, gold production has, on the steady line, been going up every month, and it just touched 70 kilos of gold for the month of September. Now this is mainly attributable to significant improvements in the electro-winning efficiencies, and also, the elution efficiencies that I will deal with later on. And of course, the fact that we are increasingly introducing what we think has been a quality material from the Elsburg Tailings facility, That is the main reclamation site, with roughly 180 million tonnes of material, that that is also having an impact on these trends, and contributing towards these improvements.

Moving on to the next slide, slide number 12. There you could see what is essentially an engineering efficiency, or a metallurgical efficiency. In June, we were concerned about where the elution efficiencies were. Elution is the process in terms of which gold that has settled onto carbon is driven off the carbon and introduced into a solution to go into the electro-winning circuit. It's sort of the second last stage of the process.

If you don't get the gold off the carbon and in the -- back into the circuit, it could ultimately end up on the tailings [stand]. So we're very pleased to see that our elution efficiencies have improved from just under 60% in June, to between 80% and 90% in September, and that the trends are (inaudible) upwards positive.

Moving on to the next slide, slide number 13, the electro-winning efficiency. That is the last phase of the process prior to smelting, and this is where you get the gold to settle on electrodes in the electro-winning circuit, pulling it off the solution into which it dissolves, once it's been driven off from carbon. And there, we're pleased to report a trend between July and September, improving from 50% of the gold in the solution post-elution, up to just under 90%. And this, too, is a process that has shown a consistent pattern of improvement over the last few months.

Going on to the next slide, slide number 14. Oh, by the way, both elution efficiency and electro-winning efficiency, the actual recoveries here, or the actual performance here, is bearing on target with call. Actual and call have now converged, insofar as those two aspects are concerned.

Moving on to the next slide, slide number 14, Cash Operating Costs per Kilo. Whilst we are not where we want to be just yet, we are steadily improving so far as the patterns in this (inaudible) are concerned as well. And basically towards September, you could see that we were heading towards breakeven on this circuit.

I think we are in a position to report that we now know that, insofar as the engineering, insofar as the design, and insofar as the technology is concerned, that the Ergo project is not a failure. What we now need to do, in the quarter going forward, is to make the Ergo project a success. We did not invest the money we did in order to break even. We invested the money in order to make a profit. And whilst the trending is encouraging, there are still a number of issues that we intend to deal with going forward in the next few months, specifically with regard to the extraction characteristics of the two sources from which we are claiming material. We're pretty happy with the extraction efficiency of the Elsburg materials, but we still do have some concerns insofar as the L29 materials are concerned.

We've mined away most of the latter resource, L29, and we still only have about 5 million or 6 million tonnes left. But because it's part of an integrated circuit, we need to understand the extraction efficiencies of this circuit better. We've designed and constructed a small pilot plant to assist us in this. It's a plant that assists us in isolating -- or, enables us to isolate the material, and under controlled circumstances, measure the efficiencies, the extraction efficiencies of these materials.

We'll do the same with the Elsburg materials, and see to which extent the one influences the other, and what exactly the extraction efficiencies of those two sources are. Based on that, we'll take further decisions going forward. Should we accelerate the construction of the [last] portion of the Elsburg line in order to take its volume capacity to 1.2 million tonnes? Should we increase volume flow into the circuit from 1.2 million to 1.5 million, by mining only half of what we initially intended from L29 and the balance from Elsburg?

These are decisions that we are going to be making during the month of November and December, and then potentially accelerate the last phase of the pipeline. Capital for that would be -- run about ZAR8 million, but we will manage -- we managed to defer capital expenditure on the tailings deposition facility by a few years, capital expenditure of around ZAR9 million, which has freed up some of the project funds which we may apply towards this, if we choose to do so.

Right on to the next slide, slide number 15, Operational Review of Blyvoor. To last September, in particular, I think tells the story of Blyvoor's challenges. We call it the perfect storm, Blyvoor underground. It had to manage significantly lower gold price compared to where it was in February. It had to manage its way through significantly lower grades, because of the seismic events in April. And it also had to manage its way through four weeks of labor -- of production interruption due to the wage strike and the labor strike.

We think it's reached the bottom of the cycle, and that the way forward would be decidedly positive, trending back to where it was, at least insofar as production is concerned, earlier this year, during February and March. That is what we are targeting. Of course, whether that will be enough for Blyvoor to once again make a profit, we'll have to wait and see. It's very much a matter of where the gold price and rand terms would be at that point in time.

Also commenting briefly just on surface. As you could see, surface production was down, and that was, by and large, because of clay material which we encountered in our reclamation site, Blyvoor reclamation site, (inaudible) reclamation site. It was a manageable problem. We managed to overcome or deal with this issue within the period of one month. And by the time September arrived, we were back to normal volumes and normal recoveries.

Moving on to Crown, the Operational Review of Crown. Crown managed to navigate its way very effectively and efficiently through the wage strike. We didn't see any lost shifts there. And as you could see, gold production is back to just under 20,000 ounces. We're also very happy with the fact that Crown made a ZAR31 million cash operating profit during the quarter.

Moving on to the next slide, slide number 17, ERPM. Now one year after we suspended underground operations at ERPM, and we are now starting to see the numbers coming through, all that remains at ERPM, of course, is the reclamation of [slime off its] Cason Dump, treated by Crown at the (inaudible) plant. And again, you could see that the negative trending of the last few quarters have now been reversed, and at least the report, a cash operating profit of ZAR25 million, in respect of ERPM.

Moving on to ErgoGold, slide number 18. I took you through the trending, and I'll briefly just refer to the numbers, 181% change, positive change in gold production, a 42% improvement in the costs, and we managed to reduce our cash operating loss to ZAR10 million, with the September month being a virtual breakeven month.

I will now ask Craig to take you through the next two slides, slide 19 and slide 20 -- Financial Review-Income Statement, and Financial Review-Balance Sheet.

Thanks, Niel. Hello, everyone. On the income statement, the revenue number for the quarter was (technical difficulty) to ZAR445.2 million, an 8% increase in gold (inaudible) offset slightly by a 2% reduction in rand gold price for the quarter. The net operating costs for the quarter were up, to ZAR449.4 million. That number includes a [movement] in gold prices of [ZAR15] (inaudible). If you just look at the cash operating costs included in that number, they were up 3% for the quarter, and was mainly as a result of the 32% increase in electricity costs, which came in July, and also a provision for the wage increases which we just finalized in this quarter.

That left us with an operating loss for the quarter of ZAR4.2 million, compared to a profit in the previous quarter of ZAR1.3 million. Finance income line of ZAR8.4 million is all the interest received on the cash holding, and the ZAR3.3 million comparative number in the previous quarter included a ForEx -- realized ForEx loss on one of our offshore operations. So you can see that the interest, the actual interest received number has come down to ZAR8.4 million, from roughly around ZAR13 million. And that's really an effect of -- well, it's the result of the lower cash balances for the quarter.

Other costs of ZAR101.2 million -- again, in the prior quarter, there was a ZAR53 million credit which was the recognition of negative goodwill, and on the acquisition of ErgoGold, which was included in that number. That's why it's a lot lower.

Loss before tax for the quarter was ZAR97 million, compared to a loss of ZAR81.2 million in the previous quarter. The tax line, the number ZAR33.7 million credit includes a current tax charge of ZAR6.8 million, and a deferred tax credit of ZAR40 million. The current tax charge is mainly taxed in Crown, as well as the [FTC] paid on the dividend of almost ZAR2 million.

That left us with a net loss for the quarter of ZAR63.3 million, compared to a profit in the previous quarter of ZAR42.6 million.

On the next slide, the balance sheet, slide 20, there's some numbers that I want to discuss. Obviously, the cash balance has come down, from ZAR353.6 million to ZAR234.3 million. That's roughly ZAR120 million. And included under long-term liabilities is, again, the (inaudible) [shares] of ZAR65 million and a post-retirement medical liability makes up the balance of that number. And that's at Crown.

The provision for environmental rehab, sitting there at ZAR423.4 million. The deferred tax liability on the balance sheet, on the liability side, of ZAR173.7 million, is all related to the acquisition of ErgoGold, which was raised when we acquired that asset. And then, our current liabilities (inaudible), for ZAR370 million for the quarter, or at the end of the quarter.

And I hand you back to Niel, just to do the final slide.

Thank you, Craig. Just on the Looking Ahead slide, which is the slide on page -- slide number [29], the last of the slides. Of course, once you've been through the various challenges that our people, our personnel, our management had to manage their way through in the last quarter, one had to take stock and take the view on where we then go, going forward.

Did we manage to curtail the strike action in time, I think we did. It was necessary for us to reach a wage settlement well within our Company's means. We are now in a jurisdiction where there are, from time to time, the (inaudible) [station] cost increases, and therefore, one has to really manage one's costs very carefully, and take a very disciplined approach to how much one can afford to pay. And therefore, the wage strike was certainly necessary, and I think we came through it probably a little bit better than even ourselves expected, having maintained production at virtually -- virtually on a flat line.

And further, it is important that we now implement the restructuring at Blyvoor that we, again, in our (inaudible) to meet (inaudible), and that we can continue to consider the overexpansion of our business in order to ensure long-term sustainability.

Surface operations -- all of our surface, Crown Gold, ErgoGold, ERPM and Blyvoor, are well positioned for profitable production. We do not have any significant capital expenditure planned for any of those in the near term. Those were the capital that we had to spend, Ergo has been spent. It's now really just a matter of getting the volumes and the recoveries to where they need to be.

We were targeting 70% of gold production from surface, and 30% of gold production from underground by the end of the year. We're just about there. Going forward, the focus will, therefore, continue to be improved productivity, better cost controls and continuously improving cost controls, and managing our margin.

[And the risks] (inaudible) are changing. We have shown in the past, have shown now in the recent past, that DRDGOLD is capable of responding to changing environments very rapidly, and we've been very fortunate in that most of those changes have positioned us in a better situation than that which we were in prior to the new circumstances. Hopefully, we can continue to do that, and to restore our business back to profitability in the (inaudible).

Thank you very much, everybody, for listening in. We'll now take your questions.

Thank you, sir. (Operator instructions). We will pause for a moment to see if we have any questions. (Operator instructions).

Gentlemen, we seem not to have any questions in our queue.

(inaudible)?

We have no questions in our question queue.

(inaudible). Thank you very much, everybody, and good afternoon.

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