DRDGOLD Ltd (DRD) 2010 Q3 法說會逐字稿

Good afternoon and welcome to the DRDGOLD results for the quarter ending March 31, 2010. Please note that all participants on this call 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 call over to Mr. Niel Pretorius. Please go ahead, sir.

Thank you very much. Good afternoon, everybody, and welcome to our telephone conference presentation. I ask that you please have regard for the disclaimer at the beginning of the presentation before I take you through the highlights and various other slides for the quarter.

Turning to slide three, highlights for the quarter, we're pleased to report an increase in our operating profit of 11% to just under ZAR100m. We were also very pleased that our gold production has gone through 60,000 ounces to 62,500 ounces, which represents a 4% rise.

Our cash operating costs remained pretty flat at ZAR221,000. This is, in fact, a drop of 1% per unit cost production cost.

And then we're also very pleased and encouraged that Blyvoor managed to find its way out of judicial management and that it successfully applied to the High Court of South Africa to have the judicial management order lifted.

Turning to the next page, I'll deal briefly with the group trends that we've been sharing with the market over the last few periods. The first one is actual tonnes produced. And there you can see that our tonnes mined from our surface operations, from the retreatment of our tailings dams for the period, January through to March was between 1.9m per month and 1.8m tonnes per month.

Underground production was pretty steady, at just under 60,000 tonnes per month. I'll deal a little bit more with the trending on the surface circuit and what to expect going forward.

Turning to the next page, the gold that we produced. In respect to surface production, gold production was down for the quarter. This was attributable mainly to the production of two of our plants, Crown Central and also the surface reclamation plant at [Blyvoor]. I'll deal with greater detail on those two as well.

And then the underground off a very low base in October of 2009 when we had the strike, it found its way back to just over 225 kilos and then drifting down to just over 200 kilos of gold per month.

Moving on to the next slide, our yield, grams per tonne. We're aiming to achieve a yield above 4 grams per ton from our underground areas. The only factor inhibiting us from achieving this consistently is preventative measures that we take in avoiding certain higher-grade areas from time to time, as and when the seismicity risk in those areas increase. Towards the end of the quarter, towards March, we had just such an incident. But we are progressively finding our way back into the higher-grade areas in Blyvoor, an initiative which started in April and May of last year after we had incurred significant seismicity damage in various of our higher-grade channels.

Our [wet] project, whilst it failed to meet a number of deadlines, is now approaching conclusion. And hopefully we should be in a position to report to you recoveries consistently above 4 grams a tonne going forward, in the not too distant future, with effect from this in the next quarter.

In so far as our surface reclamation is concerned and yield grams per tonne there, it remained pretty steady for the quarter. It will drop ever so slightly as we go forward with an increase in the Ergo tonnes and a decrease in the other surface. But of course that is offset by higher volumes going forward.

Turning to the next page, our cash operating costs, rand per kilo, you can see how our underground operations came down from a very high number in October and also highest numbers in December and November, through to below ZAR300,000 per kilo. And it's now in the money, cash operating costs. Surface costs went up ever so slightly, as a consequence of slightly lower production for the quarter. On the whole though, quarter-on-quarter, cost per kilo came down by 1%.

Next page, cash operating cost, rand per tonne, this is a great efficiency measure to see how much it's actually costing us to bring out the units that bear gold-bearing -- the gold-bearing units from underground and also surface. Both of these are relatively flat.

Moving on to the operational specific trends. The first one that we deal with every quarter is our Ergo trends. This operation has very much become the center of gravity of our business going forward. And in light of the relatively disappointing results that we initially reported on Ergo in May of 2009, we've been showing these trends on an ongoing basis so that the market could gauge how far we make progress in achieving what we have set out to do.

As you can see, the recovery yield for the quarter was around 0.1 gram per tonne. We anticipate pushing that through to 0.12 where we believe it would stabilize. And then with additional tonnes coming off the (inaudible) Elsburg circuit push gold production well up from where it was for the current quarter. We are pleased though that Ergo is in the money, as the numbers later on will demonstrate.

Turning to the next page, our Ergo volumes. Here you can see volumes sitting at just over 1m tonne a month. We recently commissioned, earlier in April, a second reclamation station on the Elsburg tailings dam, as well as a second line of pipes. And we could effectively deliver the entire volume capacity of the Ergo plant from the Elsburg tailings. Elsburg tailings is our main resource in the Ergo circuit. And we should be in a position -- increasingly be in a position to hit the target of 1.2m tonnes per month.

Moving on to the next slide, I'd like to ask that we consider this slide and the next slide simultaneously because it indicates the improvement and recoveries in efficiencies. Gold production is up quarter-on-quarter. And we are now regularly achieving better than 100 kilos per month. That's likely to go up further in the months to come.

Turning to the next page, the head grade considered that we feed into Ergo, you can see that that head grade has actually declined ever so slightly. The grades from the Elsburg tailings dam are slightly lower than those which we initially mined at Benoni. But we are achieving better recoveries.

As you can see, notwithstanding a slight decrease in head grade, consistent with expectations, our actual gold production is up, which I would suggest is an indication that efficiencies are on the improve.

Then turning to the next page, you'll please excuse the background noise. We've got a tremendous thunderstorm in Johannesburg going on. Turning on to the next page, page number 15, Ergo cost rand per tonne, there again pretty much on target, hovering above ZAR20 per tonne, which is a very encouraging sign, especially also the fact that it's staying flat.

Turning to the next page or the next slide, rather, slide number 16, here's a picture of our Ergo pilot plant. We commissioned and built this plant in order to understand the process in the Ergo plant itself much better. Ergo treats more material per month than any other plant in the world, from a surface resource. And we're not getting the efficiencies or the recoveries that we had set out to achieve. And we have every intention of eventually getting there.

But in order to assist us to, under controlled circumstances, test the extraction characteristics of the material we process as well as the process itself, the technology and chemistry involved in the process, we built this plant. And it's increasingly giving us a very good understanding or an improved understanding of our material and what we need to do.

Ultimately we hope to achieve in our plant the sort of recoveries that you are seeing in the pilot plant. And I think its biggest contribution, at this stage, is assisting to manage the mix from our main resource at Elsburg and that of our secondary resource, the Benoni Dam.

Moving on to the next slide, the Ergo pilot plant sketch, this shows you more or less the layout of this plant and how it functions.

Turning to the next page, the operational review of the operations themselves, Blyvoor had a -- showed a very nice recovery to -- on its way to where it was prior to judicial management and the strike in October. Very pleased to report almost a 6,000 ounce improvement quarter-on-quarter. Its underground -- or its surface production unfortunately came down quite a bit, by 16%. This is, to a large extent, to do with a new area in the number four and five tailings dam that they're mining where they encountered a clayish substance and they had to make a number of adjustments to their screens and also the pumping station itself. We believe that they've sorted out most of those and that they should be back on track in this current and the next quarter.

Underground production, though, showed a very nice recovery, back to former levels. And our endeavors, going forward, will be to maintain this and also to keep our recoveries above 4 grams per tonne. Encouraging though is the fact that in the graph in the bottom-left corner, the little golden line has bridged the back line, suggesting that Blyvoor is back in profit. And the ZAR31m cash operating profit or $4m cash operating profit for the quarter, certainly an encouraging sign.

Challenge going forward for Blyvoor, which is a challenge which is not unique to this mine but to the mining industry, underground mining industry as whole in South Africa, the impact of Eskom's tariff increases, the due date for these increases were July 1, at just over 30%, Eskom was agreed or was told that it could have a 24% increase, but they implemented that three months earlier from April 1, so we'll start seeing the effect of those from this very quarter.

Turning to the next slide, slide number 19, the underground efficiencies from Blyvoor. This is the -- TEC is a measure to gauge the efficiency of employee units so to speak. And there you can see that the contribution made by every employee on the mine is significantly improved.

Turning to the next page, operational review of Crown. Crown's central plant had its worst month in several months, as a consequence of reclamation site cleanups, having to be selective as to where it was planned.

We also had significant rainfalls as you would have heard outside, this is not the first rain storm that we've had this year, we've had several. And this is the one thing that can and will affect the production flows of your surfaces operation. In the event of a thunderstorm like the one that we are experiencing now, we pull our people off the dams because of the risk of lightning, and then the additional water also has an impact on the densities of the materials that we pump through to our plants.

We're moving into the dry season though now, into winter. We're a summer rainfall area so we expect lower rainfalls going forward. Many of the pipeline realignments and other engineering issues that -- or maintenance issues rather that Crown has to deal with, these have been dealt with. And looking at the numbers as they are coming through at the moment, they seem to be back where they were prior to the events that occurred during the course of this quarter.

Having said that, Crown still managed to contribute roughly ZAR34m in cash operating profit, taking into account also that Crown's capital expenditure, ongoing capital expenditure is very low.

Turning to the next page, ERPM Cason Dump. ERPM Cason dump, which is ultimately intended to be integrated into the Ergo circuit, they've experienced a number of pipe column failures and also managed to record their worst figures since March of last year.

These, I believe too, to a large extent have been ironed out. And the numbers that we saw earlier in the year and also late in September, those numbers are in all likelihood likely to be repeated going forward. They too being a sand reclamation business obviously saw the interference of high rainfall.

In a nutshell really, what we saw during the quarter was in so far as our smaller sand reclamation and dam reclamation circuits were concerned, that they encountered a few challenges. But that underground operation came to the fore and counteracted to a large extent, the negative impact there.

Then moving on to the operational review, Ergo. There you can see that production costs -- production itself is on a healthy trend. Obviously that trend is now flattening out as we're reaching the optimal efficiency within our circuits with regard to current technology. We're also very pleased that it's managing to maintain some daylight between the cash operating cost line and the revenue line.

So Ergo is in the money. I think going forward with the additional tonnes that we are likely to see coming through and with the steady costs that these trends are hopefully likely to continue.

I will ask Craig to take you through the next two slides and also some commentary on the financial performance, financial review, income statement and balance sheet.

Over to you Craig.

Thank you, Niel. Good afternoon, everyone. On the income statement on slide 23, our revenue was up 5% for the quarter from ZAR499.6m to ZAR524m and that was as a result of the 4% increase in production, as well as a 1% increase in the rand gold price.

The next line, our cash operating costs (inaudible - technical difficulty) 3% up, and that was mainly as a result of the labor costs at Blyvoor returning to or increasing after the completion of the strike in November 2009, the previous quarter. This resulted in an operating profit for the quarter of ZAR96.9m, 11% up on the previous quarter. Finance income is slightly down, it's mainly due to the lower cash balances as well as lower interest rates received in the quarter.

The next line that I want to discuss, other income and costs, that's increased quite a bit for the quarter, mainly as a result of a rehab or movement in rehab provisions for the quarter, which went up due to an adjustment to our inflation, or our forward looking inflation rate assumption in that NPV model.

The taxation line includes current taxation of ZAR8.2m, all coming from Crown, and a deferred tax credit of ZAR2.9m. That results in a net profit for the quarter of ZAR12.3m, substantially up on the previous quarter's ZAR6.4m.

On the balance sheet, slide 24, just some numbers to highlight to you. You've got cash balances sitting at over ZAR200m. Long term liability number includes the preference shares from our BEE partner of ZAR65m, as well as post-retirement medical liabilities, which form a big chunk of our post-retirement employee benefits of ZAR43m.

Our current ratio is still sitting pretty healthy at 1.5, slightly up on the previous -- on the end of the previous quarter.

I hand you back to Niel for the remainder of the slides. Thanks, Niel.

Thank you, Craig. We spent quite a bit of time in the previous presentation talking about Zimbabwe and the manner in which we approach Zimbabwe. Take low exposure but make sure that we get our foot in the door, or a foot in the door.

Nothing's changed since then. Our budget for the year is ZAR7.5m and we don't intend to exceed that. We are now establishing our site. We have Camden Geoserve, which is a local prospecting company or geologist on site. And we have contracted them for a 20 week -- 28-week exploration program.

In the little plan to your right, you'll see where our operation, or our site is situated, just to the right of Dalny Mine. It's very much in gold mining territory in Zimbabwe, and hopefully from time to time we'll be able to be in a position to provide you with some additional information as to the outcome of our drilling and exploration program.

We are intending, at this stage, to make use only of gravity extraction with a little (inaudible) and a Knelson concentrator and we are not going to make use of any reagents at this point in time.

Then to the next page, we included some pictures of what's going on in Zimbabwe to give you an idea of what the site looks like and what mining in Zimbabwe generally looks like. It's very basic and at this stage pretty small scale as well. But in view of the fact that Zimbabwe hasn't been mined for several decades now, and is a relatively young country from a mineral exploitation perspective, we do believe that the potential there remains attractive.

Of course, they've also recently announced an indigenization program in terms of which 51% of rights in two minerals are to be held by local Zimbabweans. Our business relationship is a 50/50 relationship, so if push comes to shove and this legislation is pushed through, it will imply a 1% dilution for DRDGOLD.

And moving on to the final page, looking ahead, our focus remains firmly on making sure that Blyvoor remains on the road to recovery, particularly also in as far as absorbing the additional electricity costs are concerned.

Second main, or key objective that we will continue to pursue is the production build-up of Ergo. We have now finalized our transaction with Mintails, and have become 100% owners of this circuit. The Competition Commission of South Africa approved this transaction, which means that we could really build surface expansion and the exploitation of synergies around this particular circuit.

Going forward also, in Zimbabwe we'll remain fairly modest in our approach but make sure that we collect as much information as we need to take a decision as to whether further capital expenditure or capital investment is justified.

That concludes our presentation. We will now take your questions and provide answers if you have any. Thank you.

Ladies and gentlemen, thank you very much for attending this conference, and we look forward to talking to you again three months from now.

Thank you, sir. On behalf of DRDGOLD that concludes this afternoon's conference call. Thank you for dialing in. You may now disconnect your lines.