DRDGOLD Ltd (DRD) 2010 Q4 法說會逐字稿

Good morning, everybody, and thank you very much for taking the time to attend our results presentation for the year ended 30th of June, 2011. Once again, Craig and I will jointly do the presentation. I'll take you through some of the operational bit, and he'll talk to you about the numbers.

While you look at the disclaimer, I think you'll see that most of the attention in this presentation is directed at what we've been doing at Ergo and our surface operations, what we intend doing going forward, and also the steps that we're taking in repositioning our underground operations, and also long-term underground assets.

So to get straight into the highlights for the year, we again declared a dividend. This dividend's up on the previous year by 50%. I think the yield is about 2% based on the numbers, the market cap, on the day that we decided the dividend. And I think 2% is the second highest of South African gold mining companies.

We also saw year-on-year a 10% increase in gold production to again above 0.25 million ounces. Encouraging is the fact that we saw a 37% increase in Ergo, which is rapidly becoming the center of gravity for our surface reclamation business. Revenue increased quite a bit as well, 29%, to just over ZAR2.5 million. That of course is a combination of the high gold price. Gold price was quite a bit higher year-on-year, average gold price. I think the average gold price for the year was about ZAR308,000. Which also of course provides perspective for the new year going forward, because we kicked off the year with the gold price touching and then going through the ZAR400,000 a kilo. Roughly, ZAR92,000 up a kilo on the average price that we received in the previous year.

Headline earnings also showed a very healthy increase of a 115% to ZAR0.28. And then we saw -- and this is my measure. I don't always understand all the accounting treatment issues. This is my measure; how much money did we make? We had a 504% increase in net cash flow into the operations of ZAR323 million. And that is the money that enables to reinvest in Ergo and improve the technology there and also integrate that circuit.

There's a full impair -- there's an impairment charge in the income statement; we fully impaired Blyvoor. We decided to do that in view of the fact that the outcome of the business rescue procedure, that I'll touch on later on, that that outcome is not certain. If there's an adjustment further on, obviously it will made, either a direct investment into the business or a sale of that business. But for the time being, we thought that it would be appropriate to do a full impairment until such time as we know exactly where the business rescue process is going to take us.

And then I'll be spending a little bit of time talking about the Ergo/Crown pipeline and the plant refurbishment or the plant upgrade rather, which is happening on schedule, within budget, and some of those circuits -- certain sections of that pipeline will in fact start to come online in the next few weeks.

What we also decided to do this year, which is slightly different from previous years, is some of the cost dynamics in the South African gold mining space, some of those cost dynamics are cyclical. And as a consequence, reporting successive quarters and doing comparisons on successive quarters sometimes gives a bit of distortion, especially if you measure your own performance against the performance of companies that do not produce gold in South Africa, where they don't have these cyclical fluctuations.

The most important one being, of course, the fact that we pay a 60% surcharge or some of us pay 60% surcharge on electricity during winter months. So we decided to rather do a comparative quarter -- on comparative quarter analysis to give you some idea as to how we performed this quarter compared to the same quarter in the pervious year when the same dynamics applied.

The first line, in fact, is not a comparative analysis; it's just the safety stats. We had a second fatality-free quarter. In fact, in the last week, I think Blyvoor reported another 1 million fatality-free shifts. It went through 5 million fatality-free shifts associated with fall of rock and seismicity. And one of the shafts, number 4 shaft, reported a 2 million fatality-free mark as well.

The quarter-on-quarter -- comparative quarter-on-quarter gold production numbers, that is what you see on the next line, a 2% increase quarter-on-quarter. Revenue up quite a bit, 21%, to ZAR630.2 million for the quarter. Operating profit also significantly higher, 21%, to ZAR111 million. Costs went up by 15% over those two quarters, and that's by and large as a consequence of the increases in electricity costs. And then, of course, you'll see in the income statement the impairment charge. Craig does a nice analysis also on what the non-cash adjustments are in the income statement.

But then also talking to you about the Ergo trends; this is something that we started doing right from the beginning after we commissioned Ergo. Just to give you an idea as to what's happening there with our volumes, with our costs and grade. I'll give you some time to look at these pictures, because I always find them -- I enjoy looking at them. Sometimes people underestimate the scale of Ergo; it's a very large operation. You should really try and fly over it sometimes, charter a helicopter and go and have a look.

The volumes quarter-on-quarter; this is the comparative numbers again. You can see the volumes are up quite nicely, and we're seeing a nice surge towards the end of the financial year. And that is really as a consequence of sections of the pipeline and sections of the new reclamation stations and pump stations coming online. So, Ergo's hitting its volume target frequently and with relative ease on a recurring basis nowadays.

The head grade is lower. The scale is actually quite dramatic. The difference is only about 0.2 -- 0.02 grams per tonne. And this is by and large as a consequence of the complete phasing out of the Benoni dam. There's very little materials left on the first dam that we started tweaking, the so-called Benoni dam. Most of the reclamation now happens at the Brakpan or rather the Elsburg tailings dams. And there were two new cuts or two new phases commissioned in the last few months, and those invariably have a slightly lower gold content.

The nice surprise about doing a very large tailings dam like this and doing it by way of monitoring all these water jets, is it's like taking off the layers of a cake. And gold being very heavy, and much heavier than the surrounding materials, tends to sink, with a sand dump like Top Star and the [JCC] dump that we're busy working now.

Obviously, you take that from the tow and you allow the materials to sag to the bottom, and there you get a fairly consistent grade towards the -- over the entire life of the reclamation of such a site. But at tailings dam, you take off layer by layer. So, top layers are slightly lower in gold content; the bottom layers the gold content tends to improve because the gold has settled down at the lowest point over the decades that the tailings dams were established. But you could see a degree of consistency now at about a 0.3 level, and as we speak, also trickling up every so slightly.

Now the next graph also tells you how much we are recovering. And you could see that it's between 0.12 and 0.11 grams per tonne. We would like to get it up to consistently above 0.12, and we think we're getting there. At this stage, the difference between a 0.12 and a 0.13 is sometimes the fourth decimal in actual gold content. So obviously, this is an ultra volume environment, very sensitive to fluctuations. But at these levels, we're getting a healthier return.

The gold produced -- I think this is a very important graph. That's why we put it in there. Notwithstanding the fact that the gold grade, the head grade, going into the plant is slightly down year-on-year, you could see that gold production is consistently up. And that is a consequence really of higher tonnes and also slightly better recoveries. The value, the gold content of the gold tail that leaves this plant has consistently come down and is actually at a very manageable level at this point in time.

And the costs -- you can see also the costs there are also pretty flat, at about ZAR23 per tonne, and more or less staying there.

I'm going to spend a little bit of time talking about the Blyvoor business rescue process. In June, we announced to the market that in terms of the new Companies Act, which sets certain requirements or conditions for the provision of financial assistance to subsidiaries, in terms of the provisions of the Companies Act the DRDGOLD Board decided to suspend financial assistance to Blyvoor.

Blyvoor -- the full name for Blyvoor is Blyvooruitzicht Gold Mining Company Limited. And the reason why the limited appears at the end of the name is to say to all and sundry who engage this business, this mine commercially that there is limited liability associated with it. It's not a division or a firm; it's in fact a separate entity with a separate legal personality that can sue and be sued, and it exists independently of its shareholders.

DRDGOLD, of course, is a 74% shareholder of Blyvoor. What the Companies Act is now saying is that you may only provide financial assistance to such a subsidiary in the event that financial assistance complies with certain very clear and predefined conditions. And we had a look at those conditions, and the Board deemed it appropriate that, in the circumstances, further financial assistance should be suspended.

In fact, the sum total of financial assistance to Blyvoor over the last two years, after it came out of traditional management in the previous financial year, was only ZAR25 million. So Blyvoor pretty much looked after itself up until very late in the financial year. It was achieving budget on production. It was achieving budget on costs. And then in the last two months -- Craig will in fact demonstrate that when he goes through the summary of operational results, there was a dip in income. And that was associated with a drop in grade, which in turn was associated with a change over to a different kind of explosive after our explosives provider had damage done to one of its sections, and we didn't get the typical kind of explosive that we use.

So it was improvised explosives, high velocity, smaller fragment -- more of fragmentations, smaller fractions and [more of the funds] into the back (inaudible). In-situ grade remained the same, but over the [finesse] grade dropped by about 25%. And this is entirely attributable, we believe, to the fact that we had this interruption in supply. This pushed Blyvoor into the red over two months. It pushed its cash flow position into distress.

The DRDGOLD Board was not comfortable in providing further financial assistance. And the members of the Blyvoor Board did what I think in the circumstance was the only appropriate thing to do, and that is they availed themselves of the new Chapter 6 proceedings or business rescue proceedings that the new act makes provision for.

A Business Rescue Practitioner was appointed, Mr. Van Den Steen, and I think he's done an admirable job in the meantime. There hasn't been any interruption in essential supplies. Of course, most of the supplies were on current terms in any event. He engaged Eskom and managed to avoid paying winter tariffs for the last three months. We did have to spend a little bit of time in the presence of lawyers and advocates in order to achieve that. But he did avoid the winter tariff and that helped processes ongoing. That of course has a made a big difference also in Blyvoor's cash flow situation during this rescue period.

It was extended up until the first of November. The business rescue plan is supposed to be finalized within a period of 25 days. We didn't manage to achieve that. It became apparent to us that we are going to have to align the unions also with this whole process. They need a greater degree of clarity as to what it involves; that it's not a strategic ploy, but it's in fact a very necessary thing. And we're hoping to have a greater degree of cooperation also from the unions in getting a business plan approved. And the national office has agreed to meet with us. We'll be chatting to them -- myself and Barry de Blocq over there over the next few days, and hopefully, we'll get better support from them as well.

The reason why the participation of the unions is so important is the Business Rescue Practitioner has to submit a three-year business rescue plan, and they have to agree to the terms of that plan. He needs numbers that he can slot into his plan. And in the absence of agreement by the unions, obviously there are no numbers that he can slot in and hence the process may become compromised. So we're hoping and looking forward to a greater degree of support from them as well, once they understand the process a little bit better.

We also had consultations with other parties. One of those other parties was the IDC, to see if there was any opportunity for finance, interim finance, to cover Blyvoor's working capital deficit through to the end of the year. But we haven't been successful with the IDC. The teams that -- the standards that they apply in extending loans is pretty much a commercial normal bank standard. There's nothing special in how they consider facilities that they extend to parties.

Right, then just a little bit of an update on the Ergo/Crown pipeline progress. This involves the consolidation of our entire Central and Western reclamation footprint or recycling footprint, the Crown Plant and the City Deep Plant. You can see the two here. That one over there -- that one over there. Just to give you some sense of scale, Oliver Tambo is more or less there, right over there, and Soccer City, the big soccer stadium, the world cup soccer stadium is right over there. So it's about 35 kilometers across and another 27. That's the size of our footprint.

The plan is to, by the end of year, phase out both the City Deep Plant, that's happening over the next few weeks, and the Crown Plant, that's will happen towards the end of the year, and carry all of our reclamation material, all of our feed from the West Rand through to the Ergo plant through this pipeline. It basically means that we could take the volumes that are going into the Crown and City plants now. And you'll see when Craig takes you through the segmental analysis that those volumes have been coming down.

These two plants are very much at the end of their natural life. They've been around since the 1980s. Those volumes are about 400,000 tonnes a month combined, will go up back again to about 600,000 tonnes because that is the capacity of this pipeline. And depending on how efficiently we treat the materials at the Ergo plant, it could have an impact on gold production as well.

We are not forecasting higher gold production. Our objective is to keep gold production from these circuits steady. But there may be some upsides going forward.

You'll see what the steel pipe looks like. Okay, so, that's been this 50 kilometers which is in place, and then, of course, there's the rubber lining. That's the green bit there, 44 kilometers -- begging your pardon, the steel pipe is 44 kilometers. I think there's a blue thing here as well. There we go, there's the blue one. That shows you where the rubber lining, the way they've managed to get -- go there. There's in fact on our website quite an interesting video that shows how the rubber lining or the HDPE lining is pulled into these segments of pipe, these sections of pipe, in order to make these pipes safer, in order to extend their life, and also to -- in order to make them less attractive to people who unofficially recycle metals and steel and so forth.

We've decided on a longer length of pipe. Instead of the 12 meter sections that are connected to each other by way of nuts and bolts, which are very, very -- it's a very attractive commodity in the scrap metal market, in order to avoid that we now have 500 meter segments. But of course you need to get that lining through that 500 meter section.

And it's a fascinating process. We found it in Texas, in America. Our engineers went there. The General Manager of Crown went there. They studied the technique and they're using it here. And it works very well.

So we're hoping that that will have the effect; that consistency and volume flow would be a given going forward. But that's where we are, and by the end of December, hopefully this whole lot would be up and running. It's within the timelines. It's within budget lines, and we're very excited about seeing it fully operational.

Right, I'll hand you over to Crown -- to Craig now rather, who'll take you through the operating and financial results.

Thank you, Niel. Good morning, ladies and gentlemen. Firstly, on the operational review for Ergo. At Ergo we saw a 22% increase in gold production in this quarter compared to the last quarter during 2010. And this was a result both of an increase, 11% increase, in volumes and also a 10% increase in the grades.

The cash operating costs increased by 2%. That was helped obviously by the higher gold production as well. And the cash operating profit for the quarter increased by 77% to ZAR56 million, helped of course by the higher gold production and also the higher rand gold price.

You can see in the second graph there how -- which shows revenue versus net operating costs, that the margins at Ergo have been opening up quite nicely, and we're sitting at operating margins of just under 40% at the moment, at Ergo. That of course was at the gold prices received for the quarter. The gold prices are now much higher.

The operational review for Crown; at Crown -- obviously, the production at Crown has been impacted by Top Star coming to an end. You saw then a 8% decline in the gold production compared to the final quarter of 2010, fiscal 2010. And that was mainly as a result of lower grades as Top Star comes to an end and the production is finalized. And this resulted in a 17% increase in the cash operating unit costs. So, both a decrease in gold production as well as higher costs mainly brought about by electricity price increases.

The cash operating profit remains stable at around ZAR55 million. And you can see there in the second graph also showing that the margins remained pretty stable throughout the whole period, which is shown on that graph, and currently sitting at operating margins of 25%.

Operational review for Blyvoor; Blyvoor saw a 4% rise in gold production when you compare it to the final quarter of fiscal 2010. And this was brought about mainly as a result of the increase in surface production at Blyvoor. Underground production dropped in fact by 7% quarter-on -- when you compare this quarter to the final quarter of 2010. And that was as a result, as Niel has mentioned, of a number of issues, including unscheduled power stoppages; voluntarily stoppages due to seismicity, in particular at the number 5 shaft at Blyvoor; also section 54 stoppages during the quarter.

And Niel already talked about the explosive supply issue, which caused a significant drop in the grade, in the underground grade from Blyvoor, ending up on about 3.34 grams a tonne for the quarter. This resulted in a 17% increase in total cash operating unit costs, and again, the increase, the significant increase in cash operating costs there as a result of electricity -- mainly as a result of electricity price increases, and the higher winter tariffs based on that high electricity cost.

So they made a very small operating loss, ZAR0.6 million. So basically, breaking even at a operating loss or profit level. And you can see that in the graphs as well, the volatility in production. And you can see in the second graph how the operating margins have been impacted, opening up in certain quarter and then closing down in this last quarter again.

And now the financial review. The income statement first of all for the full year compared to the pervious year. Revenue was up quite nicely, 29%, compared to the pervious year, both as a result of the 10% increase in production and also the 15% increase in the rand gold price received.

Net operating costs, which includes gold in process and movements, was up 21%. That increased both as a result of electricity price increases, higher volumes. If you compare year-on-year, we processed a lot higher volumes across all operations. And then also the gold in process movement, which is a debt for this year compared to a credit in the prior year, which also had an impact on that increase.

This results in an operating profit of ZAR477 million, up 76% on the previous year. The depreciation line on the income statement is down 31%, and that's mainly as a result of Crown's life-of-mine increasing, which obviously has an impact on the depreciation, which is calculated over the life-of-mine.

The movement in the provision for environmental rehab, you can see there was a quite big swing. And in the fiscal 2010, there was a reversal of a number of provisions relating to mining rights that we disposed off, in particular at the old West Wits mine and also the old Durban Deep mine, which impacted those numbers.

Retrenchment costs, basically it was the end of the retrenchments in this year at ERPM -- that small amount that came through in the current year. And what I've done in this year is I've included an extraordinary items line, which basically puts --- which lumps together all the big movements which are really brought about by accounting changes. In this current year, the biggest movement, the big debit there under extraordinary items is mainly the Blyvoor impairment, which was about ZAR546 million of that number.

As Niel mentioned, we've written that down. And then in the prior year, there were a number of credits that came through. One was the foreign currency translation reserve that we realized on the winding up of some of our offshore subsidiaries, the holding companies offshore, which brought about that credit income statement. And also, there was an adjustment to the provision for post-retirement medical liabilities, which brought about a gain in the prior year of around ZAR35 million.

This resulted in a net loss before tax of ZAR383.2 million for the year. In the tax line, that's mainly deferred -- there are some STC numbers included in there that was on the dividends that were paid in the prior year. But mainly that ZAR32 million includes deferred tax movements for the year brought about as a result of rate changes that were implemented in the current year and also profits that were generated at Ergo, which obviously reduced the assessed tax losses there, and therefore the deferred tax assets are reduced. That's why we see those movements coming through in the tax line.

So we ended up with a ZAR415.4 million loss for the year. However, if you add back the extraordinary item, the impairment of Blyvoor or the impairments, we actually made ZAR132 million profit. The headline earnings number was up 115% to ZAR0.28 per share for the year.

Then just quickly on the income statement for the quarter. Again, this is comparing to the final quarter of Q4 2010. You can see that revenue is 21% up, mainly as a result of higher production and the rand gold price received again. 21% increase in costs, again electricity price increases, again also higher volumes and the gold -- the GIP movement or the gold in process movement.

Operating profit was 21% up for the quarter, ZAR111 million. Depreciation also impacted again by the Crown's life-of-mine, which was extended. So that's down 40%. The movement in provision for environmental rehab; again the credit that came through in the last quarter of 2010, of fiscal 2010, was mainly as a result of those disposals of those mining rights that we talked about, the DRD mine and West Wits.

Net finance income you can see is up compared to the previous year. In this year, we have a ZAR6 million capitalization of borrowing costs. So, that was borrowing costs which were moved to property, plants and equipment. And that related specifically to the funding raised for the Crown/Ergo pipeline.

Other income and costs; in the current year we have a gain on financial liabilities measured at amortized costs, and that's basically on the preference shares, the BEE held preference shares in Blyvoor and also in ERPM. And the biggest credit came from Blyvoor's preference shares, which have been written down to nil. Again, extraordinary items; that again is the Blyvoor impairment. And in the prior year, the two credits, the FCTR realized and post-retirement medical liability gain in the prior year.

Taxation, the biggest movement in the taxation number in the quarter was again the deferred tax movements for the quarter. The net loss for the quarter was ZAR507.9 million. If you add back the impairment, it was a ZAR40 million profit. And then the ZAR0.08 for the quarter, the headline earnings compared to the ZAR0.24 in the fourth quarter of June 2010. That ZAR0.24 in the prior year was really impacted by the post-retirement medical liability gain, which was really a once off, and also the reversal of those rehab provisions.

Okay, on the balance sheet; property, plants and equipment. That's decreased quite significantly and that is mainly as a result of the impairment of Blyvoor. You can see our cash position has moved up from the previous year, from ZAR188 million to just under ZAR260 million, and this is really brought about by the increase in operational cash flows. We also issued a loan note of ZAR108 million during the year. However, most of that is being spent on the pipeline, on the capital for the Crown/Ergo pipeline project.

The long-term liabilities, the reduction there is also because of the Blyvoor preference shares, which were written down to nil. And so, we saw that decrease coming through. Current liabilities, you'll see a significant increase there. That's both as a result of the short-term portion of the loan notes; the first ZAR18 million odd or ZAR78 million plus interest, around about ZAR18 million, that needs to be repaid in October, which is sitting in there, as well as Blyvoor's creditors, which moved up during this process that Blyvoor is undergoing.

Since then Blyvoor -- I mean, in the recent months Blyvoor's has brought its credits back to 30 days based on the -- due to the current gold price. So the credits are looking a lot healthier now.

And that's it from me. I'll hand you back to Niel to talk through the final slides. Thank you.

Alright, just a brief update on Zimbabwe. We've been in Zim now for the last two years. We've spent a total of ZAR15 million over the two years in establishing our presence and covering the (inaudible) and so forth, and we're starting to make a bit of progress there in finding out what it is that we have under management.

It's very much at this stage just a collection of assets, a collection of resources. And as you could see, with that excavator in the photo, that excavator in the background, we're really looking at stuff that is near surface that you can dig out with an excavator. Maintain that it's one place in the world where you could still travel on relatively good road to within a few kilometers of your site; with a power grid -- how reliable it is only time will tell -- but at least a power grid pretty close to where you are, and also high levels of skill and competence onsite.

So that's bit of an update of what we've been doing on the sites that we accumulated over the last few years. We recently also acquired an exploration site further towards the south in the direction of Bulawayo. We call it the Gweru sites -- and it's those over there, with two rivers feeding into the actual exploration site. It's just over 20,000 hectares in size. We're vending in on the project; 75% interest in exchange for putting up $150,000 for drilling and so forth.

And then, in the event that there is a resource, further capitalization to maintain our position on the lease. Drilling is happening as we speak, and it's never been explored in the past. Zimbabwe for all intention and purposes was after the Second World War an agricultural focused entity. Farmers didn't allow this thing on their farms, and it's pretty much a virgin site with the exception of these guys over there, who are always a very good indicator as to what's going on in and around that area.

This is the Gweru site. So the magnetic and IP surveys have been completed and the drill holes are happening as we speak, and we're hoping to be able to release some numbers on what we actually find in those drill cores over the next few months.

Just on Zimbabwe, I think Zimbabwe for us at this stage is very much a "what if?" scenario. What if circumstances in Zimbabwe are as bad as they are ever going to get? There have been announcements of indigenization, of a dilution of ownership rights in favor of local Zimbabweans. Let's take that as 51%. Our relationship with our partner in Zimbabwe is 50/50, so we're 1% off the target.

If Zimbabwe at this point in time is as bad as it's going to get, then we're in pretty good shape, because we're already where government wants us to be, for our 1%. And with the location of these resources, where you find them, people are digging it out with shovels and bleaching up the gold with little gravity circuits, I think this is a place that can go into cash flows fairly soon.

So, for us, at this stage, while it's the most affordable gold ounces in the world in all likelihood, where there isn't a civil war and where our people can travel safely without getting yellow fever shots and so forth and stay in a decent hotel, and travel in relative safety to the site and source people on within the country itself to do the work, for us it's a no-brainer at this stage compared to what you pay somewhere else, everywhere else in Africa and further up north.

We think that this is just too good an opportunity to not take advantage of, especially taking into account the amount of money that we spend. So it's ZAR15 million up until now -- it's roughly over the last 2 years. ZAR500,000 a month to cover the total overhead and secure our position, and we envisage another ZR16 million over the next 12 to 15 months in order to develop this particular site.

As we get closer to actual production, we'll also set up a structure in terms of which DRDGOLD would lease equipment to this JV, and provide them obviously with an opportunity to acquire the equipment that's on lease once they're on cash flow and can in fact afford the purchase consideration for that. But mobile technology on a limited scale to assess by way of bulk sampling maybe the full potential of what's going on there, I think that's the route that we'll go going forward.

And hopefully, this could also turn into the cash flow animal that our surface recycling business has turned into. Maybe not much in the way of shareholder appeal at this stage because of the perceived political profile of Zimbabwe. But a 50% or 51% is what they want -- for the values that we're seeing here, there's a business and there's a business that can generate cash flows.

And so looking ahead, our internal growth focus or organic growth focus will remain with our Ergo site, the consolidation of Crown and Ergo, and the phasing out of underground mining. By phasing out we mean the positioning of Blyvoor or the repositioning of Blyvoor.

In the last week, last Friday -- last Thursday and Friday, there was a safety conference held attended by most of the Chamber of Mine members out in the far West Rand. And over and above, just talking about safety issues. We also spoke about the state of the mining industry in South Africa today; the risks that we are faced with, that we have to deal with going forward; things that we need to start looking at increasingly; things that impact on our reputation and our profile as an industry.

And one of the things that was mentioned by one of the Chamber members was -- one of the Chamber officials was that there's a cycle that's developed or a process that's emerged in South Africa over the last few years where assets are sold down. They're sold down from the large corporation to a corporation with a slightly weaker balance sheet and then gets sold down once again until it ends up with the likes of Aurora. And Aurora was specifically mentioned, where it really just gets dismantled and assets are sold for scrap and employees end up without being paid and so forth and so forth.

And there's a very real concern in gold mining circles that this is the trend, this is what we do; that we just keep on selling it down until it ends up with somebody or someone with no balance sheet and then the business gets liquidated. So that's not going to happen with Blyvoor. I don't think that that is who DRD is. We've had some experience in the past with this thing, and ultimately this mine will be dealt with responsively.

So as firm as we are about phasing out deep level underground mining as part of DRDGOLD, we are equally firm about dealing with this asset in a responsible way. This is not a ZAR1 or $1 disposal to somebody who has no balance sheet and no credibility and no capital. We would rather close the mine, the underground mine, and turn Blyvoor into a surface reclamation business, or close it down completely with whatever is available at Blyvoor before we do that.

But Blyvoor people are not going to end up in queues for food coupons. Not on my shift. Maybe the shareholders decide at the end of the year when we have our Annual General Meeting that this is not what they want, and maybe they'd appoint somebody else to deal differently with Blyvoor. But while this management team is in charge, this is how we will deal with that mine.

I do believe of course that against the recent developments in gold price and so forth that, for the longer-term strategic investor with access to capital, this could be an attractive asset. Somebody who wants to mine it for cash. Somebody who doesn't have to pay the corporate fee, who doesn't have to pay all the SOX compliance and other compliance fees and so forth, because that is a fairly big number over a year. Probably close to, what, ZAR25 million, close to ZAR30 million.

So there are obviously layers of cost that one can start carving away and turn this business as a privately held business without the public company compliance issues, immediately create some additional margin. And we are definitely positioning this mine in such a way that somebody with that appetite and the capital resources can take advantage of it.

If there isn't anybody like that emerging within the timeframes that we've set for ourselves -- and you'll see that I refer to it specifically in the letter to shareholders -- then we may have to create that structure and we may have to participate in a structure of that nature for the foreseeable future and maintain a level of participation in it. It's not more than I think what is the consolidation threshold, which is, what, 20%. So I think we would definitely want to get below that, but give a commitment to assist and participate and so forth in order to see this business going forward; that is, if we don't get the direct investment to turn it into a privately owned entity.

So we are considering a variety of options. And the one option I can assure you that we're not considering, as I say, is just the ditching of the asset and the hardship that may ensue as a consequence.

And so far as our other business is concerned, there we will continue to optimize the business. We will continue to I think build on the recent successes of that team. There has been some progress made also with regards research and development. Bruce Ebell is here. If you want to have a discussion with him about pyrites and flotation cells and that thing, I think he'd be happy to entertain those. But, yes, we've identified that up to 37% of the gold that leaves the plant is in fact encapsulated in larger fraction chunks of pyrite, and he has I think uncovered the technology required to liberate those, to float it out, to separate it out, and to create a mesh pool of a manageable size.

Obviously, we have to run the numbers. We have to run the capital requirements. I think we need to do some additional testing to see how his technology responds to the mega volume environment. But that certainly seems to be a step in the right direction, where these larger fraction particles can be separated out and then put through some milling technology and then either reintroduced back into the CIL circuit or just leached out separately with its own dedicated CIL circuit.

So he'll spend a lot of time doing that. We want to see if we have a bankable feasibility by the end of December, which is also when we finish the current phase of development and growth at Ergo with the upgrading of the plant and the consolidation of the City Deep and Crown footprints, and that will be the next step going forward. So that is our focus insofar as growth internally is concerned.

I don't think we are quite ready at this point in time to commit significant capital, capital to projects that have a long-term payback. I think we're very much looking at the near-term payback scenario for South Africa at this point in time, whilst identifying and almost collecting assets in the immediate region of Southern Africa.

So, Zimbabwe, the presence there has been 2 years and it's growing rapidly. I think we probably now have what we can manage going forward as a growth opportunity. And we're also looking at maybe some possibilities in Mozambique, in areas that are accessible but also similarly a Greenfield type of environment, also with a longer-term view in mind.

I spoke a little bit about the new structure for Blyvoor, and that is something that DRD will continue to participate in until there's a responsible divestiture or dilution out of that structure.

And then there is the ERPM resource that I spoke about earlier. We have an 18 million ounce resource that is on the right side of the water barrier pillar. This is a resource that is not threatened by old legacy issues where there's an ingress of water because of what happened 110 years ago and more recently.

This is a resource that is between, I think 5 and 500 and 1,200 meters below surface. So it's relatively shallow in South African terms. We have in the Ergo area and between Ergo and the current ERPM, we have attractive land that are vacant, where one could establish infrastructure.

And this too is a "what if?" scenario. As much as Zim is a "what if?" scenario, this too is a "what if?" scenario. What if there's not going to be a nationalization of resources in South Africa? What if the Eskom situation does improve over the next 5 years? What if there is a big technology breakthrough, which I believe is imminent?

Some of the very big gold mining companies in South Africa have been collaborating with corporations in the United States on alternative methods of breaking rock and holding rock and so forth in order to reduce the exposure to labor intensive mining, which I think is -- and I wouldn't want to call it as twilight phase, but it's definitely in the phase where the pressures are going to be mounting because of issues like safety and health and the age of employees and the willingness of people to want to do that work. But what if that technology breakthrough does occur within the next 5 or 6 years?

I remain convinced that accessible gold ounces in the rest of the globe are increasingly going to become subject to an emerging almost resource nationalism that we're seeing across the globe. We're seeing it in the sophisticated jurisdictions, places like Australia, South America, where they just lump some additional tax onto the mines. And we are also seeing it in the less sophisticated regions, where there's in fact a yearning for an equity participation in resources, apparently a desire to participate also in the capitalization of those assets. But it's emerging all over the world. It's happening in places like Papua New Guinea, where the governments are wanting to become more involved in the mineral wealth of their countries.

Now we've had 20 years almost of deciding what it is that we want to do, and we have very strong organizations like NUM and the other labor unions who are dead set against the type of nationalization that's being promoted. And I think we'll get through this cycle as well. And if we do -- and that is why I say this is a "what if?" scenario. If we successfully make it through this cycle and if there is a greater degree of clarity, policy clarity on the future of minerals in South Africa and who it's going to belong to and who it's going to capitalize and how is it going to be taxed and managed and so forth, which I envisage will be after December of 2012, then I think these kinds of world class resources will once again start to compare favorably with what is currently perceived to be attractive resources.

The ones in the belly of Africa where they don't have the levels of disclosure that we have in South Africa, where they don't have a robust and free press who can talk about issues like the way or the manner in which ownership rights are eroded and so forth. And, where they're at the very beginning I think of the reorganization of participation in the upside of the mineral resource.

So I just don't think that it's responsible for South Africa at this stage while there's this global uncertainty and this emerging notion or emerging wave almost of erosion of ownership rights in respect of minerals. To just simply say it's South Africa -- and there's a Mr. Malema who thinks that it shouldn't belong to the private sector; it should go to the government and so forth and so forth. To say that we're not touching it, we're walking away from it because of those uncertainties, while it's costing you virtually nothing to maintain it and develop it and take it up the value curve and provide certainties to what it might hold for the future, I think that would be irresponsible.

And when we applied for these rights, we gave a commitment to the government of this country that we will explore these resources and that we will provide them with ongoing updates as to what the long-term potential of these resources are. And maybe 8 years from now -- and I think those are the cycles that we need to start to thinking of when we talk about deep level underground mining.

Eight years from now, the balance in the whole of the world might look a little bit different from the picture that we see now. And then we don't want to be in a position where we say, "You know what? We had 18 million ounces under our feet, untouched, accessible, and now there's technology, services, infrastructure that makes it accessible and we walked away from it." So we're not going to, and we'll get the necessary management expertise to help us to identify these, to write it up, and again, I think park it as a -- or position it as a long-term option to the gold price.

We saw some scary numbers in the last few months of a new emerging investor base, securing resources for the long-term. Assets that were sold few months before for ZAR300 million suddenly being sold for ZAR3 billion. Now this is something that you could develop and build from scratch. You don't have adjust or amend or change existing layout and infrastructure, you can develop this mine with due regard to circumstances as they are at that point in time.

All right, that's our story for the quarter. We'll take some questions now. Thank you very much.

Allan Cooke from JPMorgan. Just a couple of questions if I may. You spoke of potential direct investment and then also as an option for Blyvoor closure of Blyvoor. Could you indicate what investment, direct investment you could do at Blyvoor and what the cost of closing the underground mine would be? I know it's still work in progress and there's a business rescue program, and the gold price is high and all those good things, but what exposure, financial exposure are you contemplating at Blyvoor?

And then my second question, if you could give us some guidance for the surface operations over this financial period, because you're going to have a tail of two halves here, with the pipeline coming in December and the expansion at Ergo and the closure of the other two plants. What can we expect in terms of volumes, yield, [retrenchment] costs and CapEx as you complete the expansion and the pipeline?

Certainly. Look, as far as Blyvoor is concerned, we are looking for an investor who has at least adequate capital to cover the working capital deficit, which I think was about ZAR80 million, and then also bring in capital for the development into the Savuka block. I think the total numbers there were about ZAR139 million, if I'm not mistaken.

Mark, what's the number?

Yes, for the total development, there's a bit -- ZAR240 million.

ZAR240 million. But that's over the entire period.

That's right.

Okay. All right. So I mean there's obviously going to be some internal cash flows too. I think the kick off number was about ZAR139 million, ZAR140 million, if I'm not mistaken.

ZAR135 million, yes.

Yes. So that's the availability of capital that we're looking for upfront before we -- and we'll do that by way -- well, there are basically two ways of doing that. But I think we are not looking at a scenario in terms of which DRD gets handed a check -- "So we want to buy some of your shares." It's more a dilution and a dilution into the business. So somebody coming in and acquiring new shares in Blyvoor for cash, and then DRD getting diluted out as the business gets increasingly capitalized. So that's the one scenario.

Obviously, there's an offer for a realistic number and a realistic number also dependent upon whether the entity does in fact have money with which to capitalize it, is something that we would look at as well. But we're not hell bent on actually getting a check. We will entertain some sort of a dilution.

The closure cost of Blyvoor in fact is pretty much capped at the stage and it's the realization value of the business. In terms of the -- I think the Companies Act makes it clearer, the fact that further financial assistance is prohibited unless the shareholders in terms of a special resolution authorizes it. I hope that answers your question. It's whatever Blyvoor can generate that that's going to be the closure costs. It won't exceed that.

I know that the retrenchment costs and so forth are in the region of ZAR110 million, ZAR120 million and so forth. But at this stage, our shareholders have said we -- you prohibit it from funding that out of a DRDGOLD perspective. And I think maybe just a little bit of perspective on that. The circumstances under which the so-called corporate veil may be penetrated. So the Company is actually clear on that as well. It's where you abuse the separate legal responsibility of corporate entities, where there's a possibility of piercing the corporate veil. It's not a matter of convenience.

And that's typically -- and the best example I can use in that regard is your building contracts, where somebody registers a little closed corporation and incurs all the debt on that closed corporation for the building project, but all the income he takes into another entity. And then he closes the closed corporation; he doesn't pay anybody and they get burned. Now that's a clear abuse of the concept of separate legal responsibility.

But the DRDGOLD shareholders have funded Blyvoor over the last 10, 15 years to the tune of ZAR500 million. Now that's hardly evidence suggesting that there's been abuse of the separate corporate legal personality of Blyvoor. So there's a very low likelihood, a low risk of the corporate veil actually being pierced in these circumstances.

But then, again, that is our least preferred scenario. We would work very hard to rather make sure that we reposition the business in such a way that it can go forward, because it still has some legs and at both underground and surface, especially now with the cooperation of AngloGold Ashanti too.

We can get the National Union of Mineworkers onboard, and if they give us the production numbers that they're capable of and that we've in fact come to assume, touching the 70,000 tonnes a month, then at the current gold price they can cover a lot of their own capital reimbursement costs, and also grow their own surface exposure going forward.

But then as so far as the surface circuit is concerned going forward, I think it's something that I said at the previous results presentation and I meant it to do it now. The questions that you're asking I think it's probably best if we answered those with the worksheets in front of us. But something that I do have to bring to your attention is that in our experience whenever there is a change over from one dump to another dump or where there's a new circuit coming on-stream, more often than not there is a three month -- there to a six month period during which we're just figuring out the optimal treatment, the optimal metallurgy, the best flow rate, the best densities, the best mix in the plant itself. So I do envisage that until about two to three months after the pipeline is fully up and running, that there will be a degree of volatility.

And I'd be very cautious at this stage, having burnt my fingers once on giving forecasts on these ultra volume type scenarios. I'd be very cautious to trade any expectations beyond the recoveries that we're seeing now, the production numbers that we're seeing now, until such time this thing is fully embedded in. Fortunately, we've got a very good gold price to assist us in implementing all these changes.

But there's definitely going to be some volume volatility. There's definitely going to be some grade volatility. Every time that you open up the belly of one of these new dumps, there's some overburden and some unforeseeables that you encounter, and it takes a while to get your volume flow to where it needs to be.

For example, just in the last --- well, in this current quarter we started mining the JCC dump, which is the last of the sand dumps up towards far west that we have under our control. And it took us a good three, four weeks to get the volumes where they needed to be, because there's overburden, there's cladding, there's organic material. You've got to open up a decent sized face and so forth. Now they are running -- now they're running head and tongs. But it takes a while to get it all sorted out.

But we more than welcome --- we're more than happy to work through the model with you going forward. It's just that it's going to be difficult for me to give those numbers now. And I'm reluctant to create expectations beyond the production levels that we're currently experiencing at those circuits.

This is Steve Shepherd, JPMorgan. You mentioned that you're closing down the Crown and City Deep plants, I think, Niel?

Yes.

Have you guys attempted to calculate whether or not there's any locked-up gold in there, and if so, what do you think it's likely to be and when would you release it if it exists?

Look, I don't think we've actually run those numbers. I think it's very difficult to also make up a good estimate as to what it's going to be. Whilst we will stop running the carbon-in-leach circuits, they will still function for the time being as mill sites and also as pump stations. So there won't be a complete dismantling.

Some of the materials that are going to be going into Ergo will go into those plants where it will be milled to the right fraction and from there it gets pumped through to Ergo. So they'll be operational, but just not as gold producers, as pump stations.

Okay. So we won't bother to do the calculation on --?

Don't do it this year. No, no, don't do it this year. It's also -- it's a sub-break. The stuff that you get with a gold plant with 2 tonnes in foundations and so forth. Not much in there.

[Anil Adrian] from KD Securities. I've two questions. Firstly, you're working at Ergo to optimize recoveries. Do you have any indication on what that could do to production and life-of-mine? And secondly, could you expand on your exploration activities on Mozambique?

We've got a very good idea as to what we think we can achieve at Ergo, but we're not ready to share it just yet. We want to verify it diligently, so you don't make the same mistake twice. But it's encouraging stuff. It's definitely encouraging stuff. And, Mozambique, we have a dedicated employee who originates from Mozambique, and he's identified three particular site where we want to go and dig around a little bit, also pretty much on the Greenfield site.

But there too, I think it's early stages. We really want to see what the infrastructure, the surrounding areas look like and so forth before we start committing any details in that regard. But it will be a focus area of, let's call it, desktop exploration of sites that have already been identified over the next three to six months.

All right, anything from anybody else? All right, thank you very much again for attending and I hope that this was of some value.