DRDGOLD Ltd (DRD) 2011 Q2 法說會逐字稿

Good morning, everybody. Thank you very much for attending our results presentation. This is for the period ending December 31, 2011. I'll do discussion around the operational performance, and Craig will take you through financial numbers, and then I'll take you through the last slide on looking forward.

While you familiarize yourself with our new improved disclaimer, the focus of this presentation really will be to point out, I think, the impacts of the gold price in the last few months, but also particularly talk a little bit about the consolidation of Crown and Ergo; And then, in addition to that, some of the technology improvements that we intend making there in the near term.

The highlights for the quarter, the gold price was really good in the last quarter and it pushed the numbers up quite nicely. Gold production was steady, and costs were marginally down, but yet our net profit doubled; so did our cash inflow from operations. And headline earnings were also up 66%.

We're also very pleased that the Blyvoor sale agreement has now finally been concluded. We now have a binding agreement with Village.

Personally, I'm very pleased that we managed to move this asset into a responsible pair of hands; a company that focuses on this sort of thing and, I think, internally also has the expertise to manage it properly and unlock its remaining value. The market seems to agree with that, because both our share price and the share price of Village responded favorably to the announcement yesterday.

What we're doing here is just comparing, on this slide, the gold production quarter on quarter. You can see that it's pretty similar; virtually unchanged. That is as a consequence of a slight increase in gold production at Blyvoor, and a slight decrease of gold production at Ergo.

When I talk about Ergo now, I refer to both Ergo and Crown. We're consolidating the reporting on these two circuits now.

We're quite pleased with what happened at Ergo in the last three months, or the three months leading up to December. You will recall that I spoke about the volatilities that we expected in these circuits because we were decommissioning, or in the process of decommissioning, two plants. We came off some of the higher grade resources.

Top Star came to an end, and that was a spectacular dump (inaudible) mine. I think we recovered 110% of what we caught there, so it turned out better than what we had anticipated.

But we were starting new dumps, so starting two new dumps, coming off two old dumps, and in the process of coming off decommissioning two plants; the stream of material from the central ramp now flowing into Ergo and competing for space in infrastructure.

We also had some unscheduled maintenance at one of the plants. About three weeks before we were due to do some maintenance on -- the thickener at Knights had decided to give way and accelerated our maintenance a little bit.

And yet, I think the numbers turned out to be okay. We're pleased with the numbers. We were expecting volatilities, and this was actually slightly better than, I think, what we had hoped for. There's always room for improvement but, on the whole, it's not too bad.

These are slides that just refer to specifically some of the highlights slide where we show you the performance of our business over the second quarter of the last three years. So this one there shows the production of the second quarter in 2010, that one in 2011, and that one in 2012.

Because we are in a bit of a cyclical business, in South Africa in particular, the mining industry -- we have winter tariffs that add a hefty sum to your overhead during the winter months -- and because we have wage negotiations that occur at a certain period of time, and we have the Christmas break, and we have Easter break, to compare on an ongoing basis quarter-on-quarter numbers doesn't always give you an accurate, I think, reflection or image of what's actually happening in the business.

So what we do, rather, is compare the quarters that obviously went through the same dynamics last year and the year before that. And here you can see, basically, how production has been trending in our organization over the similar quarter in the last three years, and, on the next slide, how revenue's been trending.

Obviously, revenue's been trending very favorably, due mainly to the increases in the gold price. I think that 7% may be a little bit on the low side; I think it's actually quite a bit more than that. But the nice thing is that we are, for the quarter, just under ZAR1 billion. So it's about 40% of our market price at this stage.

And we're also seeing that in the actual profit numbers coming through. If you compared our profits now to where they were in 2010, ZAR188 million for our surface operations, compared to ZAR67 million, it does show that the business is definitely positioned in such a way that it can take full advantage of the increase in gold price.

Of course, Blyvoor gave us some nice surge. So in this last quarter that we effectively owned it, or that we had the entire financial benefit of the business for ourselves, or to ourselves, that ZAR98 million helped quite a bit to offset some of the capital reinvestment that we've been putting back into Ergo. And also into Blyvoor. Blyvoor spent about ZAR32 million in capital.

Headline earnings went up from ZAR0.01 to ZAR0.33. I think we, in fact, earned -- in the quarter, we earned an amount equal to headline earnings for that of last year, if I'm not mistaken, Craig, with ZAR0.33. Yes. So it was a very good quarter.

In fact, the net cash inflow from operations, the ZAR250 million for the quarter, is almost the exact amount that we intend spending on the technology improvement, technology upgrade, at Ergo in the next year and I'll talk a little bit about that.

So it's nice if, in one quarter, because of the higher gold price, we make enough cash to cover the most important capital expenditure for the next year.

And there's that number, ZAR243 million. And that's a healthy number for the kind of business that we're in. So very well positioned to take advantage of these high levels in the gold price.

The gold price has leveled off a little bit, I think, in the last 1.5 months, so whilst it's very nice to, quarter on quarter, be able to report these big jumps, I think, unless the gold price rallies a little bit more, this is probably the sort of numbers that we'll be targeting going forward. And that gives us a healthy margin and one, I think, that we can increasingly start sharing with our shareholders going forward.

Cash operating costs, these are the unit costs which are, to a large extent, linked to the number of units that the business is producing. You see that there's been quite a bit of a jump, specially on the surface operations from last year this time to this year, just over ZAR50,000 per kilo. And that is pretty much typical of what you'd expect from a higher volume but slightly lower grade kind of environment.

So you have more material that you're pumping containing slightly less gold and, as a consequence, your unit costs go up a little bit; not necessarily the total overhead, the total overhead we manage to contain to within 10% year on year, but the unit costs will go up.

That, too, will settle down a little bit until after we've made the technology improvement. And then we hope to arrest, to an extent, the impacts of inflation going forward by simply just taking more gold out per unit of material processed in our plants.

You can see the margin analysis. Margin has been benefiting handsomely from the higher gold price and our core unit is running at a 40% margin at this stage.

You're familiar with the term notional cash costs, which was introduced by Gold Fields, where you basically add to your ongoing cash operating costs, you add the necessary capital reinvestment in order to maintain production levels. And because we, essentially, have become a gold factory, one that has long capital as part of the initial outlay and very low ongoing capital, that's a number that actually makes our cash flow position quite competitive.

And I think we're, at this stage, running at about $42 per ounce of ongoing capital. That is excluding growth capital, but ongoing capital is about $40 to $42 per ounce. And I think that competes or that compares very favorably with the likes of the underground mining industry where that number starts off at about $150 per ounce and it's, I think, on average closer to $200, $250 per ounce.

Capital expenditure by operation, you can see that we did not hold back capital expenditure, even at Blyvoor, which was going to be sold. So they haven't had any interruptions and they're opening up on development and the renewals.

And at Ergo, you've seen the last of the big capital outflows for the Ergo consolidation process; it was the last of the pipelines. And that is pretty much up and running at this stage, with production now flowing mainly into the Ergo plant, two operating plants.

Right, and this explains that a little bit better. You will recall that our business consisted -- the business in the Johannesburg area, the Ergo business consisted of the Crown plant, City Deep plant, the Knights plant and the Ergo plant; that's the one that came into the [RD] in about 2007.

Now Crown and City have been in production since the 1980s; or Crown, at least, started in the 1980s. These three plants over the 30-year combined life processed about 0.25 billion tons of material, about 250 million tons of material, and these two plants put all of their tailings material onto these three tailings dams over there. The World Cup soccer stadium is right about there, more or less.

So this is what we've been using as our tailings deposition facility, where the better part of 200, maybe a little bit more, million tons of material have been deposited over the last 30-odd years.

Now those tailings dams are essentially full. The technology that we're using at Crown, I think, has become increasingly dated. We're not seeing the extraction efficiencies at Crown that we're seeing in a modern plant.

And, as a consequence, we decided to, instead of closing all of our Central Rand operations, because we still have several million tons of material which we can process and that form part of our existing life of mine, instead of just closing that down, we decided to link up this area here from the Crown area, Crown plant area, all the way through to the Ergo plant.

So we started pumping City Deep materials into that plant late last year. And the Crown plant materials are being pumped there from February. So everything now flows -- an additional 600,000 tons capacity per month flows all the way from the west through to the East into the Ergo plant.

The Knights plant still has access to Lyscaste sand dump and the 4A6 dump, which is just on the other side there, which is one of the last remaining sand dumps. So it will continue for a few years. It will do about 200,000 tons a month, maybe a little bit more, and then, combined with this pipeline here, plus the Elsburg complex, which is right next to ERPM, 1.2 million ton capacity per month.

That will then make up roughly 2 million tons that we are able to process and I think our volumes will be fluctuating between about 1.8 million tons and 2 million tons per month, depending on what's necessary and what sort of maintenance-wise and what interruptions we may experience from whatever the issues are that we need to deal with from time to time.

Sometimes there's a short interruption to electricity, a trip, and that causes a blockage in the pipeline and they maybe lose about half a day's production to sort that out. But those are the sort of numbers or the range that this combined footprint here can deliver into that plant.

Now this process, or this consolidation of this whole lot, obviously meant that we maintained the highway to materials into the West. We maintained that. We kept it open.

With improvements and technology, it means that we also may ultimately, 15 years or so from now, 10 years from now, start looking at retreating these lime sands because their ore came out of these older plants with a slightly lower extraction efficiency than what we are seeing at Ergo plant.

It also contains significant quantities of uranium, so this infrastructure, or the optionality associated with that infrastructure, remains open because we have this uninterrupted line from the far West into the far East.

And, of course, Daggafontein plant, or not the plant, but the dump itself, just on the other side of that, also belongs to us. And then we're also looking at maybe consolidating some of these other dumps.

So the growth prospects, or not really the growth prospects, but access to additional material for this model to be in business, in operation, for a considerable period of time, that is still very much on the cards.

The exciting part about all of this is that with the gold price peaking when it did, the just over ZAR300 million, ZAR340 million-odd, that we spent in the last 12 months to link all this up and to also increase the volume capacity of that plant and increase the -- I think we did a bit of an upgrade on the pumping facilities here to lift material up 80-odd meters onto the Brakpan Tailings Dam, that ZAR340 million-odd we funded through internal cash flows. We had a bridging facility through loan notes that we made use of, but, at no stage, did we have inadequate funds to cover our exposure for that facility completely.

Right, so we've established the infrastructure, we've got the volume capacity and, of course, moving forward we now want to do the technology improvement, and I'll spend a little bit of time on that.

But this combination has given us sufficient weight and sufficient life for DRD to become a recycling business, and not to be a hybrid instrument, not to be a hybrid model; one that involves lower risk in the form, almost, of a gold factory on the one hand, and higher risk in the form of a gold option that responds favorably to increases in the gold price, which is typically your deep level underground environment.

So that, I think, has come together for us quite nicely, the fact that we were able to separate out these two businesses and position our Blyvoor business with Village where there's adequate mass, adequate weight for them to take that model seriously and take it into the future.

Right, Craig will take you through some of the financial numbers and then I'll wrap up with the Looking Ahead slide.

Thanks, Niel. Good morning, everyone. Our income statement for the quarter. Our revenue number was actually 33% up -- I know it says 3% there, but 33% up on the second quarter of 2011, and that was mainly driven by higher rand gold price.

Our net operating costs for the quarter were up 15%, but you must remember that we've had a 9% increase in our ore milled compared to the second quarter of 2011, which would have had an impact on those costs.

And then the balance of that is inflationary increases, wage increases and also electricity cost increases which we've seen over the last year.

That left us with an operating profit up 72% for the quarter to ZAR188.7 million. Depreciation was -- a slight increase in depreciation that you would expect with the higher capital expenditure coming through.

On the net finance income you can see that that increased slightly, and that was mainly due to the fact that interest paid decreased in the last quarter, with the repayment of ZAR78 million of the loan notes in October 2011.

Other income and costs increased by 64%. Now that number includes a whole lot of cost items, including our corporate costs and environmental rehab cost. We did see an increase in the last quarter in environmental rehab costs compared to the second quarter of 2011, and also an increase in corporate costs. Also what we've seen coming through there is higher security costs at our ERPM site, and that's just part of the cost of securing our plant and other infrastructure there.

That left us with profit before taxation for the quarter up 116% to ZAR107.5 million. The tax number on the slide include current tax of ZAR8.6 million and deferred tax of about ZAR25.8 million. As you would expect, the taxation increased with the higher profits coming through in the quarter.

Profit after tax increased by 231% to ZAR73.1 million, and profit from discontinued operations, that's Blyvoor, which we show separately on the income statement and you'll see on the next slide also on the balance sheet as an asset held for sale, the profit for Blyvoor was ZAR92 million. That's 369% up on the second quarter of 2011, and that's mainly driven by the higher rand gold price. If you just look at the difference in the rand gold price compared to a year ago, compared to that second quarter of 2011, it's about ZAR134,000 per kilo increase.

And that left us with headline earnings for the quarter of ZAR0.33, up 267% on the second quarter of 2011.

Onto the balance sheet. You can see that our cash and cash equivalents moved up and, in spite of the repayment of the loan notes of just under ZAR80 million and also the dividends that we paid during the quarter, we generated free cash flow of just under ZAR155 million, which helped that number increase.

You can see again, as I mentioned just now, Blyvoor has been disclosed separately on our balance sheet as assets classified as held for sale, and also the liabilities lower down classified as held for sale.

Just another number to highlight under current liability. There's basically no borrowings on our balance sheet other than under current liabilities the remaining ZAR30 million of the loan notes which we issued just over a year ago.

And you can see also a significant improvement in our liquidity. Our current ratio improved to 1.9, so just under 2, during the quarter.

Okay, I'll hand back to Niel just to complete the presentation. Thanks.

Thanks, Craig. Right, just an update also on our exploration initiatives in Zimbabwe. It's pretty much been drilling, geochem reports and geochem surveys. This is a bit of a refresher.

We have roughly 25,000 hectares of exploration tenements in Zimbabwe, which we got before the Zimbabwe Government decided that they are going to be increasing the cost of getting these mining leases and a 50% partner there.

And we've spent about $3 million up until now in surveying these areas, writing up the resource, and I think, ultimately, also, perhaps, seeking the right, wouldn't call it partner, but the right joint venturer to perhaps develop some of these.

We're not spending big capital on infrastructure and so forth, but we are increasingly moving towards a scenario where we'd be sampling larger samples, let's call it bulk sampling, and perhaps also extracting a bit of gold to help offset the costs of looking into this resource.

Right, our Looking Ahead focus for the foreseeable future. Clearly we want to make sure that this integration of Crown and Ergo is now seen through properly; that the upside that we were targeting in bringing these circuits together, that we, in fact, achieve that; that we get our volume flow sorted out, our densities sorted out.

We, in fact, have an electronic remote system of managing the operational aspects of this business, which is virtually entirely remote and electronic. Where, by accessing a website, you could see not just which pumps are switched on, but at what capacity they're running and how much is going through those pumps. Density meters which can give you an indication at any given point in that circuit, where we have these density meters, of what the density flows are, etc., etc.

So that's the sort of management system that you have to have in place if your footprint extends over 60 kilometers and it runs through built-up area.

And then I think what we'd like to see, in the not too distant future, is that the upside of integrating your entire business, almost, under a single umbrella can save cost, that that would start coming through, even to the extent that it just softens the impact of inflation going forward.

We now have, as I said earlier, by linking up and securing all these access ways, a competitive advantage in linking up resources with an adequately sized infrastructure and volume capacity to treat these materials at a profit. And, maybe I should just talk a little bit about that.

If you look at the sort of infrastructure that we have under our control and which we use to treat these materials, we were very fortunate, once it became apparent that the old Crown circuits were heading into their twilight phase, we were very fortunate to acquire, initially in partnership and ultimately as sole owner, the Ergo footprint, because Ergo was built extremely well.

It was a very well-constructed and designed plant and we really had to spend minimal amounts of money to get it back up and running again and back to its former extraction efficiency and capacity. Obviously we had some upgrades in technology and so forth, which causes it to run marginally higher than the efficiencies that were experienced at the time, also volume-wise.

But if we had to build this plant right from scratch and put the resource that we have at our disposal through that plant, that capital vote would never have been approved, not until, maybe, now, with the gold price where it currently is. And then, at best, it would have been marginal, because the really high quality dump resources in South Africa in this area, have been mined out. Crown, City and Knights took care of those high grade resources.

If you want to make a profit and generate a return for shareholders and for investors in this sort of environment, the recycling of old mine dumps, you need infrastructure capable of huge, huge volume throughput. It is very much an ultra-volume environment.

And that, of course, buying the Ergo infrastructure and being able to refurbish that, and bringing in resources that we didn't have to pay for, because 180 million tons of those resource were right there on the ERPM footprint, that is what made this business so attractive. And that turned something that was, in effect, an environmental nuisance into a valuable resource, and one that can offer consistent and steady returns for shareholders over a considerable period of time.

So having linked all of these up with this infrastructure, with the volume capacity, with the access to water, with the large tailings deposition facility where we can deposit our 2 million tons of residue material per month -- I think the circumference of that tailings dam is close to 30 kilometers -- these are the things that give us genuine access to the remaining 11 million ounces on surface.

And what we'll be doing, first step, now that the integration has been done, is invest in our fine-grind circuit, its existing technology that we can now apply also in the gold-mining industry.

What it basically boils down to is the following. So our extraction efficiencies have not been much higher than about 38%, touching 40%. It's now actually going slightly higher now that the marginally higher grade materials from the West Rand is being pumped into the circuit.

But what we found was that about 40% of the gold that does not respond to our metallurgical circuit is encapsulated in higher fraction pyrites. So the gold comes in the one end, and it just leaves the other end, and it doesn't respond to the metallurgical process.

Now our engineers have figured out how to pull those bigger fraction pyrites out of the runner mine, out of the flow of material, and bring it into a concentrate that contains about 90% of all of those high fraction pyrites, and that is by simple flotation technology.

So 90% of the material that came in, went out, and just carried gold in and back out again, will now be pulled off into a concentrate or a mass pool of roughly 45%.

That then goes into a fine-grind circuit. It's milling technology that the platinum mines have been using for a long period of time very successfully. Goes into a milling circuit and gets milled to an ultrafine fraction for about 45 minutes to an hour, and we've, in fact, designed this to have a big of surge capacity, extra capacity, if we were to push up volume flows in this circuit as well.

And that then liberates those gold particles that were previously invisible to [cyanide], so it becomes soluble. Stick it back into the CIL circuit and these gold particles dissolve into the normal solution.

And that, we believe, can push up our gold production by between 16% and 20%. So it's growth introduction, but growth through a process that doesn't require additional volumes.

Estimated capital for this project is an amount equal to the net cash inflow from operations in the last quarter of just around ZAR250 million. We hope to have this up and running, commissioned and performing to spec in about 18 months from now.

One of the unintended consequences of this whole process is that we established also that this fine-grind process for the -- the floatation process, rather, increases the uranium content in the material in the concentrate to a level where it could also be accessed and extracted at a profit at the right uranium price.

Basically pushes up uranium content to just over 200 ppm, and because of the fine-grind technology, because this particle is so fine, we now can rely on resin-in-pulp technology to also extract uranium, which, I understand, I'm told, is a considerably lower capital investment to set up a resin-in-pulp plant than the orthodox technologies required to extract uranium.

So there might be a nice uranium surprise for us in the not-too-distant future. Our desktop studies suggest that we could recover around 11 tons of uranium per month, and that we could do that at a rate and at a cost which the current price of uranium of $50 per pound could soften the unit costs of gold by between 5% and 8%. So we would have a nice little by-product created there could impact on our gold production costs.

And then, of course, East Rand exploration. Just to -- we'll change the name of this because this is confused with the old ERPM, a mine that we closed a few years back after a very bad accident, pumping accident.

The ERPM Extension 1 and 2 is an ore body that is situated below the old Sallies gold mine, and it's virgin ground, it's never been accessed, and, as a consequence, none of the legacy issues of rehabilitation and underground water and so forth attaches to this ore body.

And we've now appointed some people who understand how these things work. We've brought another executive into our Executive Team, [Jacob Schumer], who was previously with WUC, the Water Utilities Corporation, and caretaker CEO from Mintails.

So he's joined our team, and one of his key focus areas, one of his KPIs, if I may use the term, is to take ERPM Extension 1 and 2 to a place where it can offer a separate investment opportunity for shareholders.

We believe there's about 18 million ounces of gold in this, and it's a medium debt resource. Competent Person's Report should be completed by the end of February, and we have now set aside ZAR19 million for the next 12 months to do some additional drilling, and this would be to take this resource to a JORC- and SAMREC-compliant level of confidence.

We've benchmarked this asset against the market cap of Goliath Gold, which is right next door, and, Jacob, we arrived at about ZAR500 million? But that's including for minorities, if I'm not mistaken.

So the value fall for our own shareholders, for the DRDGOLD shareholders, we believe if you benchmark it against a straightforward company next door standard, without building anything fancy into it, looking at about a ZAR500 million value. That is certainly not being recognized in our market cap at this stage.

So we'll increasingly start creating awareness of this asset. We'll be doing a road show, so Jacob will be going to London one of these days. We're talking to the ever-elusive Chinese and see if we can get access to a Chinese checkbook of our own at some stage also about this resource. But we're going to start talking about this more often now, bring it into the public space, and maybe there's another Goliath there. We will just have to see where sense and sensibility takes us.

That summarizes the presentation. Craig and I will be happy to take your decisions. I did say to Alan that I'll talk a little bit about dividends, so before I move onto questions and so forth.

Because we have been increasingly marketing ourselves, or holding ourselves forward as a dividend paying company, we've now paid dividends four years in a row, and because we've been telling the market about all these cash flows, clearly -- and because we are saying to the market, buy the stock because there's dividend flows to the future, the market's been increasingly asking us, so what is your dividend policy?

And it's really simple. What we've decided to do, I think, is not dissimilar to, I think, what some of the other gold majors, what some of the gold majors, not other gold majors, some of the gold majors, in fact, do, where they set aside a percentage of free cash flow specifically for distribution.

So the way that we'll approach this, come year end, for purposes of fixing the size of this year's dividend, would be by first looking at what is a good safety net for us. We used to maintain a safety buffer with the volatilities associated with underground mining of ZAR300 million, and I think we'll significantly shrink that buffer now, and in the near future, to maybe something around half of that, which is sort of our fund that we can dip into in the event maybe that Eskom decides to close down for two weeks, and we have no production, just to make sure that we've got something to keep the wheels rolling. Not suggesting that there is that risk, maybe that's a bad example. But that's sort of our fallback money.

And then we would also look at the immediate growth capital requirements. What are the capital requirements of our immediate growth projects, for example this one, ZAR250 million that we're looking at now? And then decide what portion of that we'll fund with own cash flows, and what we'll raise by way of our loan note, because we've decided, going forward, that we may continue to take on a little bit of short-term debt that we structure to more or less coincide with when the project that we're investing in will start generating cash flow. So that's more or less the repayment period that we're targeting for this sort of thing. And then the balance will go to shareholders.

Now let's say that we decide to distribute between, say, 30% and 50% of free cash flows to shareholders, that 30% to 50% will be determined after we've decided what growth capital is required by the safety net fund, by the buffer fund.

So, in other words, if we have ZAR60 million that's available after providing for growth capital, and our buffer fund is at ZAR80 million, then it means that ZAR20 million will go to the buffer fund, and the ZAR40 million will go to shareholders. So we won't sit on excess cash. Shareholders will know exactly what the size of the buffer fund is, what shape it's in, where we stand with regards to the balance of that buffer fund, and we'll also disclose what we have in mind with regards our growth capital.

And the more immediate growth capital, as I referred to earlier, basically is the ZAR250 million for the fine-grind circuit, and [Jacob's] drilling costs, the ZAR19 million odd, although I think he did manage to get ZAR22 million at the last Board meeting. I think he got a little bit more on the last day. So that's how we will approach our dividends. We're not going to be sitting on excess cash.

Thank you. So any questions from anybody, both Craig and I will be happy to take those.

It's Allan Cooke from JP Morgan. If you could just update us on your guidance for Ergo, including what you expect to gain through the fine-grind circuit, please, Niel.

I think down in Cape Town you're indicating annual production of 140,000 to 150,000 ounces at around ZAR265,000 a kilo, or $1,000 a ounce cash cost, very low maintenance CapEx. So that's about 2 million tons a month through that circuit.

Those numbers were pre the fine-grind circuit, is that right? So the ZAR250 million will simply add additional recovery and take you to an additional 16% to 20% of gold on top of those numbers guided. Is that right?

Allan, in fact what we did was we looked at the entire life of mine, and what the fine-grind does is it pushes production up slightly above those numbers initially. But it then also smoothes out the downward trend towards the end of -- what is it a 10-year period I think, is what we plotted it over. Towards the end of a 10-year period, grades start diminishing, and then production starts dropping to slightly below that. So that is the average over life of mine, including the benefit of the fine-grind, but it's a not a flat line.

And I mean that doesn't include other growth -- other dumps that we might acquire which may improve that grade. So it's run on current life of mine. So it's assets that we currently have under our control.

Okay, so it's kind of, but wait there's more. And then thanks for talking to the dividend policy. Just some housekeeping, the Blyvoor results, the discontinued operation disclosure, will those stop in this current quarter? When will you effectively stop reporting Blyvoor as part of the Group?

Blyvoor will be -- we'll actually put through a disposal entry when control passes, and that will be when the final CP is met, which will probably be Competition Commission approval. Now that could take -- it could occur before the end of the March quarter, or it may occur only in the final quarter; we're not sure how long that may take.

So it will happen -- we'll start to deconsolidate Blyvoor when Competition Commission approval has come through. We don't know what that date will be yet. We're in the hands of the Competition Commission.

And do the cash flows from Blyvoor accrue to you?

The cash flows remain Blyvoor's. The cut off on that was from February 1.

So from February, the free cash flow generated by Blyvoor --

Remains within Blyvoor.

(inaudible) account.

It remains for Blyvoor's account.

So we'll still consolidate it in our accounts, but we're no longer pulling free cash flows out of Blyvoor; it stays with Blyvoor.

Okay. And then just a last one, the additional ground rents in Zimbabwe, are you going to be paying a lot of money for your holdings there, that 25,000 hectares? What is that going to cost in terms of ground rents being charged in Zimbabwe now?

We don't know what the number is. We're looking into exactly what that exposure will involve, ultimately, if it does come through. But it's impossible to give you an accurate even guestimate at this stage as to what it might be.

Because the platinum miners are paying $1,000 per hectare.

Yes. I think it's a very easy way to chase prospectors out of the country. So we'll probably have to engage the regulator a little bit there, and just talk about how sensible it is to impose something like that on an exploration target. (inaudible). Sorry.

[Adrian Hammond, BNPKDs]. I have two questions, if I may, Niel. Firstly, with regards to the Village deal, is there a conditional holding period attached to those Village shares which you will receive?

Yes. Six months. If, within six months after the closure date, there is a refusal on the part of the DMR, an out-and-out refusal, to transfer shares, then the parties may elect to have a restitution. But beyond that there's no restriction.

Do you have any plans as to what you'll do with that shareholding?

I have plans. I don't know if I could share them. (laughter) But we're never going to be a material shareholder in Village. This is not a strategic investment. This is a disposal for what we think would be the best upside for shareholders, going forward. So, ultimately, I think we will responsibly start reducing our position in Village; but it would be to our disadvantage to cause harm to that share.

We sold the business for shares, although there was initially some talk of maybe a cash component, but we specifically elected to take shares because we were confident that, in the hands of Village, there would be growth in the stock price, that we'd see some upside.

And lastly, you've talked a lot about resources, but I'm more interested in reserves. Looking around in light of securing future reserves, are you looking beyond the Crown/Ergo domain, in terms of securing more reserves?

We are looking at it, yes. But I think it's -- the most difficult challenge at this stage that we've faced is expectation on the part of those who have control over those resource. People confuse a mine dump with a gold resource. A mine dump that you don't link into infrastructure is really just a mine dump. And I think there's sometimes unreasonable expectations as to what we would be willing to pay for it.

I had somebody very enthusiastically offer us a mine dump a while back for $80 million. And then we started taking them through the numbers of what it would require to actually access that mine dump. And then, you know, that's just $80 million, plus about, I suppose, the amount all over again.

So that at this stage is, I think, the thing that we've got to deal with, is the expectation on the part of those who dispose of these. But we do have time on our hands, in the sense that we've got more than adequate resource to continue to feed into the circuit at current capacity for several years.

And, as we get nearer to the dates on which one would may want to bring in some of those resources, because you need something of a decent size, that's when you would engage, and say, all right, well now you've been sitting with this for the last 10 years on your land. You can't do anything with it, other than maybe something that resembles some rather motocross theme park, or whatever. That's sort of what you could do with it. We could take it away, and then maybe you could develop the land. And that's, I think, is an arrangement that works well.

We've had that arrangement, that very arrangement, with one of the property companies in Johannesburg now for several years, and they do well. Once the land's unlocked they develop it. And Edgardale is built on something like that, and several other light industrial sites are built on that..

But we're not in a hurry. We've got more than adequate resource to feed into our plant over the next few years. To the extent that these become available, and the holding cost of looking after it in an environmentally responsible way are justified, we will start bringing them in.

I'm Charlotte Mathews from the Financial Mail. You mentioned in passing that your environmental costs have gone up. Could you explain why?

And the asset mine drainage problem, is that -- obviously that's not going to be such an issue now you get rid of Blyvoor, but are you going to be called on to contribute to a solution financially?

Yes, I think there might be an expectation on the part of the regulator that they could hook in some of the mines to make a contribution. Whether they'll be successful, I think, might ultimately be a decision that a judge has to make. Because we've been very proactive in seeking a solution for asset mine drainage, and we've offered a complete solution at zero cost to shareholders and that is self-sustainable for life, basically, for as long as we require water in and around Johannesburg.

There seems to be strange resistance to the notion of doing something in a self-sustainable way, but we think that ultimately, if we knock on the door of the right judge, we will get resolution on the matter, on the issue.

We don't foresee anything happening soon, though, that may pose a risk to the cash flows that we rely on for purposes of our business, going forward .

The environmental question, Craig, is this --

A lot of that is because of the Crown tailings complex coming to an end. So we're spending some more money on that side at the moment.

Brendan Ryan, miningmx. Two questions, please, Niel. The first one's on Village. When that money -- when you sell the shares, and the money starts to come in, what are you going to do with that money? Is there any chance of a special dividend payout to shareholders?

And secondly, do you have a target price at which you might start selling the Village shares? Village seems to be doing rather well at the moment.

Yes. Yes. (laughter) Brendan, I don't have a target price, but I think we'll probably sense when the gold run starts running out of steam. Just remember that Village is sitting on 42 million ounces of platinum that is still not recognized in their share price. So they're not just a gold story; they're also a platinum story.

So we'll see where -- I think we'll see where the current gold price takes them. And we're not traders, so we're not going to try to be too funny [and all that] until it hits its peak. And we'll take advice on it. I'll take expert advice on the matter, and do it in a responsible way.

We'll deal with the proceeds of that in exactly the same way that we'll deal with any other cash flow coming into the business. If it's not necessary for our buffer and for growth capital, then it will go to shareholders.

Paying out special dividends and interim dividends and so forth is something that we need to look at, though, because of the admin fee that's associated with our ADR program. Because whilst our local shareholders get full benefit of dividends, there's an admin fee associated with the distribution of dividends in the United States. And it seems to be -- I wouldn't say a discretionary fee, but we just want to make sure that multiple dividends don't attract multiple fees.

And that's obviously something that we need to discuss with our advisors, those who run our ADR program, and just make sure that we don't do this to the disadvantage, the detriment, of our shareholders. We want to make sure that -- maybe they'll wait a little bit longer for their money, but at least the fee component is then slightly softer.

And, Niel, second question is on this ERPM deposit. How exactly are you going to go about turning that into cash? Having got out of deep-level mining, are you actually going to go back into deep-level mining, to exploit this? Or are you going to sell it to somebody?

Well, I think it depends what's the most favorable. Obviously we no longer -- we don't have development and operating experience. We can't go and build a mine, unless we hire people; and all the best people already work for other companies, so it'll come at a premium. So I'm not suggesting that we would become an underground mining company again.

There are three options that we're looking at at this stage, and that is just taking it up the value curve, and then positioning it for sale. The alternative is to already start getting the right sort of investor in, with initial seed capital, obviously to give them some advantage to what might be a multiple later on down the curve. Or maybe a listing, or any combination of those three.

But I think those are the key thoughts at this stage, as to how we take it to unlocking of value.

And we also find out exactly where does the appetite for this sort of thing, where does it lie? And that's what my colleague will be doing over the next few months. And we don't have a -- we don't have anything cast in stone. Whatever provides us with the best upside is, I think, the route that we will take.

Fact of the matter is that at this stage it's not getting any value recognition. And it probably will only get value recognition if somebody pays an amount of money for it, and we could put a percentage to it, and say 10% is worth so much at current level; or if it goes public and the market decides how much it's worth.

So those are probably the best two ways of unlocking value and getting value recognition.

We're not in a hurry, though, because it's not something that's costing us an inordinate amount of money, and if delaying it by six months means that we can add 10% or 15% to the value to shareholders, then that's what we'll do.

And then just to make sure my memory's still working, this is ground that Gold One tried to buy off you at one point, didn't they?

Yes, yes, it was.

But you decided to hang on to it?

Yes, yes. We decided not to.

Thanks.

Martin Creamer from Mining Weekly Online. You mentioned that the license operation could go on for several years, considerable time, next few years. Could you just give us a little bit of a firmer handle on your expectation of your timeline with these existing operations?

And then the second question is, it has been alluded to the West Rand thinking, with Gold Fields and Gold One, have you had any talks with the players there? Gold Fields have got quite a few assets there that would really suit your portfolio. And then there is AngloGold Ashanti which isn't -- hasn't been brought into that Gold One/Gold Fields team.

Are you perhaps looking to some of the assets that are held by people outside of the Gold One/Gold Fields West Rand plan?

I think just to deal with your second question first, I'm pleased that Gold Fields has decided to move ahead with their project, because I think the fact that a serious company with serious investors has now decided that this is the sort of business worth investing in is definitely an endorsement of our model.

I think they've got the right partner, because it's obviously a partner with a shareholder base that is capable of introducing the necessary capital for the sort of developments that are required to take this thing to business.

We were in discussions with everybody in and around that area, and we exchanged models and we exchanged concepts and so forth. But I think ultimately the match that has developed in the West Rand is probably the best match. It's a big resource and deep pockets. That's a good match to start off this sort of business.

I don't think we were going to be in the position where, with the capital projects that we had in our near-term development program, where we would have been able to really come up with the sort of capital investment to get something of the scale that's required in the far West Rand to work more or less at the same margins that we're running at to make that sort of contribution. So I think we decided to stick with what we can; not bite off more than what we could chew.

What happens in the future is what happens in the future. Synergies have a way of moving in the right direction, especially when the shareholder base of companies becomes more organized.

So we'll see happens but we're happy with where we're currently are and we're happy with investing our capital into improved technology and, hopefully, a better margin and better return for shareholders.

What was the first question?

The first question is you've given us quite a few --?

Yes, I think it's probably something that we need to maybe give you a little bit more detail on. Over what life did we calculate this one? (multiple speaker). It was a 10-year life yes. So our numbers and our guidance and our current capital reinvestment are all calculated over a 10-year life. This footprint doesn't -- is not limited to a 10-year life but this is how far we calculated into the future.

And, clearly, with improvements in technology I think if the fine-grind comes off the way that we have planned and the uranium make the sort of contribution that we hope it would, I think our cut off drops down to something like 0.22 gram a tonne. It gets ridiculously low.

Crown plant, towards its end, towards its twilight, was putting more than that onto the dumps and that is what we can introduce back into the circuit and cover the overhead more than adequately.

So these are the things -- I think there's another model that needs to be developed as we go along and as we become more sophisticated in our extraction efficiency. But 10 years is the period over which we currently model the business.

And just a final question relating back to competitors, which you don't need to answer if you don't want to, but if they're going to do something there, the capital required will be quite high. The word on the Street is that it could be about ZAR4 billion.

Where's that?

On the West Rand.

Oh, West Rand. Well, look, I haven't -- I'm not privy to their numbers but if I just look at what we had to -- what we have under our control in order to just do what we need to do at our current rate, the tailings facility that we have, if you've got to go and build that, and you need a big one because you're going to be putting lots of material onto that and you need to do it in such a way that it doesn't run away, that's probably at least ZAR0.5 billion.

If you look at the pipeline infrastructure that you require in order to carry all of that material into your infrastructure, we've just spent ZAR300 million and that is -- I wonder if that represents half of our pipeline infrastructure.

So our pipeline infrastructure at this point in time, if you add up what we're invested over years, is probably close to ZAR1 billion or thereabouts.

If we had to go and build the plant, we're talking about building a fine-grind circuit relying on floatation technology for ZAR250 million. If we didn't have the benefit of Anglo's old footprint, that was a number that's probably closer to ZAR700 million, ZAR750 million. And I haven't even touched on the CIL circuit and on the illusion circuit and the metro winning circuit and the uranium circuit.

I wouldn't be surprised if you get to ZAR4 billion very, very quickly if you've got to add up all of those numbers, which is about double our market cap at this stage.

Thanks very much.

My name is [Denelle] from Business Report. Could you just tell us how many jobs are expected to be created in this fine-grind circuit? Thank you.

It's a mechanized process, so we'll probably do what everybody at DRD is becoming used to doing and is just work a little bit harder and more responsibility. Just look at how tired they look there behind you. (laughter) I can't say what the exact number is. It was about 50, I would imagine; thereabouts. It's very difficult to say.

(inaudible - microphone inaccessible).

We no longer have labor; we have technicians and operators and people that operate at a certain skills level. So it's the sort of people that work in a factory environment.

Thank you.

Niel, you talked about low CapEx for the resin-in-pulp uranium option at Ergo. Could you give us an indication of how much you'd be likely to spend there?

How much are we likely to spend? I don't know how much my colleagues are going to ask us to spend. That might be more than what we're likely to spend.

If you think it looks attractive, how much CapEx more or less (multiple speakers)?

These indicative numbers of the impact that it could have on unit costs, we worked out at about ZAR2 million. That's the top end of the range.

Yes, also guidance on production going forward, I think we're looking at pretty much the same sort of trending that we've been seeing quarter on quarter. That's a question that came in over the podcast, the similar trending. We don't foresee huge fluctuations.

Obviously once Blyvoor gets deconsolidated we would have to rely only on continuing operations for guidance. So between 30,000 ounces and 35,000 ounces thereabouts.

Thank you very much, everybody. I appreciate your attendance and so we'll be around for more questions if you have any. My colleagues are also here, people who actually understand the mechanics of the business, so please feel free to ask them any questions you want as well.