DRDGOLD Ltd (DRD) 2011 Q3 法說會逐字稿

Niel? Hi, this is the audience in Johannesburg. We'd like to hand over to you to start the presentation. Thank you very much.

(technical difficulty) this video conference. I think there's a bit of a delay on the line because of the bandwidth strength in South Africa, so I'll keep fairly slow and try and take you through this as much as I can by moving only my lips, which might be a little bit of a challenge.

Let's go straight into the presentation, to the first page and also to the disclaimer and while you look at the disclaimer, I think what we'll try to put into perspective and give you some insights on is basically the progress that we've been making in the two key objectives, the two key goals that we've been pursuing over the last -- or the recent past. The one, obviously, the full consolidation of the Crown and Ergo line and the major success that we've managed to achieve in that regard and where we currently stand. And then also give you a bit of an update on where we stand with the transaction involving Blyvoor and the disposal of Blyvoor.

So then explaining to the highlights for the quarter, we're very pleased with where our gold production has been trending on the continuing operations. That is the combined Ergo and Crown side. We're pleased to report that it's up by 3%.

Operating profit continues to be robust for the quarter. It was R162 million. Net cash flow from operations also is very robust. The trending has sort of softened because of a variety of reasons, most importantly obviously the gold prices must go up by as much as it did in the past, in fact it came off a little bit in the last quarter. But we still managed solid net cash inflows from operations of 145 -- well R141 million rather and that of course enables us to continue and to maintain the recapitalization of infrastructure.

We've just finished the Crown Ergo line, that upgrade is done and it's running. Now, we're moving into the next one and I'll spend a bit of time talking about that, how we can better manage that cash balance and how we're going to be managing that going forward to make sure that we can continue to delivering to the things that we hope to increasingly deliver into importantly deliver payment to shareholders and capitalization without dilution of shareholders.

The Crown Ergo pipeline is done. It's not have a -- now has a uninterrupted, a continued line all the way from the far West Rand, the CMR line or the CMR reclamation site, uninterrupted line all the way through to the Ergo plant and on to the [little trading stand] and that opens up just so much opportunity over and above the fact that I think the business itself is just much new to the consequence.

I'll talk a little bit also about the next phase, the fine grind circuit. We started that. We kicked that off. We did the studies. Our pilot plan suggested that it's something that's definitely worth doing. So we'll give you some updates on that as to where we stand and also where we want to go with it going forward. And then also, talk a little bit about the disposal of Blyvoor, which I'm pleased to say is on track. Both parties still seem equally committed to get the transaction -- to get the transaction completed.

Now, moving straight into the production trends. Now, you know that we've been reporting in order just to provide perspective on the year on year trends and to address the cycles within cycles that we do have in our mining -- in the mining space in South Africa. We've been reporting comparative quarter with comparative quarter, but we do also give you the numbers on the -- the quarter on quarter trends and you'll see there that while gold production is marginally down, I'm quite pleased that we are still above the 60,000 ounces for the quarter.

Notwithstanding the effect that there's been a significant cut back at Blyvoor, a significant reduction at Blyvoor following the closure or suspension of operations at the number four and number six shafts and Blyvoor essentially now having become a one shop operation. Just looking back three years ago, two years ago in fact, 60,000 ounces per quarter was [a net stay] still a target. So it's good for us to be able to achieve that in a quarter where the quarter on quarter trendings been slightly down.

The encouraging feature of the quarter, of course, is the fact that the consolidated Ergo numbers are up by 3% and this is -- this is a almost - we almost relieved to be able to report this. If you just reflect on what's been happening at the Crown and Ergo cycles over the last year and particularly towards the close of -- or the end of the last calendar year in this particular quarter. We came off the Top Star -- Top Star is now mined.

[Alfred] was a spectacular effort and it really contributed significantly into the business over the -- its life of mine. But it came off Top Star. There was a second dump that -- or second reclamation sight that we had mined out. At the same time, we opened two new reclamation sites, each with its own little peculiarities that we had to deal with and come to terms with. And then, at the same time, also during this period we decommissioned two plants -- were phased out two plants and channeled our -- our gold production from the City and Crown plants. Channeled all of that into the Ergo plant.

Those are -- every single one of those events in the past, just moving from one reclamation site onto another reclamation site, every single one of those, in the past, was an event in itself. It usually takes about three months to sort out if we figure out the metallurgy of every new reclamation site, sorting out the densities. Just figuring out what exactly we need to do in order to achieve the numbers that guide us, the model and the decision to actually access that dump in the first instance.

Here we had that times four. Two reclamation sites closed, two new reclamation sites accessed, plus phasing out two plants and starting up an additional circuit at the Ergo plant. And these are the sorts of things that make you nervous because in this ultra volume environment, it really only ought to actually see the results coming out of the plant itself that you know to which extent were you on mark or off market. You'll recall in the not too distant past two years ago that we had undershot some of the targets that we had set for ourselves by quite some margin.

But to be able to report to you a 3% increase in production, mining high volumes and lower write downs, we are really very, very pleased to be able to do that. And of course, now, going into the next phase of further spending down one of these circuits, figuring up these reclamation sites and implementing better efficiencies and optimizing it. We hope to be able to maintain these sorts of trends and at least not see a regression in any of those numbers.

But there you could see the tonnage output during a month where there was still a phasing in of these new sites, have in fact gone up by 7%. Okay, just looking at production by operation. That is the next slide, slide number five. Just -- and those show exactly what's been happening in our organization in the third quarter of every year for the last three years and you can see how it went up and then slightly down again and then up and slightly down again and I think the trending, especially on the [under] Crown side, that's indicative of the phasing out of the number four and number six shop.

But just look also at last year this time, the Crown Ergo circuit. Under Ergo the yellow bar there was Crown has incorporated into those numbers and you could just see the difference that having access to a site like a Top Star had made in production.

And of course, that is what we want to achieve again. Those are the sort of numbers that we want to get back again. And in order to do that, not having access to similar kind of -- kinds of reclamation sites, that's going to have to be done by way of just pushing the volumes and improving the efficiencies.

The revenue line, quite clearly up by some margin and that is attributable to the fact that the gold price has been trending very bullishly year on year. Of course that's flattened out a little bit now quarter on quarter, but if you compare where we were 12 months ago, then it's up by quite a bit.

Operating profit, also, up from the previous third quarter, last year's third quarter, by 52% to R120 million. And I think, later on, when you see the actual margins, as well the cash margin, that'll also give you some indication as to just how extensive which we've been able to take advantage of the much higher gold price year on year.

Moving on to the next slide, slide number eight, headline earnings per share. So while the headline earnings per share dipped slightly from last quarter to this quarter, cents wise it's a big percentage, its 22%, but in since it's in the -- only a cent, I think. You can see that quarter -- or year on year, those headline earnings are in fact up, trending in the right direction and just compare it to where it was in 2010 for the same period.

I suppose I should also add that the second quarter of 2012, the quarter ending December was probably the best quarter that we've had in many years in DRDGOLD. Having taken advantage in a very steep increase in the gold price quarter on quarter from below R400,000 to above the R400,000 mark. Obviously we're not seeing those similar sort of trends and having brought in higher volume circuit, having incurred also some additional costs associated with the reorganization of the Blyvoor footprint and particularly also payment for the consultancy fees and so forth, those were bound to impact on our headline earnings.

But on a year to year basis, I think we are still quite pleased with where our headline earnings per share and its enabling us to maintain -- maintain our viewpoint on dividend payments. We haven't had any course to revisit that, at least not based on the results of the last quarter. Net cash from operations, also from 2012 to -- or 2011 through to 2012, could see those also. That's on the next slide, slide number nine. Those are also up significantly by -- just on R21 million or 18% for the two years.

Cash operating costs, you can see the cost impact from the cost drivers. These are unit costs. Obviously, if your gold production doesn't go up or your gold production goes down, your cost per units are going to come up. We've managed at Ergo I think to maintain those to an extent. Quarter on quarter, they're up by about 1%, but year on year I think you can see the impact that [cost line amex] in the South African gold space have had on that.

Fortunately, the gold price has been outperforming the increases in cost by quite some margin, but cost management and cost per unit -- managing your volume very -- managing your economies of scale. I think that's going to be absolutely vital for miners in South Africa going forward.

That's one of the reasons why its -- it's so very important not to have interruptions in production, because those -- those interruptions in production, where your costs carry on, but your production slows down, those are the things that I think the [things she heard], the miner and the South African gold mining space. Being a mechanized miner predominantly, I think we favorably positioned to address and mitigate exposure to that risk.

Moving on to the next slide, slide number 11, the operating margin analysis. Here again, you could see, notwithstanding the fact that costs are up quarter on quarter or third quarter on third quarter. The gap that was opened up by the increases in the gold price and the fact that we pretty much maintained production volumes enables us to -- especially in regard to the Ergo operations opened up margin by quite a bit, even Blyvoor managed to open up its margin, just in the impacts that gold price can have on a marginal producer as well. 37% is a good margin for us, considering the fact that our maintenance costs or sustenance capital or sustaining capital, many words for the same -- for the same term. Significantly lower than what you would experience in your typical underground mining environment.

Moving on to the next slide, slide number 12. Capital expenditure by operation. And there too, you could see how towards the end or towards the conclusion of the Ergo Crown consolidation our capital costs are coming down. I will talk a little bit about the fine grind project going forward, which would -- which means some more capital in the next year. I guess we're pleased that our capital trends are displaying that which we are holding up to the market to be, namely a long capital kind of business where you spend most of your capital up front and then have the benefit of a factory like process going forward with only marginal sustaining capital in order to maintain production profiles.

R41 million for the Crown and Ergo circuit and R21 million at Blyvoor. The R21 million at Blyvoor, that's your mostly stand still capital [from] replacements and feel by and large, that is the last bit of expenditure around the Crown Ergo consolidation and particularly the return water system or circuit that we decided to install in order to better manage the amount of water that we put on through the (inaudible) and keep as much of the water that we introduce into that mining circuit, keep as much of that within the circuit and not having to top up too much, keep it a closed circuit eventually.

Let's all move on to Craig. You'll see something in real time now that doesn't look like a dubbed Chinese movie. Slide number 13 and 14, he'll take you through the financial review and also the balance sheet and then return it to me.

Thank you, Niel. Good afternoon, ladies and gentlemen. So, if we look at our income statement for the quarter ended 31 March 2012, compared to the third quarter of 2011, you can see that our revenue was up significantly. The first part of the income statement is obviously continuing operations and there is one line for Blyvoor down at the bottom. So when I'm talking to these numbers obviously just related to Ergo. Revenue up 27% and that was driven by a 4% increase in the rand gold price, as well as a 3% increase in the production.

Net operating costs, unfortunately up 21%, Niel has already touched on some of the issues there and obviously we've seen an increase in volumes at Ergo which would have impact on their costs as he stated when he talked earlier and in addition to that, we've also seen significant cost increases in consumables recently, in particularly reagents like Cyanide where we've seen in fact 11.4% increases.

Now, there is pressure on those type of costs, as well as obviously electricity costs. Last year we had the 25% or almost 26% increase electricity costs. This year [Fcom] will increase the electricity costs by 16%. Obviously that increase will come through from municipalities in July as well and then also just to give a heads up for the next quarter, as you recall, winter tariffs will hit us again next quarter. That'll be for the month of June.

That left us with an operating profit for the third quarter of R162 million, up 35% on the third quarter of 2011. Depreciation was also up for this quarter and that was really as expected. I mean we've been spending a lot of capital now in the Crown Ergo pipeline, which would have increased our PPE, property, plants and equipment and you would expect the results to increase in depreciation on those assets.

Net finance income, that was higher and that -- as a result of the high cash balances and also the decrease in debt. As you recall, we paid R70 million of the loan notes in September, October 2011. That resulted in the decrease in our finance charges, or finance costs.

Other income and expenses includes a number of different expenses and costs, but that increase for the quarter was largely driven by increased environmental reup costs, mainly at Crown as the -- as we start decommissioning or as production starts -- or deposition starts winding down on the Crown [paling] facilities. Obviously more is being spent on rehabilitation, the planting of grass, et cetera, et cetera. So those costs are largely -- are increasing largely in line with expectations.

Just on the tax number, the biggest -- one of the biggest reasons for the increase in the tax number is the current tax position of Crown, because of its profitability we've obviously seen an increase in the tax number. That left us with a profit after tax for the quarter of R57.5 million, up 9% on the third quarter of 2011. Discontinued operations, as I said, in one line really and there is more detail of this number in our -- in the actual handout. You can see that the profit from discontinued operations was R6.9 million, up on the third quarter of 2011 and that would have been impacted as well by the R42 million worth of retrenchments that took place on this last quarter.

Our net profit for the quarter is R64.4 million, up 9% and our headline earnings per share, in fact up 8% on the third quarter of 2011. On the balance sheet, just some numbers to highlight the gain there, you can -- again, our cash and cash equivalents have consistently been increasing. Our cash and cash equivalents sitting at R380 million. This is obviously due to the profitability of our surface operation and there was a slight offset of that because we did buy back some shares in this last quarter, 5.4 million shares, so we used some of that cash to buy those shares back.

You can see that Blyvoor is shown separately under assets classified as held for sale and liabilities classified as held for sale on the balance sheet and on the current liabilities we have included the current portion of the loan note, which is R30.6 million. That really is the last remaining debt that actually sits on our balance sheet. We obviously -- we may look at raising further debt going forward, but we'll make that assessment as and when required. Our current ratio is still at a healthy 1.9, just below two. So that's being maintained and Niel will take you through the rest of the presentation. Thank you.

Thanks Craig. If I can move on to the next slide, slide number 15, which is a very nice little three dimensional picture that's been drawn of what the Ergo then and now footprint looks like. I think that sometimes not everybody fully appreciates the scale and the extent of this footprint and what effectively has been opened up through the construction of this pipeline from the far West Rand near Soccer City all the way through to the Brakpan plant and to the Ergo plant in the far East Rand.

But essentially, we now have access to whatever remains on surface in and around the Johannesburg area over a distance west to east of 62 kilometers. As you speak to [Charles Simmons] in the audience there, he would have told you he was one of the first to start doing tailing through treatment in the rand area, one of the pioneers of the West Rand. And they started the -- the Crown plant in the 1980s with a projected life of mine of eight years. With the gold price where it was at the time, the size of the plant that they built and with the infrastructure at their disposal, they would have been able to access a few mine dumps in and around the immediate vicinity of Crown.

And after eight years, in other words, early in the 1990s, that would have been the end of the Crown. Now, Crown managed to maintain production and add two additional plants. The City plant, the City Deep plant and the Knights plant to its portfolio asset over the next 20, 30 odd years and instead of just doing the few million tons that support at the eight year life of the mine plant, prior to us accessing or buying Ergo or bringing the old ERP [inplatings] into this circuit, it had treated just on 250 million tons of material.

And that is a function -- the fact that it was able to extend its life by so many years with a function of two things maybe the gold price going up and better technology towards the recovery of [failings]. If you look at where Crown was just before we phased it up and with respect to the amount of gold that ended up back onto a savings debt compared to the value of the Ergo tradings, talking cheap.

So, I think the -- the point that I'm trying to make is that we don't know what's going to be happening with the gold price, but what we do know is that the business that we've got here, the -- was unsustainable, should never have even brought into -- into [sect] so the gold price margins that we were looking at, eight, nine, ten years ago. In fact, ten Ergo gold -- AngloGold Ashanti sold the Ergo plant. Admittedly at a time when they've mined through most of their infrastructure, but probably two or three years prior gives us more recent search in the gold price that has enabled us to bring the remainder of our savings into the circuit and to establish something that at current gold price and gold price even at a significantly lower rate could continue for a very long period of time.

Our key resource is the Elsburg dam that you could see right there, in the middle of the picture. That contained 800 and -- 180 million tons of material at the time when we started mining it. And then, both to the west and to the east, you could see that there are a number of accessible tailing stands that could ultimately become resource and that could ultimately also go into this plant and be treated for the recovery of gold.

The fact is -- as strange as it might sound, but the old Crown tailings, all 330 million tons of that, which Crown had built up over the last 30 odd years. With a gold price not much higher than the current gold price and with an improvement -- to further improvement in technology, not much more than what we currently achieving to quite feasibly become a valuable resource going forward for the next generation. That could be mined once again.

Now, we've got the infrastructure, the rights and the volume capacity as well as the residue capacity, the disposal capacity to look at that as a genuine possibility going forward. But for the fact that over the last few years we brought about the combination and the consolidation of all of these various pieces of infrastructure and finishing up with the recent competition of the construction of the pipeline and the upgrading of the capacity of the Ergo plant. But for that, Crown and City would not have just been phased out, but that entire business, that entire model would in fact now be in a closure phase. Crown would have been finished, DRD would not have had -- other than Blyvoor, which is now in the process of disposing, DRD would not have had a business.

I suppose that's the advantage of having this sort of infrastructure under your control. It's a unique infrastructure, it's a unique combination of assets. Something that we are unlikely to be able to replicate or to [bold] off a clean sheet, a blank page simply because of the shear costs of establishing infrastructure of this nature, of this size. Very much the ultra volume environment. We're very pleased and we're very excited about the fact that we now have all of these in place, capable of moving the sort of tons necessary to mine - not just profitability, but attack the profits at this stage.

In fact, just reflecting on the last eight years when many of those who are part of the executive team of DRDGOLD who joined DRDGOLD over seven years -- eight years ago, I personally joined just over eight years ago. The gold price at the time was half of what our current cash margin is, which just shows you how the world has changed and which shows you how a business like this, which is something that you can switch on and switch off, it doesn't deteriorate. You can in fact interrupt or delay or manage volume flows. Now that can position you favorably for the kind of optionality that the gold price environment -- the global gold price environment, the global gold price environment is offering for a company -- or for a business of this nature.

I suppose what makes this unique, and I can look at this picture for a very long time, especially now that it's been made slightly more three dimensional and you can get an idea -- a concept of what it is that make up the various components of this business.

The fact is that this is a business that within the South African environment presents a low safety risk and hence the risk of interruption is limited. It represents relatively low levels of exposure to industrial unrest or industrial disruption because it's by and large mechanized.

I think the per capita output per employee tons wise and production wise are certainly much higher than any of the other mines in South Africa. So if you take as a [faulter], as various new risks become part of the costs of the lives of gold miners in South Africa and if you superimpose that over what this business soffers and I do think it's a compelling and interesting new alternative, it is genuinely, I think, a gold factory.

And so, moving on then to what we are trying to achieve at Ergo and what is slowly but surely falling into place, you could see how the volume -- the production contribution -- sorry I didn't prompt you there Craig. We're on slide 16 now, Ergo here and now, gold production. So you could basically see how the two other plants, Crown and City have been phased out and the remaining two plants, Ergo and Knights are there now and going forward it seems to contribute towards gold production.

And onto the next page, slide 17, the volume throughput. There you could see how we have phased out volume flows through the City and Crown plants and how most of that now in fact flows into the Ergo plant. Knight will continue going forward. There's still one more sand dump in the Knight area, the 406 stamp which we hope to bring into the circuit in the foreseeable future, once the [Casen] dump reaches its end. So it will continue still for a few years with a milling capacity to access the sand dump and to continue to make its contribution.

But then -- then the next phase, we've just finished, we've completed this consolidation of Crown and Ergo now. It's up and running. We're happy with the volumes, the [Illusion] circuit is starting to respond nicely. The [electro wining] circuit is starting to respond nicely. We're achieving what we want to achieve there. It's one slide back, slide number 18.

So the next phase for us is to -- in lieu of the fact that growth in so far as increasing volumes are concerned, those prospects are limited. The best way for us to now make more out of this business is clearly is to optimize the efficiency of what we're dealing with and what we have under our control. So the next step is the fine grind circuit. I've spoken about this a little bit in the past, so I'll just give a very fast recap of what it involves. Just over 40% of the gold that doesn't respond to our metallurgical process or gold particles that are encapsulated and higher fraction [pyrite] so the gold -- the pyrite particle goes into the [cyanide] tanks -- into the [center] hold tanks. But the gold particle is not visible, it doesn't dissolve because it's fully encapsulated.

Up to 90% of those higher fraction pyrites can be floated out and 90% of the higher fraction pyrites constitutes a mess pool, make up a mess pool of about 4%. That then goes into a high pressure mold, it gets mold for about 45 minutes and the fraction that's reduced to a level where the gold particle does become visible, becomes soluble, goes back into the [diode] circuit and from there into the illusion circuit. So, it's basically just a way of milling that part of the material introduced into the circuit that is of a too high fraction to respond to our metallurgical process.

We started this project, its up and running. Charles and his team will be able to give you some additional information on that. There's also a slide -- the next slide that shows you what the project dates are -- or the key dates are for the project. We're thinking of spending $32 million, R250 million over the next 12 months to get infrastructure in place and as you could see on the next -- the page that you're on, the commissioning dates are. We're hoping to increase our total gold production by between six and - 16% and 20% without increasing the volume flow into that circuit.

Moving on to slide number 20, what we also -- what we also saw in our test work involving the fine grading of the sulfates was that the material comes out of this mold, is capable also of treatment for uranium, and not through the old process of [brushing] off the sulfates, you can in fact affect uranium by way of a [eraser] and pulp process and there too, we've done sort of a desk top study. We are in fact now engaged in a full scale feasibility study.

We've engaged advisors to assist us on that, on the mechanics of this, the engineering and the metallurgy of also confirming or firming up on these numbers. But the desk top study suggests that we could expect around 11 tons of uranium per month. These aren't of significance, not a lot, but it is significant within the context of potential byproduct [petters] and it could soften at a uranium price of $50 per pound. This could soften our gold production costs per unit by between 5% and 8%. So it could yet make an important contribution. That'd be nice to have dual circuit -- a dual product circuit and fully optimize what we have.

So, moving on to the next page, page number 21, with the linking up of Crown and Ergo and essentially establishing a whole new business, one that is of a slightly different complexion than what we had previously had under our control. Instead of the lower volumes, high grade materials, we now have a much higher volume, but lower grade material type of operation. We're in the position now for the first time to give some guidance on where we believe we could take the business going forward and I'm talking specifically about the Ergo side, the consolidated Ergo.

We do have the engineering capacity to move 2 million to 2.5 million tons of material per month and unless there is some significant interruption in either the five powers, the power of water or a breakdown of pipeline infrastructure, it's very much within our ability to do that. The plant capacity and the capacity of other parts of this circuit, this infrastructure are certainly adequately designed and constructed to manage volumes of this nature.

Looking at the metallurgical process that we have and also looking at the gold content of the material that gets introduced into this plant circuit, we believe that we could achieve between 140,000, 150,000 ounces of gold production for the year. So you see what the cash cost number looks like.

I do suggest through that you move immediately to the last line on that slide as well, just to see what the standing still CapEx looks like, the maintenance CapEx looks like, the $42 per ounce and compare that to what you see in the rest of the industry, especially in so far as deep level underground mining is concerned and you'll see that by adding those two up we're very much in the ballpark of other higher quality producers in south Africa as far as clear cash margin, mainly margin on the other side of both sustaining capital and cash operating costs are concerned.

You can see that we did achieve notwithstanding the fact that it's early stage in the circuit, we did achieve our guidance from the cash cost side. Right, so moving on to the next slide, Blyvoor countdown slide. We thought it was important just to give the market some indication as to where we stand with the Blyvoor and what the key market dates are in the disposal of this asst.

During the last four months, prior to the first of February, Blyvoor took advantage of the higher gold price and production also was not interrupted over that period. So the production numbers were good for that period and as a consequence, it did generate surplus cash flows. We were drawing down against these cash flows, we're on essential treasury, so obviously what's necessary for the operation was made available and what is surplus cash that simply gets detained in central treasury, and as a consequence, what started to happen was that Blyvoor was working down its working capital facility at quite a nice rate, at quite an attractive rate.

The new buyers of the mine, they were clearly concerned that we were sucking the asset drive, so to speak, that we weren't capitalizing it adequately and so forth. We demonstrated sincerely that in fact that was not the case, we were not just spending [over] the budget, that capital of Blyvoor, we were overspending it because during the rescue proceedings capital investment or maintenance capital was slowed down somewhat.

So we caught up and spent all the capital that had been budgeted for. But what we did undertake for the purchases was that there would be a cut off day beyond which we would no longer draw the -- or withdraw rather the surplus cash flows coming out of Blyvoor and we agreed that that cutoff date would be the first of February.

The reverse side of the coin also was that if there was a working capital deficit at the time that DRDGOLD would top up that working capital deficit. So they would get a business that had not been stripped of cash and they didn't owe what it couldn't pay in so far as current liabilities were concerned and no balance working capital. So the first of February came and went and I refer to that date as the -- call it the cash flow risk date. No longer cash flow upside, but at the same time, no longer cash flow risk either. Whatever Blyvoor made beyond that date that was surplus. That would just remain within Blyvoor.

The second important date is the deconsolidation date or the part A closure date. Now, regardless of the arrangement that we have with the buyers in so far as cash flow cut off dates and so forth are concerned, the fact of the matter is that we both have [times actual control of the business is transferred, both the production and the financial performance of Blyvoor would be fully consolidated into the accounts -- the financial accounts of DRDGOLD.

So the deconsolidation of that would only take place on part A closure. Part A closure is linked to a number of conditions, the most important one of which is approval by the competition commission. The competition commission we all know does take their job seriously and they scrutinize these transactions from every conceivable angle and I think one of the big concerns that they more recently also demonstrated (inaudible) is that we don't rationalize at the costs -- unnecessary cost of jobs, of employment. So, it's definitely not just a rubber stamp procedure, that is most certainly not the way that they go about their business. They take their mandate seriously.

So the competition commission compliance is a real condition and I think its one that we have to seriously delivering to and be working hard to make sure that we do satisfy them in line with all of their criteria that this deal is appropriate against the backdrop, both of what's written in law and also the mandate that they've assumed in other respects.

And then, over and above that, the other conditions that are important conditions are the conclusion of an agreement with AngloGold Ashanti around the acquisition of the [Subuka] block. We've spoken about that. In fact, we announced in July of last year that we had agreed terms with Anglo on the acquisition of that Subuka block. That transaction is, however, linked also to reaching satisfactory consensus with Anglo and with village for that matter on how we propose to deal with the pumping of underground water going forward.

Anglo is keen for us to make sure that the underground water pumping regime there is maintained and not expose them to risk. So those two have been linked and discussions are underway. I do think that there is a good basis for reaching consensus. All the parties seem to want to achieve exactly the same thing. The lawyers now just need to find the right language to write what the operators are at this stage finding pretty straight forward.

So we're confident that that condition would be delivered into as well by the cutoff date and then there are a number of other conditions, the so-called material adverse event conditions and that have involved a drop in the value of Blyvoor and also a drop in the value of the [valued] shares. Obviously we are closely monitoring the value of those valued shares. But both those conditions and there clearly one considering the value of Blyvoor. But those are conditions that are capable of being either extended or waived and I think both parties will look at these things pragmatically and not allow interim cycles to get in the way of that.

Both parties still very committed to see the transaction through and we are working hard together to deliver both into I think the two most important conditions, namely the Subuka condition and the competition commission condition. We hope to have compliance of these conditions by the 30th of May of this year and as I said earlier, that would then be the day upon which the deconsolidation of the Blyvoor accounts occurs.

And the next date is a date that will take place sometime in future after the conversion of the Blyvoor new order rights, the mining rights to new order rights and that would then also be the date on which transfer of shares actually takes place.

Transfer of control takes place during this interim period of -- these are different conditions that got to be met, competition commissions necessary for transfer of control, whereas actual conversion of mining rights, control are necessary for -- we believe for the transfer of actual shares. Our involvement then would be notional between that period. For all intents and purposes, the business transfers from the day that the competition says -- competition commission says (inaudible).

All right, then, also moving on to the next slide, slide number 23, and update on Zimbabwe. We've been very busy in Zimbabwe in collecting claims and collecting information. The size of our footprint there is always on the increase. We've been taking quite a number of claims in the last few months as well. We haven't been able to get into production. Not even the sort of bulk sampling kind of production that we had hoped to be involved in by now. And there are a number of hurdles I think we still need to clear before we actually get to do that. We're definitely filling the information box though, and also keeping a careful eye on the developments in the country itself from a political perspective.

We have engaged attorneys to take a view or to assist us with advice, specifically on the land lease regime to see how that could potentially impact on us. I think, going forward, whilst we're not breaking stride in collecting assets and filling the information boxes on those assets, we are certainly cautious in so far as significant capital investment is concerned until after we know what the impacts could be of the land lease regime, if it's applied in a certain way. And we've run some of those numbers and I don't have those numbers here with me. But we could certainly provide details of some of those numbers [under quiz].

Some of the larger areas that our special grand areas simply just become completely unrealistic and would not make sense in any kind of exploration involvement. But then if they're applied in a different way, then it does make sense to pay a relatively modest holding fee and continue to explore those assets. So we'll continue to engage with government, but continue to make sure that we keep our eyes and ears peeled on those developments and in the meantime, continue to fill that information box.

All right, so looking ahead. I think we are now in a position where we -- in so far at least at the consolidation and the positioning of our business is concerned. I think we very much where we had hoped to be. We're very pleased with where the gold price has taken us. We did these models -- we ran these models and took these decisions to build a business -- to develop a business in the direction that we have a few years ago in the gold process half of what it is now, maybe even less. So we're very pleased that the business is in its current state.

As I've said earlier, I think we've now transitioned from being a business consisting of a number of smaller plants geared -- designed for higher -- higher grade material to one that is capable of receiving vast quantities or vast volumes of material of relatively low grade and mine those at effective margin. The fine grind circuit we're all very excited about. I think we're very keen to see whether we can in fact achieve those higher expectations and the better efficiencies.

That's not the end of our R&D though. I mean there's several technologies out there that can improve that the extraction efficiencies even more. The challenge for us really is to apply those technology in such a way that they are feasible and practical within the ultra volume environment. That remains the biggest challenge. But we will continue with our research, we will continue with the studies towards optimizing these inspection efficiencies even further. But we are pleased that at least there's one piece of technology that can piggyback on existing infrastructure and bring it within reach insofar as capital investment is concerned that we can embark upon right away with the possibility even of bringing a bit of uranium byproduct into the process as well.

I think with the surface operations, we're very pleased with where we are. We're relieved we have the sort of results -- with the responses, not the sort of results, we believe with the responses that we saw coming out of the circuit now during this time of significant change with four different dynamics as opposed to the usual one of maybe just one [of these] smaller ones and the way that the team has managed to adjust to these circumstances and manage the process very effectively. So I think there's undoubtedly a feather in their cap.

The next step for us is of course to make sure that we see the disposal of Blyvoor through and to make sure that we do this the way that we set out to do, namely that it ends up in a safe and responsible pair of hands. And as I said earlier, I think both parties involved in this transaction are still very much committed to it and both parties want to see the transaction through.

The business has performed well in the last 12 months. I was recently at a gold conference where various other companies presented their numbers for the year and I must say that the South African juniors, ourselves, Pan African, Gold One, those companies, their numbers were visible but when we presented this conference, Pan African did but these -- all three of these companies have significantly outperformed most of the other companies out there in the world that are already in production and in fact compared to (technical difficulty) production for a number of years and who haven't had the benefit of recent deals or who are not in a ramp up phase.

In other words, if you exclude the likes of a [banra] for example that are doing a few thousand ounces now, but with the promise of tripling those ounces over the next year to companies that are in a steep ramp up phase. DRDGOLD and Pan African actually performed better than most other gold producers in the world over the last 12 months. So we are pleased Pan has always been doing well, I think it's a company that's always had very solid results. DRD admittedly is off a quite a low base, but it does seem -- looking at the numbers over the last 12 months and the performance of the stock over the last 12 months that DRD certainly decouples relative to the gold price a few months ago and that is now recoupled -- that will exist and that is trading in a bit of a different band.

So there's still sharp responses to movement in the gold price that we see, but its certainly trading in a slightly different band and I think it's increasingly trading closer to some of the target values that we've seen some of the analysts on the sell side have been calling for and hopefully was the implementation of what we've been doing with -- what we've been doing over the last 12 months, that we can maintain the momentum there and deliver into the expectations, both ourselves and that which we've traded in the market and if we can bring about the successful completion of Blyvoor, then maybe we could trend even closer to those targets and provide the sort of investment upside that we've been hoping to create for quite some time.

Our investors have been patient, I think we did reward them to an extent over the last 12 months. We hope to continue to do that going forward and we hope to continue to do that with solid results and a responsible approach to the risk within the business and staying true to the course that we had set of becoming a dividend paying company that uses language like return on equity and CE and margin and so forth as part of our daily vocabulary. I think that concludes the presentation. I believe there's a video that's going to run for a few minutes, and on the other side of the video, we'll take your questions. Thank you very much.

(VIDEO PLAYING)

Craig, would you maybe just take the Q&A further?

Any questions?

I'm [Neal Adringham] of [B&P Kades]. Three questions for you. Firstly, I'm just worried about your [head grads] -- I mean not your head grads, your recovered grads from the Ergo operations which we've seen come down from about 0.21 to 0.19 and obviously some of that was from the Top Star down coming off. What's your outlook on those grades? Is there any downside? And could you answer that in light of what sand dumps are expected to come off stream. Second question is, what's the availability on the new Crown Ergo pipeline?

And thirdly, what's the status on the ERP and feasibility study? Thanks.

Thanks very much. So far, I think, in so far as the grades of Ergo are concerned, this is pretty much I think the way that it's going to be. The higher grades that we saw coming -- [blowing] into Crown and City Deep in the past, both of which I think towards the last bit of their lives. In fact also because they were in the lower sections of some of the reclamation sites that they were in. Those are pretty much something of the plot. I don't think there's much downside risk in grade for the foreseeable future going forward but during this time when we mine the new central rand sites (inaudible) to the [resr] of City Deep. Those grades have settled down and I don't think there's downside risk in so far as the [Augsburg] resource is concerned.

Charles could give you some additional information on that. But it was -- I don't foresee much upside on those grades. I don't foresee any downside risk or much in the way of downside risk either.

The profile at Ergo is different from the profile of these other plants. It is pretty much a high volume, lower grade plant and its job is to process these lower trailings, only because it does have the volume capacity and economies of scale that are capable of doing that. What was your question on the Crown Ergo pipeline?

The availability on that pipeline.

It's running as we speak. (inaudible) --

In that -- unplanned and planned downtime, is there something you factor into that or have you experienced any unplanned downtime?

No, look, I think you will have your normal sort of interruptions that we had in the past except that the -- and in the past we had 12 meter lengths. Your biggest interference with pipelines or your biggest risk with pipelines is fixed. People steal the bolts that hold the -- the flanges that hold the pipeline lengths together. That's not going to go away. But what we have done is reduce our exposure to that sort of thing quite significantly in the sense that we now have 500 meter lengths as opposed to 12 meter lengths and at first you had a set of flanges and nuts and bolts every 12 meters. Now, we have them only ever 500 meters. So I suppose from a scale wise -- within a scale wise context that is quite significant.

The technology that we use certainly works. So I don't foresee any risk -- downtime risk because of the fact that we use this particular new type of technology in welding 500 meter lengths and then pulling a lining through by way of a series of cables and pulleys. So the technology works, the downside is -- downside really is how often are people going to try and steal those bolts. We have fewer points to manage and to control. So I think there's less sort of a risk in that regard than what we had in the past.

And then in so far as the in feasibility study is concerned, the competent persons report has been completed. We submitted the executive summary of that competent persons report to the board. The comprehensive competent persons report is also being scrutinized by an independent consultant and I think I'll provide more details in that regard once our relationship with independent consultants is formalized. But yes, the report itself has been done and now it's a matter of what the next step is. So we're pondering three, potentially four options in that regard.

Hi Niel and Craig, its [Ian Cook] from JPMorgan. Just three quick questions, if I may, the first one on tax. You haven't changed any of your deferred tax accounting as a result of the change in formula -- gold mining formula tax. I think that impacts ground. Am I right? Will that come through in the June quarter and what do you see for effective tax rates for your Ergo operation with the change since the budget.

And then just on the dividend. You chatted about this last presentation and you indicated after working capital and CapEx considerations you'd be prepared or out would look at paying out excess cash. If you could just remind us of those numbers you've got -- you've got some CapEx planned, you've got some working capital that you need some restricted cash, a little bit of debt. What kind of numbers if you back of the envelope should we be thinking, assuming that you continue to generate cash in the way that you are currently at Ergo?

And then finally, just on Zimbabwe, you mentioned you'd move swiftly if the land lease proposals there are put in place, what does that mean? You'd move out of them or you'd be prepared to commit millions of dollars worth of investment there?

Can I just answer the first question? Niel? I'll just answer the first question --

(inaudible - multiple speakers) what Craig thinks, yes.

The deferred tax adjustment will come through in the next quarter that you're talking about for Crown. Obviously Crown's effective tax rate came down because of withholding tax kicking in from the first of April and that you'll see coming through in the next quarter, the fourth quarter. The effective tax rate equivalent is roughly 28% - 28% going forward for Ergo.

Thanks. Niel, are you going to respond to the dividend question?

Yes, certainly. Ian, look, I think the restricted cash -- Craig can provide you some details on that, but it's pretty much money that we've locked in for purposes of covering some of the reup liabilities going forward. We also set aside R30 million for the repayment of the balance on the loan that by September I think is due, September or October. Strictly speaking, that's unrestricted cash, but we're pretty much keeping that aside.

But in so far as the available cash for purposes of the distribution is concerned. We have decided a lower buffer. You'll recall that in the price that we see the R200 million buffer in free cash flow is what we want to maintain. The Board seems comfortable with something in the range of R15 million or about R100 million as a cash buffer. We also say to you that we want to make sure that everything we require for purposes of project capital that that is secured, and one of the aspect that we got clarity on from the board in the last week discussions is that we are going to be factoring in probable cash flows, or likely cash flows from operations a part of that equation.

So we won't necessarily want to keep the entire R150 million available right from the word go for purposes of making sure that we can cover the capital commitment of Ergo. And now that Ergo is certainly on a slightly better -- now that the numbers are becoming a little bit more predictable and closer to steady state, I think that will make it easier for us to have a look at those cash flow forecasts.

And then, I think a third thing that is encouraging or a third aspect that's been encouraging in the last few weeks is that we have managed to secure more other than what we initially anticipated. We did manage to get an additional insurance instrument there that significantly reduced the scope in that regard. It's been about R100 million odd that I think we need to keep in the ready if the conversion of Crown suddenly takes place. But we are now in so far as the conversion of Ergo is concerned, provide us the numbers that we submit to the [DMR] are accepted and we don't have any reason to believe that they won't. We have full color and full cover for the Ergo possession.

So, to answer your question, and I know that you want better details than that, but I'm not in a position really to give better details than that, so I think the answer that I can give is that nothing has happened in the last three months since we spoke that have caused us to be in a worse position than we were at the time to pay a dividend. We will certainly unless there's some sort of an adverse position. If circumstances continue, then we can take your recommendation to the board in the August board meeting to pay a dividend.

Sorry, and then there was a question on Zimbabwe as well. Yes. Now, look Ian, the reason why we're in Zimbabwe is because it's cheap gold. That is ideally located. Its -- [Hirarawe] is much further away from Johannesburg than [Kelcom] and it's an environment where we can easily access your resource. In other words, it's cheap gold. If it's no longer cheap gold then we're not going to spend a fortune hoping that things will change for the better. If it's not affordable, then we will certainly look at reducing some of those areas where the payment of the land leases just make it too expensive to hold on to those ounces.

We're certainly not looking at simply just abandoning the project, because it's a vast area and several thousands acres of leased land that we've looked at. We've spent a considerable amount of money there. I think we spent probably now close to $3.5 million in assessing the -- what we've got there. And some of those areas are such that it might be worth our while to spend the holding costs there, so to speak. But if there's a blanket introduction of millions and millions of dollars to hang on to other areas, we're not going to be spending that. We will then reduce the size of our footprint.

But a lot of things are going to happen before we get there. I'm a firm believer that if remedies are available, then you should use those remedies and there are a number of areas, even in our own country, where sometimes we just accept certain things and we don't avail ourselves of the remedy. We see so many interruptions in production in our own mines where administrative conduct by officials, simply just accepted by gold mines or by mining companies for that matter, not just gold mines, and then after words, we complain about the fact that production is down and that this has become an increasingly hostile environment within which to produce.

The fact is that you've got remedies. Before you complain, make use of those remedies and we will make sure of those remedies. We won't do that in way that (inaudible) embarrassing anybody and we're never going to fight any fights through the media. But if there is an administrative process through which you can fix certain administrative conduct, then we will test that. If the prize on the other side of that process is valuable or not. We've done that in the past quietly with our own mines and we won't stop now. We'll always behave in a good way, we'll never become prima donnas, but if the remedies are there, before we complain about them -- we'll complain about conduct, we'll avail ourselves of our remedies.

Do you want to just check if there are any questions on the conference call?

There are currently no questions from the conference call.

Niel, could you reiterate your position on the dump let's say (inaudible)? Are you interested? And would it be a significant transaction?

(inaudible) -- what makes these dumps attractive is the fact that you more often than not don't pay for them. But the moment that you've got to -- the moment that you've got to put this business together the orthodox way, in other words, actually spend the capital to build the infrastructure and pay for the resource, then they just don't work. This is recycling. We're taking rubbish that nobody wants and we're putting it through a plan that can turn it into a profit and we've had this a number of times. We are approached with -- by individuals who probably don't understand the dynamics and the economics of this business well enough and to think there are hundreds of millions or billions of rands worth of value in those dumps and then -- when we show them the numbers, then they're a little disappointed.

So, - unless those dumps work and unless those dumps pass our test. And our test is a simple one of what is the return on investment? Then they won't form part of our plans going forward.

We accept [method] applications for them, for some of those dumps. It's very much an internal process at this stage. We've met with some success and then there was some push back and one of those areas where available remedies were being used, but as I say, we don't talk about these things because we prefer to do this kind of thing discretely because certain things belong in the media and other things belong in chambers and as far as we're concerned, these are the sorts of things that belong in chambers. But to answer your question maybe a more direct way, we're not writing a check for dumps at this stage, not just yet.

[Mim Spinell] from Business Reports. Have you heard from the portfolio committee on what -- on your proposal to deal with the problem? Not asset mine drainage? Thank you.

Yes. We haven't heard from the portfolio committee, we have heard from the department of water affairs. We expect in the position that the department of water affairs agent does not do what the portfolio committee expected them to do. So there's another discrete pursuit of top offer (inaudible).

At the same time, we very much have a number of contingency plans in place. My colleague [Yakov Skuman] who essentially is the architect of the whole central basin asset mine drainage solution, in my view still the only workable solution at this stage that can be implemented with absolutely no recourse to taxpayers money. He is very much driving that process and we're making sure that we're staying on the right side of right in this whole process. We may at some point go back to the chairperson as the portfolio committee and disclose to him the extent to which we think these instructions were carried out.

We're not there yet. We're certainly not in the position to take this into the public arena either. There are internal remedies that are available that you're pursuing. It's also always a very good idea to bring people around the table and talk and we do that on an ongoing basis as well. But we have a very firm view as to where we stand with regards to the law, with regards to our own requirements going forward, with our own positions strategically. We own significant infrastructure in and around that area that can contribute to towards the full on solution and the final solution. And clearly there's value in those infrastructure and we do need to make sure that whatever contribution we make is in proportion to the value to shareholders in the final analysis as well.

We have two questions from the webcast. The first question comes from Steve Shephard of JPMorgan. Would, DRDGOLD be interested in the event that tailings dump? Would such material be inside the (inaudible) to land?

I think in the long run, we are certainly capable of bringing the random materials into the Ergo footprint. So there's definitely nothing at this stage that suggests that either the material or in the size of the asset that it's fatally flawed. But it could undoubtedly be an interesting expansion opportunity for us at some point in the future.

The second question comes from [Andrew Koch] of [Floren]. What are the operating rehabilitation costs going to be?

It's right there in the balance sheet, on long term liability. And I think it also gets broken down as well. That is the provision. What the actual costs will be in the final analysis, it's difficult to determine because many of those liabilities, in fact disappear as you mine the reclamation sites away.

And Niel I think -- Niel, I think that's all the questions. So I think from our side, thank you very much for attending and we'll see you at the next quarterly presentation.

Thanks, Niel.

Okay, thanks everybody. Good bye.