DRDGOLD Ltd (DRD) 2013 Q1 法說會逐字稿

Good morning, everybody. Thank you very much, again, for taking the trouble to come and listen to our presentation of the results for the quarter ending September 2013.

We will, again, as we have done now for the last few reporting periods, compare this quarter with the comparative quarter in September 2012. It's pretty much because of the cyclicality of our business that we're in, and that you seem to have a recurrence of the events that impact on the business in fairly distinct cycles.

We will be referring to a number of future events. So we also ask that you take cognizance of the disclaimer.

The key features for this quarter. It was very much a quarter of transition, a quarter of implementing new technology. By and large, we had to scratch around a little bit for the good news this quarter. Thankfully, we managed to get a wage settlement for the next two years; and a half decent one, I would venture to suggest.

At the lower end, I think around 7.5%, Barry, the higher end 10%. The higher end meaning -- well, the 10% was for employees in the lower categories; category 4 and category 5.

And that is something that we had factored into our budgeting process pretty much from the word go. We do our budgets during May and June, and then present them for approval in August. And in order to get to, more or less, an all-in increase on labor cost, salaries and wages, of around about 8%, we took a bit of a tapering towards the higher end.

So the senior management of the business are taking a slightly lower increase this year, as are the members of the Board. Not much lower, but because, I think of the fairly high big difference in wages on either side and salaries, a small sacrifice at the high end actually enabled us to achieve a 10% increase for the lower end.

We're also right in the middle of -- well, hopefully towards the tail end of the commissioning of our flotation and fine-grind circuit. Charles is here today to take you through some of the more technical aspects of the commissioning of this circuit.

It is a circuit that, as we get the various components of it to work to specification, that the assumptions that initially supported the allocation of capital and our decision to undertake this venture, that those undertakings are increasingly being met.

We've had -- we've encountered a number of delays, especially around the milling circuit. That's all new technology dealing with new processes. And we've had one-week delays, two-week delays, etc., in order to make sure that we get these things sorted out.

I think the encouraging thing, though, is that we have yet to come across a fatal flaw in the process, in either the design or the metallurgy, or just the process flow. And we're running out of opportunities for fatal flaws, because the only two components that have yet to be fully commissioned, Charles will tell you, is the one thickener and then the Illusion plant.

And there, we're not going to be relying on any new technology or any new configuration. It would really just be the same technology but just on a slightly different scale.

So we're hoping to be in a position to report stable operations by the end of this quarter, through the half year-end; and then, full financial benefit and upside during the first quarter of the second half of the year, or the third quarter.

Gold production, as a consequence of the bottleneck that we had experienced in this circuit, and with a lot of the cream being taken off the top but staying in circuit, was down 6% to 33,500 ounces. Volumes, though, were very good. And when I take you through the volumes later on, you'll see that we've actually managed to deliver quite nicely into the volume requirements of the business.

And then, the operating profit was down to ZAR72 million; down from -- upward of ZAR100 million, ZAR150 million-odd I think last quarter.

Right, so here, we deal with the volume trends. As you can see, volume ultimately up. If you look at the business, the business really consists of three components that have to work together in proper alignment. It's got to be a fully synergized, integrated process, like a -- I can't say ballet because miners don't do ballet, do they? But then again, maybe we don't do that much mining any more. But you can see the volume flow was really good. That's the first part of the business is making sure that the tons actually get to the plant.

The second part of the business is the metallurgy; making sure that the gold that comes into plant, that as much of that as possible stays behind and eventually ends up in the smelter house.

And then, the third part of the business is disposing of the tail; making sure that you get your residues out onto the tailing stem.

And an interruption in any one of these obviously, ultimately, because of the volume flow, the economies of scale, because of the sensitivities, impact on production. On either end of the business, we had good business, good operations.

Volume flow was good; disposal of revenue -- residues was good. It was that portion in between where we had to deal with the implications or the impacts of the new circuit.

Yield was down 14% quarter on quarter, compared to last year. I must admit, to an extent, this is also attributable to the fact that at City Deep, where there'd been some remnant clean up, relative higher grades, we've ceased milling operations because that is now being phased out of the circuit as well.

I think that shortfall is intended to be made up with the better recoveries coming out of the flotation/fine grind. And that was supposed to be a bit of an overlap between those two. So some of the higher-grade materials were depleted while that circuit that dealt with that was phased out and we should probably see a bit of a recovery in the yield grade going into the next quarter.

So, as a consequence of those two factors, you could see that the gold production was lower than what it had been for several quarters. I don't have that average performance that I had in my previous presentation, which indicates that in the last, I think, eight or nine quarters, we've only had two instances where there was a deviation greater than one standard deviation in average production over the last few quarters. But this is probably going to get fairly close and, once again, it is coupled to or linked to a specific event.

The first deviation, which was a negative one, was in July of last year when we phased out Crown. The second one was in December of last year, January this year, when I think the lag finally came through and that was a deviation on the right side, on the other side, you could see this one here. And then this one is probably going to be if not greater than the standard deviation, pretty close to that.

Right, so Craig will take you through the financial indicators and Charles will then also deal with some of the technical aspects associated with the fine-grind circuit.

Thank you, Niel. Good morning, ladies and gentlemen. Yes, as Niel mentioned, the transition to the flotation and fine-grind circuit has obviously had an impact on our numbers and although expected, unfortunately, it's been quite a while since we've produced the results like these ones at returning to a headline last, I think it was since probably September 2010, but, as I said, anticipated with this transition into the new flotation and fine-grind circuit.

The operating margin, as you can see, dropped quite significantly in this quarter, if you compare it to the 2013 -- the September 2012 quarter, sorry. You can see that we had operating margin of 32% back then and we are now sitting at 13%.

Our all-in sustaining cost margin, which is a fairly new measure, you can see most of the mining companies or especially the gold mining companies, since the last quarter have been presenting all-in sustaining cost margin, which basically shows -- it basically includes all your costs, including corporate costs and sustainable capital, which I think is a better indication of exactly what margins the Company's achieving but at, obviously, the gold current prices.

You can see there as well for the first time, as I mentioned, since 2010, our all-in-sustaining cost margin decreased to, in fact, a negative number of 2%.

Our EBITDA, however, was still positive, even though we had the impact of the flotation and fine-grind circuit and also the lower gold price this quarter. And then also the higher costs that we saw coming through for wage increases, electricity cost increases and also two months of winter tariffs during this quarter.

Our free cash flow, which is an important number that we keep track of, obviously, impacted by the capital that we are still spending on the flotation and fine-grind circuit, as well as, obviously, the lower production and higher costs that we saw coming through in this quarter.

Headline earnings per share, as I said, it's been a while since we've showed a negative number, at a loss of ZAR0.03 per share compared to the previous or the quarter in the September 2012 quarter, where we had a ZAR0.20 headline earnings per share number.

On the financial statements, just some things I want to highlight on the income statement. You can see that our revenue was down 8%, obviously, due to the much lower gold price in this quarter compared to the September 2012 quarter again and the 6% decrease in gold production.

Net operating costs, up 17%, but what would have impacted those is, obviously, the higher volumes, which Niel mentioned that we achieved. Those were up 9% compared to the September 2012 quarter. And then also, the annual cost increases in wages, electricity costs and also other consumables that we use in our processes, where we're seeing some very steep, above-inflation increases.

That left us with an operating margin, still positive ZAR72 million, however, down quite significantly from the ZAR174 million in the September 2012 quarter.

You can see that our net finance income was actually a loss. That's basically the finance costs on the loan notes that we have outstanding. The September 2012 quarter, the comparative quarter there included a dividend from Village Main Reef of ZAR26 million. So that explains the difference between those two numbers if you're comparing year on year.

Okay, just on the balance sheet, you can see that we still have a very healthy cash position of just over ZAR330 million, which is obviously going to help us, see us through this transition phase that we're going through with the commissioning of the new flotation and fine-grind circuit.

I think what also makes our balance sheet quite a healthy one is the fact that we do not have significant debt on our balance sheet. We are sitting at roughly a 10% debt/equity ratio, which is fairly conservative.

As I've noted there, we have ZAR165 million in total of borrowings on our balance sheet, of which ZAR20 million was actually repaid now in the next quarter, in fact, at the beginning of October, the beginning of this month. And a further ZAR70 million or ZAR72 million odd is due to be paid towards the end of this financial year.

And then we've also provided for our dividend of ZAR54 million, which was also, in fact, paid now in the October month.

I'm going to hand you over to Charles now, who's going to take you through just some aspects of the flotation and fine-grind project. Thank you very much.

Yes. Thanks, Craig. Morning, ladies and gentlemen. What I'd like to do this morning is really just to give you a bit of an insight into the fine-grind project.

I'm going to just deal with it from four segments, the first being just the rationale that we used originally when we embarked on this process; then, to give you a little bit of insight into where we are in the -- I'll describe the flow again and for those that have heard it, I do apologize beforehand.

And just to give you, so that you understand exactly where it is we'll be coming from, where we are in the process itself and then looking forward to where we're going to find ourselves going into the future.

As you can see from the slide that I've got up over here, that is a photograph of the flotation building that we inherited from Anglo when we bought the Ergo plant. And this was part of the capital project that we -- or part of the capital that we used was to refurbish it. There are six banks of flotation cells and this is where the bulk of the work is done. This has now all been commissioned and is ready to run.

Just the rationale behind why we embarked on this. For those that have been around and watched the Ergo story since we started, I think you can remember way back in the early days when we first started up the operation with the feasibility study that we presented for starting up the Ergo operation, took into consideration certain aspects with regards to how much tonnage we were going to treat, how much costs we were going to use, how many people we were going to have, what the head grade was going to be. And if you recall that most of these parameters we met quite well and we were very happy with.

The one that, unfortunately, we didn't achieve was the overall yield that we were looking to from the Elsburg material. That then resulted in a think tank. We then sent our technical team off to go and investigate and see exactly what it is and if there is any opportunities for us to be able to extract more gold.

We were getting the tonnage into the plant. It was -- it made a lot of sense that if we could take more of that gold out, that it would just improve the overall profitability of the Company.

This is what we did and some of the findings that we found was that between 30% and 40% of the sulfide-associated gold was lost into the final residue. And that only about 45% of that gold associated with the sulfides was actually being extracted. So what we said was, well, if we could remove the sulfides and then just target the gold that's associated with that, we could increase our extraction efficiency.

We then also did a lot of work with electronic microscopes to go and have a look to see exactly where the deportment of the gold was, where it was actually situated. And in the form of an amalgam called electrum, we found that large quantities -- particles of the gold were extremely fine, encapsulated inside the sulfite particles, as fine as down to 5 microns.

We then said, well, look, if we can extract -- if we can liberate that particle, we can then subject it to cyanide and we'll be able to then extract that gold.

We then -- obviously, the milling -- it's not a new process, this sort of thing has been done in the past. So we looked around to see if there was a milling operation that we could do, that could get down to those fine grinds.

For those of you that follow other mining companies, you'll know that a normal milling operation is measured in 80% passing 75 micron. We're looking at 80% passing 20 microns, that is what. So there's a lot finer, the product that we need to look at.

If I can then just take you through to what the rationale was and how the operation actually is meant to operate. You can see that the flotation circuit, which was that first slide that I showed you, we were looking to take 4% of the mass, of the total volume coming into the float plant, which would contain about 40% of the gold.

The balance, which is the 60% of the gold, into 96% of the mass, is the tail, as we refer to it, that would go through into the CIL plant, as per normal. And we would then concentrate on the concentrate, which is the pyrite.

And this, for those of you who haven't seen it before, is how the -- what the flow looks like. From the flotation plant, that concentrate, the 4% mass, approximately about 70,000-odd, 70,000 to 80,000 tons a month. That is then subjected to a milling circuit, which are very sophisticated mills that we have found. It's a vertical stirred mill with beads in it that grind the pyrite particles down to a target of 80% passing 20 microns.

From there, it's got its own dedicated leach, where the cyanide and oxygen is added. And then, it goes into a CIP. The loaded carbon is then eluted and the gold is extracted in its separate circuit.

The balance, the other 96% of the material follows the normal route into the CIL. And that is what we've been doing. So the gold is loaded onto carbon, the carbon comes out and it's eluted. And then, we get -- so we get -- we're going to land up with two lots of gold coming out of the same smelter; which is going to be able to allow us to be able to monitor very, very carefully exactly how this process is actually working.

Okay. So if we have a look and just see where have we actually got to, so far, in the process. Basically, if you look at -- what I've done there is just given you two columns. So one is the feasibility study, and then the other one are the actual results that we are starting to see on the plant itself.

You'll see on the bottom half that there are -- there's certain information was not available yet, because those parts of the plant are either not working because they're still under construction, or they haven't reached any degree of stability.

You can see that, from the numbers that are quoted there, the feed grades were pretty much in line with what we expected when we did the feasibility study. The mass pull is slightly lower; which is not a bad thing, but it is something that we're working on.

The overall recovery of the gold into the concentrate is almost on par, at this point in time. You can see the concentrate grades. There, we were looking at about 3 grams a ton, and we're getting something just over that, 3.6 grams.

The float tails are slightly higher, but we're going to be working -- we're working on that to up that. If you up the mass pull, we should be able to pull more gold out there, which will drop that tail.

The throughputs, as they are at the moment, is fine. You must remember that we have got three, that's the three float streams. Each have a thickener at the back end of it. Two of those thickeners are currently in operation. The third one is still under construction.

So although the float banks are ready to be able to run, the reception area is ready to accept all the material, we can only float between one-third and two-thirds of the material, because of the thickener capacity. One float bank feeds a thickener. And so we have to wait for the third thickener to come online before we can actually start the float up completely. All right.

So that's where we -- so the tonnage that we are getting through those float streams that we are running at this point in time, are going quite well.

The concentrate; now, this is the pyrite that we've now floated out, we've milled it, that, we are targeting to get an extraction efficiency of about 75%.

At this point in time, that's on a circuit which has nowhere near reached any degree of stability. We have seen that we can get up to 70%, sometimes slightly higher than that. But this is where the next step, the -- and all the concentration is going into.

The fine-grind; again, because we haven't got the mills completely optimized, we've got different beads that we're getting -- that we're feeding into these mills. And there's still a degree of optimization that's going to take place there.

We also have to wait until we've got the full tonnage coming in before we can actually reach some stability there. We had some feed-related problems in the design earlier on, which set us back a couple of weeks, which resulted in pumping problems.

We -- the engineers went back in, made changes to the circuit, the feed arrangement. There was entrapped air. We got rid of that and the process is now running quite nicely.

But unfortunately, at this point in time, the overall recovery, that improvement of between 16% and 20% overall, we're not going to be able to see that until such time as the whole circuit is stabilized. And then, we'll be able to really start understanding exactly what the process is doing.

So if we just have a look at the thing. I think I've mentioned most of these points already, is that the three streams are operational, two are running at any time. The mills, three of them are currently running. The fourth mill has been commissioned, it was commissioned on Friday. So it is ready to be able to run.

The current lead circuit is fully operational, although the CIP section on that is the pump cell plant. We are putting loaded carbon in there at the moment, but from an operational point of view, it's actually quite messy and it's difficult to stabilize. We'll have to wait for the elution plant to be completed, and then we'll be able to get a degree of stability there.

So the elution plant and the final thickener, those two, we're expecting within the course of this month, and into November, that those two are going to come online. And then, we'll have everything completed.

There's going to be a couple of teething problems getting these pieces of equipment up and running properly, and then we'll be able to start getting into the real work. And that is to get the stability and the gold coming out at the end.

I think that's basically everything that I'd like to say with regards to the actual fine-grind circuit, at this point in time. Okay.

Thank you, Charles. Right, so looking ahead. At this point in time, it's really just a one-liner. We are looking at several things, but the only thing that's really, at this stage, capturing our full attention is to get this new circuit fully stabilized.

We would like to see some of the upside of that coming through towards the end of the quarter, and definitely by the start of the next quarter. And then, hopefully, we can start delivering into the expectations that we have created with the market.

Obviously, the temptation was there late in the previous quarter to maybe delay some of the commissioning, maybe not run the floats at fully capacity, or capacity at the time. And rather, give yourself three months within which to stabilize and maybe recover, and not use up the large bit of the quarter to capture some of the gold that otherwise would have gone into CIL.

But we decided against that. We decided that, instead of manufacturing results or manipulating the process in order to manufacture a set of results by delaying components of the plant, we would just go full steam ahead, so that we can get this thing up and running sooner, rather than later.

So that's the results. We'll obviously take questions. Before we do, though, this is the last time, as Martin's not here, unfortunately, is there somebody from Martin's office, from Creamer Media? Ah, there you are, hi, Danny.

So Martin called myself and Craig Tweedledee and Tweedledum, because we've been together for the last eight years, as the Chief Executive and the Financial Director of these operations.

Now, one half of that partnership has decided to move to Perth-fontein next year and I thought that it's only appropriate that we will just maybe remember some of the things that Craig had done in the last few years, and then also wish him the best for all the things that he's going to do.

Craig joined DRD the year after I joined. I joined in 2003; he joined in 2004. We had a very interesting Financial Director at the time. The only two things that I think he did at the time which was worth remembering is he appointed Craig and he appointed Stephanie, my PA. Other than that, I think we want to really forget the fact that he was there in the first place.

But Craig then -- when our previous boss decided on his bifurcation strategy of establishing a business in Australia and another one here with Emperor on that side, and DRDSA on this side, Craig agreed to take up the position of Financial Director or chief CFO of the DRDSA leg. I think ultimately the objective at the time was to have two completely separate entities, one will sit here and the other one in Australia.

Obviously, that changed later on with John Sayers coming on board and the sale of Emperor. But since then, and I think it was around about 2006, Craig, that the two of us had been working together in our current capacity as the MD and FD of these operations.

It's been an interesting ride. I used to -- it hasn't been like that in the last few quarters I must admit. But initially I compared it to being a -- I don't know if it was a rodeo clown or a bull rider, but it definitely had something resembling the rodeo sport, except that there was no eight-second rule. We got thrown by this bull so often, but we just had to get up every time, dust ourselves off, and then get back on the bull. Then I think we more or less tamed this bull; it's not jumping around as much as it used to, and we actually get through every round with a measure of success.

So Craig was not just my partner in looking after the accounts, but very much also part of the strategic planning of the business, both inside of his own portfolio of looking after the financial affairs, making sure that good governance was never comprised. There was never any suggestion on accounting treatment or any of those rules.

Reporting into the market, I think his attention to detail is pretty similar to what we're seeing in our plant where things are measured up to the third decimal; always there to take the inside pass, and very much the situation, and if you'll forgive the sports analogy, of ending up with being able to pass without really looking, because he was always in position.

So, for us, I think for DRDGOLD, it is a setback to see Craig go, because it became such, I think, a dynamic but also very convenient relationship. But then he's not leaving behind a vacuum. I think one of the marks of a good leader is the fact that you appoint people who are more intelligent than yourself.

Now, I've yet to be convinced that the people that you appointed are more intelligent than you, Craig, so we'll put them to the test. But they're certainly very, very competent, and I'm sure that we'll continue to have good governance in the finance department, also in your absence.

Then, we all know that Perth, it's just a few hours away. Somebody did mention to me that you've got to be very careful if you move your family to a new place, they end up, less than one generation after that move, to adapt a new culture.

So with Perth being what it is, and having become what it is over the last few years, your two girls might end up speaking only Afrikaans, so you'll have to look out (laughter).

But certainly from DRDGOLD, and I'm sure all of our investors, we're very grateful for your contribution over the last few years, and we wish you the best of luck. I'm convinced that you'll continue to make a big difference and have a big influence wherever you go.

Before you do go, though, there are some difficult questions that you have to answer, because this is not our best -- this is definitely not a spectacular set of results. I intend to allow you to answer as many of the questions as you can. So thank you very much, the floor's open for questions.

Adrian Hammond, BNP. I have four questions, the first one for Charles, and then I'll move on to you, Niel.

Charles, just thanks very much for the detailed overview of the new ultra fine-grind. We've spoken of head grades, problems at City there with the sand coming off and going onto slimes. So, on one hand, you've got head grades falling, and on the other hand, you've got this new ultra fine-grind circuit with the potential for an increase in recoveries. If the circuit performs in line with what you expect, what can we expect net from production?

We're targeting that the overall yield is going to stabilize at round about between 0.19 and 0.2, in that sort of ballpark. You can do the sum. That's in the order of between [380] and 400 kilograms of (inaudible).

For how long?

How long is a piece of string? Who knows. At this point in time, the feasibility study we did was that the grades are going to start dropping off, but we expect for at least the next couple of years that sort of fall of kilogram profile is going to sustain at that. But ultimately, the grades do drop off, and then we either have to up the volumes a little bit more, or go in search of higher-grade material. That's basically what we're doing at this stage, strategic thinking is exactly that.

Thanks. My next question for Niel, the costs you have now, all-in costs and, more importantly, your sustaining costs are above the gold price. What can you do to cut costs? And if you -- or can you cut costs, and what do you plan on doing about it?

I think what you're seeing is unit costs, and obviously, unit costs go up in proportion to the drop in kilos. So because we came in way below the average production, the unit costs were probably, I wouldn't say artificially high, but a lot higher than what a stabilized circuit would offer.

But then, once we start hitting the anticipated targets production-wise, those unit costs are likely to come down. Look, you've always got to be very mindful of your costs, and not just saving costs at the lower end, but also saving costs at the higher end.

I think we've been very disciplined in managing costs, both at the operations and also at corporate. The corporate costs I think over the years have been either stable and, in fact, have also come down a bit.

We had to invest in additional skills last year, and then, we actually increased one particular component of corporate, the skill set there quite significantly, or the resources that we have at our disposal there quite significantly, because ultimately, the best counteract to increasing costs are better efficiencies.

I'm personally not very much in favor of increasing volumes, because as it is, managing 2 million tons a month is a lot. It's a lot of material that you move. Sometimes we do these little exercises to say, well, if these are little buses or normal size buses, and you park them in a line to Durban and back, how much of that do you fill up, or how much space do you fill up? And you get to Durban and back in a very short period of time; that's the sort of volumes that we're dealing with.

So optimization, ultimately, of the process, making sure that we get as much gold out as we possibly can, that, I think, for us in the longer term is going to be the biggest defense strategy against increasing costs. That's why we spent money on some additional skills in the corporate office.

But you can't just wait for that to happen; you've got to be proactive. We will certainly be looking increasingly once we've got a stabilized circuit, and we're talking January, February. We will definitely have another look. We'll take a long and a hard look at exactly how much do we have deployed where, and how much is it costing us.

Do we have redundancy anywhere? Do we have overlap anywhere? Have we really organized the resources in this business in such a way that they are optimal, and that we're not overspending?

Even within the ranks of the senior executive, you've got to start looking increasingly whether the skill set is proportionate to the amount of money that the company is investing in having that set of skills available.

So we'll definitely do some in-depth introspection in the next few months. Before we do that though, there's the looking forward statement. That is what will be foremost in our minds through to December.

I'm confident though, Adrian, that the model is not one that we just plucked out of thin air overnight because we needed something to impress the market with. This is a model that had evolved over a long, long time.

I recall in September of 2008, when Craig and I had our first strategic session, that was before Charles was Chief Operating Officer, he was Head of the Surface Operations and we still had various other mines; where we had very carefully plotted out a plan in respect of each and every one of our business components.

In those days, there was no Ergo. Crown was on a short life span. We had to get the Top Star online, etc., etc. And, even in those days, I remember Charles saying that if we want to keep this business going, we need to expand horizontally; we need to find another footprint to bring all of these available resources that nobody can treat other than us, into a circuit. And that was after Anglo had told us twice that they're not going to sell Ergo to us. We had to go and sell it -- buy it as a salvage site and refurbish it eventually when I think they ran out of appetite.

But this process then of slowly but surely evolving from a mixed bag, from a hybrid into a business that is focused solely on recycling all of these available tonnages, and we are sitting on probably the biggest resource or the biggest stockpile in the world when it comes to this type of material, accessible material, it wasn't a slow process.

Every step of the way, we think we're going to do something and certain things we do a little bit better than what we thought we were going to do and other things, we don't do quite as well as we thought we were going to do.

But it's a process that has taken six years, seven years to get to where we are now. And I tell you what; it's only starting out now. I think only now do we have a platform from which we can start to be really intelligent in our thinking.

We can be less defensive, more proactive and I'm hoping that this very expensive skillset that we have in our corporate office; in certain respects we've had to increase the budget so we can get some more available resources online and I see Jaco smiling there because he knows exactly who I'm talking about, that will start opening up some new doors for us.

We're not going to be rushing into anything big though. For seven years we've capitalized this business. For the foreseeable future, probably not less than two years, but probably not running through three years, we would want to see if we can get this business as good as it could possibly be, the relevance of the senior management structure on the Board; the relevance of the top management and operational executive; the relevance of every single department and also how well we manage the volume delivery and the metallurgy in this plant. And from then, I think we could do something. I think it's a very, very solid base from which we could work.

Great, thanks very much.

Brendan Ryan, Business Day. Niel, if I could just pick up on what you were saying there. So for two years to three years, you're going to fine tune this business, create a platform to show what it can do. Then, you're talking about future possibilities.

Can you elaborate on what those future possibilities are please? Or what are you looking at doing beyond, in three years' time?

Yes. Look, I don't think anybody else is really as well positioned to bring resources that we don't recognize as part of our resource base into an operating circuit. Simply because the CapEx of establishing something that has the volume capacity to deliver into the required economies of scale, those capital requirements are enormous.

We bought this plant for ZAR40 million. I think we worked out now when we did this flotation circuit, the refurbishment of the flotation circuit, that the saving just on what was already there -- was it ZAR400 million, Charles just on the float circuit or ZAR300 million?

Round about --

It was round about there. But it was a lot of money. You could express it as a double-digit percentage of market cap, just on the flotation circuit and this is to give us a tiny little extra gold that could potentially open up these other resources which would otherwise have been non-pay.

So that is the strategic advantage, I think, insofar as availability of infrastructure capacity is concerned and realistically, taking a rubbish heap and turning it into a resource, something of value. Before we, I think, take off and start conquering the world, we would like, as a management team, to see just exactly how far our fine-grind and flotation technology takes us.

We considered and it was, obviously, having the benefit of people that have been involved in this business now for almost since inception, we analyzed the head grade and tail grades of our various circuits over the last 30 years, since it started, and you could see relative stability on the tail grade and a declining head grade.

So for us to continue to do what we're doing now, there has to be a fundamental shift or a change in the relationship between those two drivers, those key drivers.

The only way you're going to be able to do that, because grades aren't going to go up anywhere, is to drop that tail grade. And we don't quite know exactly by how much, ultimately, with all the various tweaks and changes and configurations, how much we'll be able to drop that by. It could be a lot, or it could only be marginal.

If it's only marginal, then you are probably looking at us sweating this asset as hard as we can and waiting for something else to happen to extend the life of mine.

If it is as potentially successful as some of our test work is suggesting it might be, then it can open up a whole host of new opportunities, both insofar as existing resources are concerned, but also, insofar as different volume configurations are concerned.

But we want to study that and we want to give ourselves time to study that. We think that we've positioned ourselves adequately through what we've done up until now, to actually have created an opportunity to study this in some detail.

Because remember there'll be a saving of close to $300 million -- rather, $30 million, ZAR285 million, ZAR300 million in CapEx. That is money that we don't have to make next year, because we're done spending it over the last seven years.

Our stay-in business CapEx is relatively modest. I think our total CapEx for the year is only about ZAR150 million compared to ZAR385 million last year. So that, in itself, is placing a lesser demand on our revenue flows, on the amount of money that we've got to generate in order for us to stay in business and maintain margin.

And then, in addition to that, we have the offset, early-stage offset it would seem now, before even having optimized and fully commissioned these circuits, of being able to mine a lower grade, but yet maintain the same sort of recovery.

So if you go through our presentations over the last few quarters, you'll see that we achieved roughly a 0.2 gram a ton overall recovery. With an increased number of higher-grade resources or reserves being phased out, coming to end of life, we will still be able to do that.

So, coming to the end of a very aggressive CapEx cycle and saving that money, and having introduced a circuit that could maintain current extraction efficiency and current gold production, as and when it kicks in, at least for the last two quarters of the year, hopefully, we should be back and maybe even higher than what we achieved in the previous quarters, that I think will give us that little bit of a buffer.

So we don't have to take any rash or panicky decisions. We want these decisions to be really deliberate so that we can go back to the shareholders that have increasingly come on board, and say to them, this is an intelligent way forward that we're proposing and we want your mandate and maybe take a bit of CapEx from them.

So if I got that, it's about using the improvements in technology to make it profitable, to treat material that's available, but is not profitable at the moment?

Yes. All that is marginal. Obviously, we want to maintain the same sort of return. You're not going to grow the business only to give a similar return to more shareholders and increase your risk profile. You want to increase that return to the same number of shareholders, or increase it for a greater number of shareholders, so that you've got real growth in looking in relative terms. So that's essentially where I think we would be targeting.

But we're definitely not going to rush off and go and buy all the dumps and increase our environmental expenditure just for maintaining good governance on these dumps, for the sake of creating the impression that there's robust growth.

There's been seven years of spending a lot of our shareholders' money and now, we've got something that I think can take us into a phase where we could spend some quality time studying the best next move for DRDGOLD.

We've put up charts and maps of all the available surface resources around South Africa, what's out there, what is potentially treatable, what could ultimately be feasible and viable, looking at our current collection or combination of technology and skills.

And you know what? We don't have to go anywhere else, because what we're sitting on here is an enormous stockpile of material and a significant strategic advantage in the combination of these various components that we managed to assemble over the last few years.

One more question. This one's for Charles. I'm not a metallurgist and I followed your explanation as closely as I could. But there seems to be a different version in your report here, where you say that the flotation circuit worked; the mills, however, were slow to get going, this meant we created a very rich concentrate, which resulted in a bottleneck at the mills, which meant that most of the gold and concentrate remained in concentrate.

What exactly -- so it's the mills that are not working and what exactly does that mean is my question?

Brendan, I think what -- I think really it's summed up in one word, and that's lockup, is that in generating the concentrate, you're concentrating gold into a very small portion of product.

You see the 4% -- the 40% of the gold in 4% of the mass. Now there's a whole train of pieces of equipment, tanks, pumps, pipelines, the molds, the lead circuit, the CRP circuit, and at the time when we were writing up that report, we had the bottleneck around the milling circuit, okay.

But it's -- all that's happened is that you've got gold, which normally would have come out in the smelt house through the normal process, but now, you've had to fill up this whole new circuit and that's basically what we say, lockup is what it's basically.

And that's locked up until the end of [one and then it's gone].

Yes. Well, it's not gone, it's there, but it comes out at the end, yes. Yes.

I have two questions for Craig.

I wondered if you were going to remember that you had two more questions (laughter).

Just firstly, the -- you talked about cost inflation briefly in the report and you also alluded to, I'd say, consumables I think it was, but -- which for me is more important.

What is your inflation for these consumables and what is it overall, what you're experiencing right now?

And the second question is what -- have you thought further about your investment at Village Main Reef? Thanks.

Yes, our cost inflation is around about 10%. Now, that's just on price increases, so it doesn't take into account if there's an increase in volume. So that's our inflationary price increase that we're budgeting for this year. The recent wage settlement shouldn't have an impact on that; we should still be sitting around about the 10% mark.

And then on the Village Main Reef shares, no, I think the Board hasn't made a final decision on whether we are going to look to -- at disposing of those shares as yet.

As you know, I think about 20 million of those shares are still in escrow, which we're going to have to deal with going forward, but that decision hasn't been made at this stage. I don't know if you want to add anything there?

No. The idea is to maybe take advantage of if and when the gold price goes up, a slight increase on the Village share price. I think they are steeply geared to the gold price.

And then, maybe looking at offloading it then, but at this stage, it's not really in the way.

Those shares in escrow, is it a complication because of this -- the play for liquidation and Section 11 transfer not going through?

It was as a consequence of the --

Ministerial consent.

The ministerial consent having been delayed because of the fact that the conversion of the mining rights didn't go through. There was an attempt to convert the mining rights for a period of only one year, which was odd and the Village Main Reef management at the time thought that they were not going to execute, they will wait until they'll get a more sensible extension.

And there is talk at the moment that the conversion might actually take place now, while it's in provisional liquidation, because then the business components that are being offered for sale could be sold with a far tighter title to the mining asset attached to it.

So that process is still ongoing and we're certainly not forcing it. I think we've -- Marius has enough to deal with as it is managing his way through the provisional liquidation process, which I must admit or I must remark, he's done a really good job at managing.

Once it's settled down, we'll take up the discussion with him again and see where we take it, where we're going to go with it.

And are you exposed to any potential liability?

No we're not. We're not providing for a potential liability, nor does it seem, at this stage, as if there is any expectation on the part of any party to call on DRD for any kind of liability.

What we did do, though, was the Blyvoor employees were still beneficiaries of our employee trust and we had arranged with those beneficiaries -- with those trustees for the distribution of a special dividend to alleviate some hardship.

And that was a special dividend out of savings of the trust itself as part of an exit of those employees as a group of beneficiaries. But there's not a liability really; that is a distribution that was due and which we managed to accelerate through discussion in order to alleviate some hardship.

Just to explain this; trust falls outside of our Group structure; it's a separate entity on its own.

Thanks.

Is that it? Okay, well, thank you very much, everybody. We'll be hanging around for a few minutes if there are any further questions, so please feel free to come and chat to us.