DRDGOLD Ltd (DRD) 2013 Q4 法說會逐字稿

Good morning, everybody. Thank you very much for taking the time to come and listen to this presentation. I know it's a busy reporting time so really appreciate the fact that you do take time off.

I'm going to be covering, in addition to what you'll see on the presentation, seven particular issues, or seven, I think, important aspects of our results.

Firstly the aspects pertaining to the fourth quarter recovery; I think it's important that we put that into perspective.

We'll also talk a little bit about the findings of the investigations into why the commissioning of the flotation and fine-grind was unsuccessful and we had to call a time-out. That's one of the reasons why Jaco Schoeman is sitting here in front with me, to deal with some of those questions.

I'll talk a little bit about the current status of where we are after having started with test work again in the middle of August, elaborate on some of the future steps that we plan to take going forward, and some of the contingencies associated with those future steps.

I also do want to talk a little about -- because you'll see some of that in the letter to shareholders, I want to talk a little bit about the restructuring both of management and the business.

I want to give you an update on the BEE deal, the rollup of Khumo Gold and the trust into DRD.

You'll also see that there's a statement, or a restatement, rather, in the results so I just want to cover some of those aspects. Acting CFO, Anthon Meyer, is here so he'll be able to also assist on some of the questions there that I might not be able to explain adequately.

Yes, I think those are the key aspects that I will cover, as I say, in addition to the presentation.

So you're all aware of the contents of the disclaimer that there might be some forward-looking statements made; just have due regard to this disclaimer, please.

So, jumping right in, these are two very different sets of highlights, obviously, and they reflect, I think, two very distinct experiences, or periods, of operational efficiency and production efficiency in the last 12 months.

What you see in the second bullet point, the financial year results are very much as a consequence of the events of the second and the third quarter when we were grappling with, first, the commissioning of the flotation and fine-grind, and then actually starting it up and with production itself.

You'll recall that in April we called time-out. We decided to suspend flotation and fine-grind in order to go back to familiar territory, know more or less what it is that we can rely on. In other words, what the bankable gold flows would be going forward into the future.

Also working out what the best timing parameters would be for the re-commissioning, or new test work phase. That was very much driven by both what we thought the amount of time that we were going to need to get to the root of the problem, but also because of the very real cost cycles that we've got to deal with in the mining industry in South Africa.

You all know that we pay -- for three months of the year we pay winter tariffs, and those winter tariffs add between ZAR12 million and ZAR16 million a month to the fixed overhead.

So, you can't have a situation where you're in a time of uncertainty where you've got the additional costs associated with the flotation and the fine-grind circuit, and on top of that you've got to pay this additional ZAR12 million.

So you've got almost a ZAR24 million additional overhead, and not certain whether you're going to be producing the gold necessary to cover that overhead. So, it's a triple whammy for all intents and purposes.

So the timing of test work, to a large extent, was driven also by this one very important consideration, as to when the cost cycle is going to turn more favorably with the end of winter tariffs.

Of course, with gold production having been up as much as it was, slightly higher gold price than I think what we had factored into our planning, and also managing costs very, very efficiently, things turned out quite a bit better than what we had anticipated, or what we had planned for going into the fourth quarter.

Therefore, as a consequence, we were in a position to do a number of things. One of those being that we started with test work a few weeks earlier than anticipated, and we finished the month at a very, very encouraging level.

It also enabled us to pay a dividend. I think we had, to a large extent, indicated to the market that because of the cash outflows, the fact that we had some debt to retire, that we want to maintain a certain buffer, that a dividend was under threat, not really within our means to pay.

But once again, because of the way that things finished we were in a position to declare a small dividend without distorting any of our considerations, or our measures, for purposes of distributions to any great extent.

After the end of the June quarter, the end of the financial year, we retired the second-last batch of loan notes. There was a ZAR77 million cash outflow and that, notwithstanding, the working, or the available cash rather, as we stand here, was such that we were in a position to not interrupt what has been an uninterrupted dividend flow period of six years. So this would be the seventh consecutive annual dividend.

I think it also plays an important role in the messaging to the market; the fact that we do have confidence in this model, that's why we embrace this model, the technology-driven, margin-focused model, mechanized mining, uninterrupted mechanized mining, managing down the risks typically associated with mining in South Africa. And technology is really where the future for us remains, and I'll elaborate a little bit more about that in the slides to come.

The operating trends; these are important because I do think that it gives an indication as to just the extent to which the fourth quarter numbers represent a real recovery to the levels prior to the commissioning of the flotation and fine-grind.

To get the best picture, or the best comparison, you can really look at the fourth quarter of 2013 and the fourth quarter of 2014, and there you can see what the volumes have done. So the throughput capacity of this circuit, and the ability of our management team to deliver the tonnes in the plant, I think has once again been reaffirmed.

You can also see the yield having recovered, and this was direct consequence of improve metallurgical efficiencies.

We identified a number of issues in the metallurgical systems which we addressed, both insofar as carbon management systems are concerned, and also maintaining the integrity of the water circuit. It's important that all of the water that enters the plant stays in the plant. Just on those two issues, metallurgical efficiencies have recovered quite significantly.

There has also been a program of continued business improvement. For example, we've installed linear screens right at the tail end of the plant.

So after we've done everything that we can or that we want to do with our throughput, there's one last filter or one last screen that is designed to catch the last bit of carbon.

This is a mechanical process, so carbon bounces with all sorts of other agents and you get little bits and pieces that erode and break off and so forth. So those carbon fines are now being tracked in a screen between the plant and the tailing stand.

We've also installed some solution columns where the water that carries all of the material from the plant and onto the tailing stand and back again onto the reclamation sites and so forth, because you'll recall that we have a closed water circuit, where that goes through a set of solution columns as well. And even there we're also picking up dribs and drabs of gold that in the past we never saw.

So systems and more systems and more systems driven towards efficiency. We use the analogy of a tap that drips once every minute. If a tap drips once every minute then it means that it drips 60 times per hour, which means that over a day it's 60 times 24. Over a year that's a lot of water that ran out of that tap, although it looks insignificant.

With these kinds of volumes, with these kinds of sensitivities, rather, to volume and extraction efficiency, there cannot be a single dripping tap.

And what you're seeing there is not because of any new technology or better technology or anything that we have built or anything that we've bought. This is out-and-out consequence of just taking what we had prior to flotation and fine-grind, just managing it better and putting in better systems and better controls.

And there you can see how the kilos have recovered. This was probably our worst month, or our worst quarter, rather, in years, and March, when we came in at below a 300 kilo production for the month, was very much our worst production month in many, many years. And that's what led to the suspension of the flotation and fine-grind.

So just looking at the trends, we report on these because financial capital, obviously, is one of the more important capital stocks that we focus on and that we want to deliver value on.

You can see that year on year -- basically for your own benefit, this is what's been happening to the cash operating margin. So a slight improvement there quarter on quarter. But there you can see the difference that ZAR28,000 per kilo in gold price makes, notwithstanding the fact that production was pretty consistent if you compare the fourth quarter of the previous year to the fourth quarter of this year.

All-in-sustaining margin, I suppose that's the beauty of IFRS. Sometimes you can take something that doesn't really impact on your actual costs and factor it in. Personally I think our previous measure of all-in cash cost was more accurate; it reflects what it is that we want to reflect. Be that as it may, that jumped quite nicely.

EBITDA, you can see that quarter on quarter, what that difference was. So that's a 650% swing, for what it's worth.

And then there -- this is an important number for us. Ultimately this is what it's all about. We live in a country -- or maybe not in a country, I think globally, times are such that the competition for capital is quite tight. And you don't really want to spend more than what you could make.

So for us, this is an important parameter. We can't just rush out into the market and place shares, just go and borrow money. It's expensive to borrow money if it is just for general corporate purposes, which I think is the term used when you run out of money and you need your shareholders to bail out or the banks to bail you out, if it's not for a specific purpose. So, unless it's for a specific purpose that you're going to go and raise capital where the project itself pays for itself, you really don't want to spend more than what you could make.

So for us, that is an encouraging trend; the fact that we've reversed these significant cash outflows: ZAR8 million in the previous quarter; ZAR2 million in this quarter. And that is, out and out, as a consequence of better production and better cost management.

You can see we finally managed to break through the line in the further quarter with ZAR0.10. So by the way, for those of you who keep track of these things, that's a 251% swing quarter on quarter on headline earnings.

And so this is the good part of the presentation insofar as income statement in concerned. All the numbers here look okay, comparing the third quarter with the fourth quarter.

Operating profit stayed pretty flat but I think we did get less for our gold quarter on quarter, notwithstanding the fact that revenues were nicely up. And there, the ZAR394 million, that is a direct consequence of the higher electricity tariffs that we had to pay.

But we finished okay. We made a profit after tax and EBIDTA was very nicely up to ZAR114 million for the quarter.

This is the one that does not make for pretty reading. What I have done, though, is I've gone and I've just analyzed [the stock] of the two numbers; the ZAR260 million operating profit and the ZAR680 million operating profit of the previous quarter. I've just broken it down for you.

ZAR100 million of that is gold price. So year on year ZAR28,000 per kilo on average attributable to gold price.

Higher cash costs, ZAR150 million. That's the cost component. We spent ZAR150 million more this year producing gold than what we did last year. And the reason for that simply is that we had the initial commissioning costs and then, for several months, the actual operating costs of the flotation and fine-grind.

So it's not as if it's all of a sudden costing us more to get tonnes from the reclamation site into the plant or that CIL costs have now skyrocketed or the elution plant or the smelter house or any of those costs have gone up or that we're paying ourselves a heck of a lot more. On the contrary.

It is because there was this circuit that's been virtually fully operational for several months that's been really eating cash and not giving us a return. So that's where the ZAR150 million, to a large extent, comes from as part of that.

And then the lower production, the year-on-year lower production, accounts for ZAR230 million. And that again, simply because a lot of the metallurgical efficiency that we had hoped to achieve actually was reversed when we initially started up the float and the fine-grind.

Those obviously tell us what it is that we need to focus on going forward. There's one that we can't do much about; namely the gold price. Well, it's not on the screen but the gold price (technical difficulty) but frankly the gold price is not bad.

If you're complaining about a gold price of ZAR440,000 a kilo then maybe you need to very seriously consider either your cost base or your ore body, because I do think that if 10 years ago you asked any of us -- eight years ago, five years ago you asked any of us will you take a ZAR440,000 a kilo gold price in the year 2014, you wouldn't have given it a second thought. It is still a very, very good gold price.

When I joined DRDGOLD 11 years ago, the gold price was ZAR65,000 a kilo. We did a royalty buyout for ZAR85,000 a kilo and we thought we overpaid and four months later the gold price hit ZAR120,000 and never looked back after that.

You've just got to manage your costs and prove your process to such an extent that you can manage or anticipate the squeezing margin. It makes no sense to complain about Eskom or labor or so forth. You've got to design systems and a model that can counteract that or else the jurisdiction just becomes so unattractive.

And so the balance sheet. We've maintained a strong balance sheet. The two numbers that I really focus on here is that one there, where the cash position is, and that one there, current ratio. I think those still remain fairly healthy and that's, to a large extent, attributable to the fact that the recovery in the last three months up to end of June was a solid recovery.

Right, so I do want to talk a little bit about the flotation and the fine-grind, or the high grade section. I'll try to keep it short and simple, the way that I explain it to myself.

So what we found after we had stopped the flotation fine-grind is that there are certainly things that we needed to do in order to manage our ability to receive and contain water coming into the plant.

You'll recall that at the time of commissioning we had three months of uninterrupted rain and it was an enormous amount of water that came into the plant. And, as it turned out, the infrastructure that we had established was lacking and we had to dispose of some of the water onto the tailings, out of the plant, without putting it through the system, without putting it through the circuit.

And we subsequently found that the amount of gold that was contained in the water, in other words the dissolved losses, were fairly high.

So that was one of the things that we had to address, the water circuit.

The second thing that we had to address is that because this is a technology-driven, almost automated process, a lot of our control instruments, a lot of our systems are very sensitive to self-protect. They look after themselves. So if there's a sudden surge in power or if there's a dip in power, these things just switch off and then you've got to go and reset them.

So there were a number of minor engineering adjustments that we had to make in the float plant itself and also in the thickeners, which I had spoken a lot about in the past, where we couldn't afford for these systems to simply just switch off, we had to keep them going.

So auxiliary power units and also changes in design were made to these units to make sure that in future -- and we haven't had many of those in the past, but we don't want to talk to investors and the media about poor results because of power or poor results because of rain or poor results because -- we want to anticipate these things because they are going to happen going forward because they happened in the past.

So we've reengineered some of these and it wasn't significant. I think if we spent ZAR2 million a month over the last six months doing that, it must have been a lot.

But these we've addressed, auxiliary power units and slight changes in the design, and that is to accommodate volume throughput and to make absolutely certain that we could, unless there is some sort of an extraordinary calamity event of a total shutdown, that we could maintain volume flow and not interrupt operations for prolonged periods of time because of things that have, essentially, become foreseeable in our industry.

Then it also became apparent to us that there were a number of management protocols that we needed to look into.

Carbon management systems needed a bit of management oversight that was independent of just the guy who's there but actually the system that we have in place; and that too almost immediately has given us a very good outcome.

Those were the findings of the investigation. We had them independently verified. It was important for our Audit Committee to make sure that our confidence in this facility going forward was borne out also by an independent review.

So we brought in an independent analyst who had a look at the design of the system, and you'll recall in the past, when I spoke about it, that the difficult part of this whole process actually worked quite well.

The concentrate that we managed to get from the float circuit was bang on spec, and when we did the analysis of our [WAS] residues, ex post facto, which is basically an indication of just how much of the gold remained behind in solids, we did achieve the 0.03 gram a tonne improvement through the fine rise system.

So, in other words, the engineering and the theory behind the engineering, all of that was bang on target. It was what we did with that additional gold that had now found itself in solution, and metallurgical processes exacerbated by some of the other issues that I had spoken about.

So that was verified, both the engineering layout, our interpretation of the problems and the steps that we were taking going forward in addressing those and we got the thumbs up to the satisfaction of the Chairman of our Audit Committee.

Now, current status is -- I refer to the fact that we were able to start up a little bit earlier. So one-third of the flotation circuit is now fully operational. We are achieving a flotation concentrate that is consistent with our expectations at this point in time, and milling and beaching or grinding and beaching has also started and -- just maybe if I could take one step back.

What we've done is we've isolated or separated one specific source of mining material, one-third of the total throughput, we've isolated that, the material that we're sourcing from the Central and West Rand. For the last six-odd weeks, that one-third has been treated through a separate CIL circuit, a separate set of tanks. You'll recall that we have two distinct rows of CIL tanks.

So for the last few weeks that single source material has been put through this separate CIL circuit; it was separately eluted, and right up until just before it went into the electrowinning circuit, this material was treated separately.

That's our base case. You'll recall that I spoke a lot about test work, I think I may have used the word research when, in fact, I meant test work; that we were going to do test work and that we're going to do that off a scientifically-established base case.

Now that is our base case, the one-third of our throughput that's gone through the circuit, our base case. We know exactly what the extraction efficiency is of these materials or the source of material. And now that same source is going -- it's about 600,000 tonnes a month, is now going through one-third of the flotation circuit. It's going to be going through the fine-grind mills and into the CIP circuit.

That will give us an indication as to whether the additional gold that we'll be treating and recovering through the flotation and fine-grind is proportionate and justifiable, given the costs of putting it through the circuit.

Depending on the success that we achieve there, and we have very, very clear targets or parameters that will determine whether or not we are achieving success, and that is simply that we want to drop the residue grade by around 0.025 gram a tonne, between 0.025 and 0.030 gram a tonne, because we want to see a reduction in the residue grades because that will be indicative that this plant is performing to specification.

As soon as we get that through, then we'll know that we can start sourcing some of the other materials in there as well.

So, looking at the slide again, float circuit's working, mills are working. They were working all along. Water balance, carbon efficiencies and thickeners needed some attention. They've been given all the attention that they require and they should be working well now as well.

Full extent of the impact of the float reagents, I maybe pause a little bit on that. We were concerned that maybe the inefficient performance or the inefficiencies associated with the loaded carbon numbers that we saw had something to do with the float reagents.

The float reagents have the ability to cloud your carbon to an extent. The layout of the plant is such that it's unlikely that it would have that much an effect but in order just to verify these numbers, a team led by Charles Symons paid a visit to a mine in Australia where they use very similar technologies, just to study in particular the impact of the float reagents. And it's -- really, it's negligible.

The numbers that he saw there suggest that if there was an effect on the carbon efficiency in the past, very little of that was attributable to the float reagents. But that is still part of the test work. We will not speculate about it.

We've done some ground work. We've had a look at other people and how they go about their business. We'll do our test work ourselves now to see whether or not that is, in fact, the case. And then also the extent to which the high grade section impacts on overall recovery.

Keep in mind that everything that's going to be treated in the low grade CIL will have been through the float circuit. It's, in effect, the float tail that goes into the low grade CIL circuit. And we'll know when we know but I think we're all cautiously optimistic that we'll get to the right result.

So, future steps is we've started. One-third is going through the float circuit. As soon as we get to the parameters that we want to see, we'll systematically start introducing more materials into that but we do want to have a scientifically determined set of numbers comparing the flotation outcomes with the base case that we'd established in the past weeks.

So we're looking at about three months of test work during which we will systematically start introducing more and more materials, depending on the outcomes.

So I've anticipated this somewhat. That's better than steady state. Quite honestly, I think some of the business improvement measures that were taken towards the lower grade CIL surpassed our expectations and we were very pleased.

Very nice to get to the end of the month and then look at the flash report, which is our weekly update, and then at the end of the month you've got a pleasant surprise of an additional 10 or 15 kilos of gold that didn't form part. So either our reporting has improved or our planning has improved. We'll see.

The new higher grade materials sourced to supplement yield. Yes, that's another important aspect, really, of the events of the last few months. We have this infrastructure, but we're not going to build a pipeline into every little remote corner of Gauteng because you need a rather large and concentrated deposit before it makes it worthwhile to start sourcing other materials.

But more and more people are looking at where these dumps are situated, wanting them to be removed, and some of those actually fairly high grades. And in this particular instance, we were very fortunate to strike a commercially sound arrangement with a landowner, who is also the license holder of the material, to deliver materials over the fence into City Deep plant at a rate of about 100,000 tonnes a month.

It's not going to shoot the lights out but it's really one of those additional things. If you add it up, linear screens, solution columns, little bits of a saving here, a little bit of an improvement in efficiency there; and here, this is not water dripping out of a tap. This is cream dripping out of the milk separator, so that's the good stuff. It's the cherry on top stuff. And there are more and more of these opportunities.

Personally, I think that here's a moral. There's a moral here where you could go to some of these more remote areas where discarded or old dumps that have been neglected cause some environmental nuisance for the surrounding, invariably impoverished communities.

And maybe there's a moral there as well. It's early days but it's certainly the sort of thing that the management team is looking. And it's come on to the agenda and it's a discussion point.

What we do want to do, and I'll talk a little bit about that towards the end, is to make sure that we extend the reach of this operation and make sure that we take full advantage of our very, very significant infrastructure.

Then I think the supply risks have been dealt with and also the carbon efficiency risks have been dealt with and it's just systems, systems and more systems. High volume, high sensitivity is something that you'll manage with appropriate systems and now the test work phase is underway.

I talk quite a lot about the social capital value add. I think in a jurisdiction where we've seen just how vulnerable the industry is to the manner in which organized labor is not just organizing itself but also the conflicts that exist, the relative inefficiency of the dispute resolution mechanisms that are in place, the formal ones; the CCMA's being ignored, we go to straight to the CEO and the minister it seems. And then these things just get dragged out because nobody really pays much attention to what the law says.

I think in this kind of environment, you cannot underestimate the importance of social capital, not just insofar as your own employees are concerned, but also the surrounding community is concerned. Because that is something that will be a discussion point and more often than not, an emotional discussion point when things get a little tight.

So we fortunately have a team that I think are fully committed and fully appreciate the significance of this for the right reasons. And for many years, five, six years, we've been laying down the building blocks of what I do believe is a relevant and a dynamic process, aimed at improving the lives of employees, giving them quality of life.

That's why we call it Best Life. And Best Life is really the fourth iteration of something that started out as the Think Campaign. So it's think what the values are that you want to bring to work. Think what it is that you want to gain out of your involvement with this organization; and we think it's important.

Our employees are now starting to get or undergo financial literacy training. And it's really to assist them to make sure that what they receive at the end of the month is enough, not just for now, but also going into the future.

If you insist that you're not overpaid and that your employees are not underpaid, then you've got to make sure that what they need in order to survive, skills and the understanding of what it is that they need to do, that those are offered. Or else I think that your argument as to why things are the way that they are might sound a little hollow.

In addition to that, we also remain very focused on youth education. For many years now, we've had a program for matric pupils in and around our operations. 531 students have enrolled in these programs. We saw the 2013 matric average pass rate in some of these schools go up from 58% to 85% year on year for math and science.

And this is not the [Summa]. This is real math. It's not math literacy. It's amazing to see just how these pupils respond, pupils that have very little at their disposal, very little means, how they respond just to the opportunity to do well. This is now being rolled out into accountancy classes as well. And we hope to see similar results coming out of that.

Then you all know about EBDA, which is our community college. It's actually a business academy, but it also has a community college element to it. We offer recognized trades. And there too, community members have taken advantage of some of the open enrollment courses there. And there you can see the numbers and the successes.

Now the challenge, of course, is to assist the students that have graduated to finding employment. Personally, I also believe that there's some work left for us to do, to see whether our curricula are appropriate, whether they're relevant, whether we are really delivering into the needs of those communities, into society.

I'd like to see where do community members spend their money? There's this wave of social grant money coming into these communities every month. And it seems as though that money's not spent there, in the townships. That money is spent elsewhere, so it goes from taxpayer to Government to social recipient back to the taxpayer. So it's a very small loop or a close circle. You want that money to be spent three or four times in that community.

So I think we'll be doing some needs analyses in those communities to see what it is that those members, community members, buy outside of the townships. And maybe the collaboration of EBDA and our own corporate social investment could do something that could benefit those as well towards local economic development.

It's not the sort of thing where you can go and create a market. What might seem like a brilliant idea in a corporate office is not necessarily a brilliant idea in the townships. You want to go and see what the actual market opportunities are.

I think those are the businesses that you want to stimulate, regardless as to -- yes, maybe that's how far I should go with that. You want to see what it is that people spend their money on and where they spend it and see if you can bring spending closer to where the money is received.

On the environmental capital value add, I think this also has become a very important aspect of the business. Because this, notwithstanding the fact that sustainable development has become very much part of our strategic corporate thinking, we follow an integrated thinking model, you cannot do business in the middle of Johannesburg if you're going to have clouds of dust covering the communities that live around your reclamation and deposition areas. You've got to manage that effectively.

But up until last year we, on average, spent ZAR80 million a year, for five years in a row, on vegetating and rehabilitating various tailings dams and deposition sites in and around the Johannesburg area. And we're now seeing the results.

Those results are coming together in the sense that the dust exceedences -- I don't think that word really exists but we've manufactured it -- the number of times that we actually exceed the dust emission levels imposed by the regulator have come down year on year, this is one year, by 57%. So it's all coming together now.

The tops of most of those tailings dams have been covered. The sites of most of those tailings dams have been covered. More recently, I think we have three or four sites in particular where the work that's been done is absolutely world class. I invite you to go and drive past them now, in the middle of winter. Go and drive past and have a look at the Homestead dump, which is directly adjacent to Soweto on the northern side of the highway. And you'll see what that slope looks like, the way that it's been vegetated.

That is, I think, the measures that are required to make sure that you don't have interruption from a regulatory perspective and cause inconvenience to communities, who don't really deserve to be inconvenienced because development and living conditions have been reactive. They were, to a large extent, moved there.

I'm particularly proud of the fact that we've had this trending over time. And I've got to give credit also to the management team, who've taken this on board in the last six, seven years.

I remember the first budget after I was appointed MD of DRD SA years ago, it seems like a lifetime ago. For the first time ever, I saw a budget number included: ZAR16 million for dump rehabilitation. I'd never seen it before. Henry's sitting there, he was the guy who brought that on to the budget. I think we're seeing the outcomes of that now, finally.

It's a long process but consistently we're moving in the right direction. When we had a little bit more money, we spent a little bit more money. And now it's starting to come together.

I speak about sustainable development quite regularly. We want to achieve overlap between the value created of these various capitals. And I think one of the opportunities where that is the most available is on water usage. We don't want to compete with Johannesburg insofar as water usage is concerned. We want to reduce our requirement for potable water, the water that comes through Rand Water Board.

Jaco's been working hard with the local municipalities, and also with TCTA, to source alternative grey water. And as it turns out, this water's going to cost us a heck of a lot less than what potable water is going to cost us. Jaco, I think it's ZAR22 million, once it's up and running. It's got a payback of less than a year, if I'm not mistaken.

That's ideal. You reduce your load on the natural environment; you no longer compete with something that is really scarce; you take something that's been recycled, stick it into your operations, and the bottom line benefits. So I'd like to see more overlap like that. I think that's where the beauty and the wisdom of sustainable development really comes in.

Then we've returned, in total, about 215 hectares of land that is cleared for development; most of that belonging to other companies. We're starting increasingly though to start opening up our own land as well. And that obviously will go back into the economy for development.

So looking ahead, I think I've spoken extensively about what we want to achieve with the high grade section, and getting that up and running again. And I also mentioned the fact that we want to extend the reach of Ergo through collaboration and acquisition.

We are really now where we wanted to be nine months ago. Because the flotation and the fine-grind for us is the catalyst to the opportunities that we believe our model may unlock. I think the economies of scale of our business could be significantly impacted by just how efficient and effective this technology turns out to be.

Both our existing footprint reach will, to a large extent, be determined by, and influenced by, how efficient this technology is, and also the extent to which this is technology that we could transplant somewhere else. But we are fully committed to a technology-driven business that makes it cheaper and easier to extra gold from tailings, and thus maintain a healthy buffer between the revenue line and the cost line. And thus, we will continue.

Now just a little bit on the restructures. We've had some management restructures as well. You'll see in the letter that I wrote about some of the costs that are being saved.

Firstly, we will, once our lease expires, no longer be occupying a premises away from our operations. We're going to be moving -- I'm talking about the corporate office, we're going to be moving into the old Crown general offices. A number of professionals that work for DRDGOLD corporate office, also reduced by, I think, some 26%. And I think the saving on payroll year on year is going to be about ZAR12 million.

Insofar as the management structure is concerned, we've also made a number of changes. Jaco Schoeman has been appointed Operations Director of Ergo, and he's essentially responsible now for both operations, and also the new business development aspect. So it's a combination of the former COO portfolio and his own portfolio.

Charles Symons, who's been at the helm operationally of the business for many, many years, has taken a sideways move. He no longer delivers into the operational target mandate, but has taken an oversight role. And he's agreed to do that for at least two years. We might be able to convince him to do it a little bit longer, depending on circumstances.

But essentially, what he'll be doing is overseeing the implementation of the strategic imperative of this business, on a quarterly basis, over and above the other activities of mentoring and transfer of skills, and so forth. On a quarterly basis -- rather, on a monthly basis, he will call a meeting where each of the heads of department will report on progress on the strategic aspects of his portfolio.

And I'll remind you that we have specific responsibilities dedicated or allocated to specific individuals around social capital, human capital, nature capital, technology capital, and financial capital. And those are the reports that he will see. And he will then compile a report that goes straight into the Board.

So it's a -- I suppose, it's as close to a supervisory advisory Board position that you could probably get. And we think that we will derive great benefit from him having assumed that portfolio and driving it.

Insofar as the corporate office is concerned, we've scaled back quite significantly as well. There will, with effect from January 1, only be three professionals in an executive capacity as part of the DRD corporate office; namely, the CEO, the CFO, and the legal counsel. The rest of the operational requirement and strategic requirement of the business is now 100% being accommodated at Ergo.

We think it's going to work well. It has certainly been seamless in the way that it's been picked up and carried forward by all of my colleagues. If the numbers are anything to go by, then it does seem as though it's working.

Right. Then, just very briefly on the BEE deal, the update. Everything that we had to do from a regulatory perspective and internal perspective has been done. And it's now a matter for the Department of Minerals to consider the application, and decide whether or not they're happy with it.

I think when the new minister was appointed recently there was an affirmation almost of the importance of the goals set in the charter. I think maybe between the office of the minister and the office of the administrator, there's going to be a period of time required for them to, basically, just understand what exactly it is that the minister requires, and what the administrators need to deliver into.

So we foresee that that could take a bit of time for them to get the policies and practices sorted out and understood, and then for us to make our submissions. Our submissions are pending before the Department, but we don't know when we will receive an answer. It might be weeks, it might be months. But we'll keep an eye on it, and we'll report as we go along.

Right. Then, I want to really briefly deal with the restatement. And Anthon, please interrupt me if I get this wrong. But essentially, what has happened is that DRDGOLD established a sole captive into which it's been investing now for a few years, as part of the cover for its rehabilitation obligations. It's more the premature rehabilitation obligations. So if there's a premature closure, then we need to make available a whole lot of money. And that needs to cover the cost of rehabilitating.

That sole captive has always been consolidated and deemed part of the assets of DRDGOLD. But in terms of the accounting treatment, the revised accounting treatment guideline that came out, that sole captive is not considered to be under the control of DRDGOLD, because it's really under the control of the insurance company that provides the facility.

So that insurance company establishes many sole captives, and each sole captive is dedicated to a specific corporate entity, or a specific operation. In the past, we consolidated it, because we were deemed to control the sole captive.

Now IFRS is saying you don't control the sole captive, the insurance company controls the sole captive. So as a consequence, we had to deconsolidate it and recognize a claim in favor of the underlying subsidiary.

So something that used to belong exclusively and solely to DRDGOLD, namely an asset, has now been reduced to a claim in favor of Ergo Mining. Ergo Mining has three shareholders; DRD, Khumo Gold, and the Employee Trust. And we now have to recognize equity participation in favor of the -- we can no longer talk about the minorities, it's the non-controlling shareholders, or the non-controlling interests, in proportion to the equity that they hold in Ergo.

So what you've basically seen is an adjustment in the equity participation of the non-controlling shareholders in a claim in favor of Ergo. It doesn't have a cash flow impact, it doesn't have an effect on profits. It's probably not material. We had a very long discussion about whether or not this is material enough to be mentioned at all.

I think we prefer to err on the side of caution, so we decided to tell the market about this adjustment that's going to take place retroactively, with effect from the date on which this change in accounting treatment came into effect.

And I think that's really all there is to be said about that. More than that is beyond my grasp and understanding of accounting treatment, so I'm sure Anthon would be happy to deal with that.

So to wrap up. Basically, it's a year that we kicked off with huge expectation, because we had a phenomenal roll for three, four years of good profits, evidence, share price went up 70%, and so forth. And then we just didn't get it right, when it came to the commissioning of our new technology. It was necessary for us to take one or two steps back.

I think we've now re-established a very sound platform, one that I certainly have a lot of confidence in and from which we can now launch our technology. I said it earlier and I'll say it again: our commitment to technology is complete.

It is the one thing that will enable us to not just only maintain margin but also expand the reach of our business and extend the life of our business. And we will continue with that. We will continue with our research and development as we go along because that for us ultimately will be real growth.

In addition to that, and that I cannot leave out, we do have surplus capacity in our plant, and we are not going to let that just lie there idly without taking advantage of that. So we're hoping to achieve the best of both worlds. Once our reliance on potable water reduces, we think we can start also -- we can start pushing a little bit on the volume side. Jaco and the team have all sorts of plans as to how they can do that.

Hopefully a year from now, when we do this presentation, we'll be in a position to report a successful test phase and a successful integration of the flotation and fine-grind into our circuit. And hopefully these numbers that you've seen here are really the base case from which we can now gain momentum and grow both production and also margin.

Thanks very much; we'll take your questions.

Adrian Hammond, Standard Bank. I have three questions for you. Firstly, I want to talk about yields a bit more. In light of the fact that you're sourcing new higher grade dumps, and let's assume for a moment that you achieve the efficiencies you want out of the new circuit, what are your expectations for yields for the next year and beyond?

I think our target remains in the region of about 0.195 gram yield per tonne, maybe, a little bit higher. But new resources come in and older resources are being phased out; I think that's pretty much where we want to benchmark our recoveries.

Secondly, just -- you have provision that's been adjusted downwards. Is there future cash flow impact regarding financing of that provision [while] that's being reduced?

Are you talking about the rehab?

Rehab provision, yes.

The reduction in the rehab provision is based on two very specific new interventions in the way in which we approach the rehabilitation. So it's an actual saving that we recognized. And recognized through the satisfaction of all of those who scrutinized it for integrity.

One involves the irrigation of the dumps, if I'm not mistaken, and I forget what the second one was. The irrigation of the dumps is the most significant one but there's a second one too. These are two very specific initiatives aimed at managing the exposure to future rehabilitation costs.

In terms of your financing -- finance costs for that provision, is there any impact?

We haven't provided for a full environmental impact just yet. On one, let's call it collection of assets, the Crown assets that are now being incorporated into the Ergo Mining right, there is an outstanding guarantee that's got to be put in place. We've managed to secure cover for that but we haven't put it up; we haven't paid anything in the past so it will be the first time that we've got to do that. So there's nothing to adjust. That will be a --

Thanks. Then thirdly, just could you give us an update on the announced sale of ERPM and what your intentions for the proceeds would be?

Yes, certainly. There hasn't been any change from the announcement that we released, so the dates and the timelines of delivering into the various conditions have not changed. I think proof of funding is due early in October -- October 5 proof of funding is required. And that's really going to be trigger. I think once proof of funding is in place, the rest should go smoothly.

We will treat with -- in the event that this transaction takes place, we'll treat the cash the way that we've been treating our cash in the past. We'll look at the capital requirements of the business, what's necessary for that. The amount of cover that we think we need to keep in place on top of the cash flows, which would hopefully be positive cash flows, would be considered. You know what our buffer is that we want to maintain. And if we have surplus to buffer and immediate capital requirements, then the money goes to shareholders in one way or another.

Thanks.

Is that it? Anything from the dial-in? I think I actually got this question by email as well, so my apology firstly to [Mr. Darnett] for not replying earlier.

The question is will you consider applying any of the proceeds of the sale of ERPM to buy shares back?

I'll tell you what the approach was in the past when it came to buybacks. We would take a look at what the consensus view of the stock is. People like [Alan] would express a view as to what the share is, and I think on one previous occasion that was specifically used as benchmark. If the share price is significantly below what the consensus view is of where the share ought to be, then it makes perfect sense to buy shares back.

That's not to say that we'll use the proceeds for that. I think I explained, in response to Adrian's question, how we're going to be treating surplus cash flows if it does materialize. But it's certainly something that the Board will consider. I don't take those decisions. We go to the Board meetings and we make representations to the Board.

We always look at what is the most effective way of distributing -- making a distribution, either by way of dividend or buyback. And share price at the time is a very important consideration for purposes of deciding on a buyback.

Is that right? I don't think I made any promises here. I don't want to be told that I promised to buy shares. So there's the process and there's a specific test, or a set of parameters that we use for that purpose.

Yes, Adrian?

Just on the (inaudible- microphone inaccessible) expectations on capital for the next year, do you have any new projects in sight? Because effectively now your balance sheet is looking very good. You don't have any imminent projects, your ultra fine-grind's come to an end.

I think the extent to which we can tack on new projects will be determined, to a large extent, by just how effectively we test the fine-grind because something that might seem distant now, which we may want to acquire just for strategic purposes, may actually be a reality, something that we want to bring in sooner rather than later.

We're always looking at new sources, especially the large concentrated ones, which we may want to bring in. We're in discussion with a whole host of dump owners and land owners on an ongoing basis. But it's really timing, and timing is determined by a simple exercise as to whether or not it will make sense.

If the gold price stays where it is and if the fine-grind works as well as what it should, then I think we would want to maybe expand our reach and expand it into a larger resource, provided we can get it. Not everything you want is for sale; sometimes you get lucky if you try hard enough.

Thanks.

Thank you very much, everybody; appreciate your time.