DRDGOLD Ltd (DRD) 2015 Q2 法說會逐字稿

Good morning, everybody. Thank you very much for taking the time to join us here for our results presentation. These are the half-year numbers for the current financial year.

While you ponder the terms of the disclaimer, the focus will really be to give you an update on where we are with our new plant.

Obviously everybody wants to know a little bit about how do we manage Eskom and the impacts of their inability to provide reliable and sufficient power. And, also the view on the way forward and how we position ourselves for that.

For the half year we're very pleased with the way that things panned out towards the end of the half year. You'll recall that the first few months of 2014 were tough. We started our new flotation and fine-grind plant, and we had to suspend operations after it became apparent that we were unable to stabilize metallurgical performance.

We made use of that period to do a number of engineering upgrades, and at the same time the plant in its pre-FFG configuration stabilized quite rapidly. Metallurgical efficiencies went back to stable, to normal, quite quickly, and the numbers were encouraging.

So we did produce more gold for the six months than in the previous six months. It wasn't a massive hurdle to clear, but it was a plant performing to specification and to expectation.

All-in sustaining costs, this number has been distorted somewhat by, I think, the way that all-in sustaining costs is now being defined.

There is still an element of non-cash costs that's brought to the all-in sustaining cost. It's probably better to talk about all-in cash cost, but that too is a term that's been tossed around and doesn't really have a fixed definition.

But for what it's worth, and for those who track it, the all-in sustaining cost also went down in dollar terms.

More important numbers, against which you can track actual performance; operating profit; that went up nicely at a time when the gold price was in a bit of a slump.

And then also EBITDA was up by 59% to just over ZAR110 million or ZAR115 million (sic - see slide 3, "ZAR117 million").

For the quarter, quarter-on-quarter, the numbers are slightly worse than what they were during the winter months.

During this time we started up test work at our flotation and fine-grind plant. We ran one-third of the float plant, basically one-third of total throughput was channeled through this section.

That didn't impact on gold production, though. That didn't impact on the trend. There was a period during which the plant basically normalized and some of the leads and lags caught up, and I'll spend a little bit of time talking about that.

Jaco Schoeman, our Operating Head's also here, and he'll also talk into some detail to the extent that you have questions.

But we did, towards the end, have a fairly significant rainstorm that had an impact on throughput because of a pond that formed on one of the reclamation sites and that reclamation site was out of action for about a week.

And then we also had 67 hours of lost production because of load shedding. And the interesting thing, or the thing that could impact us if load shedding was still applied, is the fact that we are over three load-shedding zones.

So, instead of just having two hours at the plant, for example, we would have two hours at the plant, two hours in central Johannesburg, and two hours towards the west of Johannesburg.

We've now got a different arrangement with Eskom, and I'll talk a little bit about that, but that also impacted somewhat on the gold production for the quarter-on-quarter number.

Cash balance over this period, which is an important parameter for us because the markets aren't exactly throwing capital at mining companies at this stage; you've got to manage your cash position very, very carefully.

And during this time, when we were pretty much in a recovery phase, in a phase of trying to stabilize the business, and also had to pay down ZAR77 million worth of debt, we managed to get the cash balance up by 19% to just over ZAR240 million. It's nicer to say ZAR0.25 billion in cash, so that's the number.

Insofar as the operation trends are concerned, and I think this really tells the story of the past 12 months and there are two graphs here in particular that I think are significant and that I'd like to spend a bit of time on.

It's this one here, which shows the yield in grams per tonne, and this one here that shows production in kilos per quarter. And you can see the significant impact there of the initial difficulties that we experienced with the starting up of the flotation in fine-grind. That was pretty much an all-time low in recovery efficiency over the last few years.

And then re-establishing itself nicely at above 0.17 and then trending up and continuing up towards the 0.2s, after we had stabilized the plant, stabilized metallurgical efficiency, and despite the fact that we had the start-up phase with the flotation and fine-grind.

And then, similarly there with the gold production, all-time low, trending up nicely, peaking nicely for the year and then slightly off towards the end of the year, and that, to a large extent, associates it. [It's not], to a large extent, almost in its entirety, as a consequence of the much lower volume throughput following the rainstorm and also the bit of Eskom [woes] that we had to manage our way through.

But here, I think, that is probably a very significant comparison to make. Despite high tonnes, extraction efficiency was lower, production significantly lower, despite lower tonnes, extraction efficiency higher and gold production second only to the previous quarter when the plant had stabilized.

And that for us is an important indicator of where we want to take this business, it's that number there, the correlation between these two. So once we get that back up and running again, and I'll spend a bit of time just on how we manage volume throughput, I think you'll see why these two parameters, the tonnage and the extraction efficiency, those two, are the ones most closely watched from an operational perspective.

Right, on the financial indicators I'm going to ask my colleague, Riaan Davel, who's our new CFO, this is your first presentation, I would ask him to take you through the financial indicators and then I'll wrap it up.

Thank you very much, Niel. Good morning, ladies and gentlemen. It's my privilege to take you through the financial trends this morning and also focus in on the statement of profit or loss and statement of financial position, very much a quarterly focus that I will take you through.

As you all know, more detail recorded in the report to shareholders that you have access to here and also on our website.

So looking at the operating margin trend; a very positive operating margin increase over the last four quarters and almost getting us to that very good second quarter for the 2014 financial year. So a really positive trend for operating margins.

All-in sustaining cost margin, that Niel referred to, yes, it's sometimes a difficult measure to understand and especially on that graph where there was very specific positive non-cash adjustments in the fourth quarter of the 2014 year that distorts that number. But I want to focus on the last two quarters.

So, a good increase in the all-in sustaining cost margin, taking into account that the average gold price for the quarter decreased by 2% and I think cost containments are the order of the day, which is a very positive trend we see in the operation.

EBITDA of earnings before interest, tax and depreciation, very much a measure of profit loss before tax with those adjustments being finance cost, any impairments, any taxes. And then the big one that shows the big increase for DRDGOLD, is depreciation, which you'll see on the next slide which is quite a big number on a quarterly basis. That's obviously adjusted in the EBITDA number.

But the one that I want you to mark with an X and when you leave here and maybe spend time with colleagues, definitely tonight with family, friends, loved ones, is the free cash flow graph.

So, just to remind you, free cash flow, very much operating cash flow, less investing so it's operating, less any sustaining capital expenditure or any capital expenditure spent, and just under ZAR114 million for the last two quarters.

So as Niel mentioned, obviously that -- the almost [ZAR70 million] in the first quarter was predominantly used to settle the second last of the domestic medium term notes program, notes [for us].

And then, yes, extremely positive cash flow, and I agree with Niel, in my opinion, yes, probably the most objective and relevant measure for performance in any mining entity. So we're very proud of the free cash flow performance. And, yes, just interesting, obviously although that was a very good quarter, still significant capital spent, that happened in that quarter that would reduce the free cash flow margin there.

And then headline earnings, cents per share. Again, the fourth quarter, that positive non-cash adjustment distorts that, [but you're] pretty much at a zero cents per share for the last two quarters.

Looking at the statement of profit or loss,. Specifically as I mentioned focusing quarter on quarter, you would see that revenue declined by around 8% as a result of reduction in gold sold, and as I mentioned, a 2% decline in the average rand price per kilogram received.

And then, on the cost side again, as I mentioned, very good cost containment, so that net operating cost line declined by 10% which both together gives us a 6% operating profit increase, quarter on quarter, that Niel also referred to on his second slide.

Then a depreciation number, as I mentioned, that impacts the earnings before interest, tax and depreciation, quite a big number and a slight increase this quarter as a result of the additional use of the flotation fine-grind circuit.

Other income and costs, I just want to focus on, included in there you'll see it in the detail in the results as well. A sale of non-core land of about ZAR11 million, a small impairment in respect of the Village Main Reef investment, because as you know, that's reflected on a quarterly basis at fair value of that listed price.

And then a very positive trend that you won't be able to see on this slide but you'll pick up in the detail, so if you compare the corporate costs and administration costs for the six months to December 31, 2014 in comparison to the six months December 2013, shows a 24% reduction, which is a good achievement and a positive one.

And then ending off with net finance costs, income tax, which leaves the quarterly results at a profit after tax of ZAR1.9 million and as I mentioned around EBITDA, a very positive 44% increase, in comparison to the previous quarter.

Now the statement of financial position or balance sheet, [you'd see for] property plant and equipment, we'll add this declining trend now, as I've mentioned the capital expenditure as basically the big capital expenditure projects has come to a stop, so with the depreciation charge, that balance will start declining over time.

The non-current investments and other assets, the bulk of that, as I've mentioned, is the Village Main Reef investment, that's carried at fair value, and Niel will comment at his looking ahead section just further on, on a subsequent event in that respect.

And then, again, I want to emphasize the cash balance. So 19% increase from the previous quarter, which again is a very objective result and easy to measure.

Then on the liability side the ZAR29 million long-term liabilities, ZAR21 million of that actually relates to a finance lease capitalization of back-up generators that came into operation during October, October 2014, so the opposite asset side has been capitalized in property, plant and equipment, so it's a finance lease liability.

And then the other number that I just want to emphasize is the current liabilities included in the ZAR312 million, is the last of the DMTN notes of approximately [ZAR77 million] that's due at the beginning of July. So that's included in that balance. And all of that leaves DRDGOLD with a very healthy textbook current ratio of [1.5].

So those are the financial results in a nutshell and I'm going to hand over to Niel.

Thanks, Riaan. All right, just on the flotation and fine-grind update, what we've been doing since April of last year. We decided specifically not to try and restart this section, or this circuit, before winter tariffs had ran its course. Because winter tariffs add, if I'm not mistaken, between ZAR12 million to ZAR14 million to the overhead per month. The circuit in full flight adds another ZAR14 million approximately to the total overhead.

So if it's not giving you the gold to offset those costs, and obviously you run the risk of just adding all of these costs not knowing exactly what your gold production was going to look like. So we decided to just take a bit of time out on when we start this thing up again, go through every circuit, every section to see where we're still vulnerable, what are the things that we can improve. And then only start test work in a staggered or staged fashion, not run the whole thing simultaneously.

So in September we started with the first phase of test work, or with the test work ,by starting up one float bank, or line of float cells, that means that we basically channel one-third of total volume throughput through the circuit.

And we saw interesting trends right from the word go. We've never had any difficulty with the efficiency of the float circuit itself, that was the one part of this new piece of technology that worked really well, right from the word go.

We've managed to get the pyrites out, 90% recovery for pyrites, gold content was being on target, etc. With the mills itself, the mills are clearly the right technology for this kind of concentrate because it is breaking down the sulfites to the required fraction, and we are seeing more gold ending up in solution.

The problem that we experienced the first time round was associated with carbon efficiencies and they layout of the CIP circuit, and also what we did with carbon that was already in inventory, in that we had torn down for (inaudible), etc.

But the trending indicated right from the word go that the plant is performing to specification. The one very important indicator that we wanted to verify, and that we wanted to be able to reconcile with actual gold production, was the tail value, the residue value.

The first time round, the first test, we saw a significant increase in dissolved losses which basically means that all the gold that ended up, or a lot of the gold that ended up in solution state, in solution, didn't settle and found its way up the plant, stayed in solution, or in water.

And we wanted to achieve a reduction in the total residue value of 0.03 grams per tonne because that's the targeted increase in gold production that we want to associate with this plant. And once we saw that we thought that we were ready then also to start the second and third float back, and we did that during January.

So the test work we were happy with, and it certainly set the stage for us to start running the rest of the float plant as well, and we're doing this off a measured and proven base case. There's very little theory or calculation involved, this is based on observation that we could start this back up again.

Something that we also did during this period was address areas of vulnerability, and the one area specifically that we saw, could impact on volume throughput, was the reliability of the thickeners.

In order for the float plant to function properly, we've got to drop the density of the feed. In order for the CIL circuit to work properly we've got to increase the density of the feed. And that you do with sets of thickeners, and the most important one in this whole process is the thickeners at the tail of the float circuit before it goes into the CIL.

And these things are very temperamental, if there's a little bit of a drop in power, or if there is an interruption in power supply, they start torqueing very, very quickly and they trip. And in order to get this thing to start working again you've actually got to drain the entire thickener, wash that out, and that takes a week to fix.

So what we did during this period was to install additional power backup, install underflow pumps, and that helps us to keep this thickener, this large expanse of slurry, to keep it in motion and keep it in suspension.

It was fortuitous that we did because if we hadn't done that, and it wasn't planned, we weren't planning towards load shedding, but it's one of those fortunate unintended consequences.

Now with power that's sometimes switched off without notification we're able to keep the thickeners alive. But for this we would probably have been a situation where it would have stood until after we had installed all of this backup capacity.

So that's one engineering upgrade that we did, that has significantly de-risked this organization insofar as unreliable, or unpredictable power supply is concerned.

And there are a number of other ones as well, but I think that is the most important one.

Ours is an ongoing quest to see if we can create a bit of daylight between the amount of gold that we can produce, and the amount of gold that we have to produce. And volume optionality, I think, has become a very important strategic theme in how we allocate the resource, and how we dedicate capital.

And if we can increase the number of sites from which we can source material, not relying so much on two or three main sources, then that volume optionality becomes a reality for us.

In addition to that, this plant is not running at full capacity, there were a number of CIL tanks that we did not refurbish first time round, there were six of them, one is being refurbished as we speak, and another five is also in an advanced stage of refurbishment, there's a target date for that.

But this little project, the Van Dyk project, we call it the Van Dyk project because that is the resource that we'll be accessing and mining in order to fund this capital upgrade. This will provide the additional optionality insofar as sourcing of material is concerned, but it will also give us additional volume capacity in the plant itself.

So Ergo which at the moment has a 1.8 million tonnes a month volume capacity will now, once this is up and running, have a 2.1 million tonnes volume capacity.

It's unlikely that we will treat, or that we will make full use of the entire volume capacity, but it does mean that the amount of slurry that we can put through the plant, and the amount of slurry that we have to put through the plant in order for us to cover the overhead and yield the return that we're looking at, a little bit of optionality or daylight appears in that [crop]. It's not quite as marginal.

The two greater sensitivities, as I said earlier in this model, is the fact that it requires lots and lots of tonnes, and it is very sensitive to extraction efficiencies. And this certainly addresses one of those key issues, or it helps us in reducing the risk exposure associated with our ability to get the volumes through. Especially at a time where, maybe in the Far West Rand, there's a power interruption and despite the arrangement that we have with Eskom, we can't start those pumps, or we can't run those pumps.

Then closer to home, we've got the Van Dyk facility which we can run.

It's a ZAR23 million CapEx project, which is being funded out of cash flows and this one will break even at 384,000..

That is the advantage also of looking at growth and expansion, and de-risking and optionality, and so forth, and so forth, within your immediate footprint ,because we can leverage the established existing infrastructure that we've got.

Van Dyke, standing by itself, there in the vast expanse of the East Rand, could never fund the construction of a plant, and a tailings dam, and reclamations, and a reclamation infrastructure, and so forth. But all of that stuff's already there, so it's really just plugging it in and doing what we've done with 24 other reclamation sites. And this assists us in funding what is strategically an important development in the organization.

And then just a little bit about load shedding, and I'm sure there'll be some more questions about that. So in December we were switched off for a number of hours, we lost a total of 67, those were the hours that the power wasn't on, that the power was switched off.

In addition to that, obviously, there's the recovery period afterwards which we had managed to significantly shrink because we've got all of this backup capacity.

We now have a consumption curtailment agreement with Eskom, basically what that means is that if they do plan, or if they are required to implement load shedding phase 1 or 2, or stage 1, 2 or 3, then we get a two hour ahead notice, prior notice, and then we drop our total consumption by up to 10% for stage 1 and 2 of our base load, and up to 20% in the event that there's stage 3.

Now we've never had stage 3, we've had a number of stage 1 and 2s, there have been instances where we've had stage 1 and 2 where we didn't get the notification, where we weren't asked to switch off, but the undertaking is there and it seems to be working well.

There have been times, obviously, this whole thing is managed not --it's not an automated process, there's somebody sitting at a terminal switching lines on and off, and there have been instances on a Sunday morning, they would simply just switch off the power. Then we would phone them and say our power is off, you're in breach of our arrangement and then they would switch the power back on.

And fortunately because we've got this backup capacity we could then resume production, and resume operations in a very short period of time, 20 to 30-odd minutes and then we're up and running again.

So that's working for us at this stage, and the advantage of having this arrangement is the fact that, whilst in how we configure the plant, we do sacrifice a degree of extraction efficiency, and I'll tell you exactly how this configuration works. The volume throughput can be maintained, with the exception of when there's load 3 or stage 3 load shedding, then we in fact reduce volume throughput by about 840 tonnes per hour, just under 1,000 tonnes per hour.

Our capacity here, if we have a good day, for the Ergo plant, is about 60,000 tonnes to 62,000 tonnes. So that's more or less the impact that we would have on volume throughput if they staged 3 load shedding.

Now the way that we manage this, the way that we do save this power, and let me maybe say upfront, we don't have to reduce load, we don't have to switch any of our circuits off. We've got adequate backup electricity. To basically run at full capacity we've got the better part of MVA if I'm not mistaken, at various critical parts of our production line or our production circuit.

At the tailings facility where we've got an enormous generator, I think that's the one where we've got the ZAR21 million amortization, that one can pretty much take care of the whole lot. And that's a critical one because if you can't remove your tailings then basically you can't put anything into the plant. So that we've got regardless and we've had that for some time, and then in the plant as well.

So we can run at full capacity, but at this stage it indicates that the indicators are that the amount of gold that we will produce by switching on the backup generators don't quite or doesn't quite cover the costs of the diesel generator.

When there's a stage 3 load-shedding scenario and it's a 20% drop then it starts making sense. Then you can get the current diesel price and also what we pay on the maintenance lease for some of the generators. Then you can more or less break even.

But at this stage if there's a load-shedding scenario, we just reduce our total consumption and we've got a specific protocol against which we do that. And simply what we do is, most of what we need to save we can save by running only two-thirds of the floatation circuit and circumventing the third one, the third line of float cells.

So then it means that basically those float cells aren't running, there's reduced consumption in your mills and that takes care of most of it. And that's what I meant earlier when I said that we sacrifice a degree of extraction efficiency. That associated with one-third of the total throughput for that period of time, whilst not sacrificing throughput.

I think the impact we've calculated, if we've got load shedding every day for an entire month, the impact of that is around about 15 kilos of gold production per month. But then you've got to have load shedding every day. And we're not quite there, we haven't seen any of that.

So at the moment, whilst I think there is uncertainty regarding the future for Eskom, what is electricity supply going to look like, I know that some of my colleagues in the mining industry have also expressed their concerns about, what is the winter months going to look like, is there going to be a requirement for us to shed even more consumption at that time? The situation, if they can maintain current scenario, seems to be entirely manageable for a Company like ours.

I suppose the big advantage for us is that we don't have to -- we don't sacrifice an entire shift. And if you've got an entire crew or a day shift in an underground environment that you've got to send underground and you don't know whether or not the power's going to be around, I think that's a much more serious scenario than the switching on and off of some slurry pumps.

On the looking ahead side the Village Main Reef did approach us regarding the offer from Heaven-Sent Capital for ZAR12.25 a share, we support that. It's still a little bit shy of what we had hoped to get for our Village Main Reef shares. But I suppose, if you look at the -- what we sold the business for, what we got in the working capital adjustment, the dividend that was paid which was a good dividend then -- and it all adds up, then we're probably slightly north of what the initial sales price was. So we are in support of that.

There are 1 million encumbered shares that are held in escrow. You will recall that, as part of the initial sales agreement with Village Main Reef, 20 million shares that now have been consolidated into 1 million shares, are held in escrow until after all the conditions of the sale agreement were met.

And those conditions involve the consent of the Minister and Section 11 consents and so forth and so forth. There's currently an arbitration pending involving that dispute where we're alleging that Village didn't do everything they should and they're alleging that they did.

The root that those shares will follow, or the proceeds of those shares will follow, will be determined by the arbitration, unless we come to an arrangement, unless the Village Main Reef executive and our executive come to an arrangement which is not entirely unfeasible. It's a very limited dispute that's remaining and the upside, downside really is, to a large extent, limited to or restricted to, what happens with the shares and the proceeds of the shares. I think there's ZAR6 million in escrow dividends, also, that's held in escrow. Where does that end up?

So an unencumbered investment, that's what we'll get for the shares that we already earn, that's just over ZAR40 million. And then the rest is ZAR12.5 million, plus ZAR6 million, so it's about another ZAR18 million.

So we're hoping that they can get this through quite quickly because this is not a bad number for us, considering that it was very much a passive investment, and one that we held with a view of seeing Blyvoor taken into the future, seeing [Talberfos], all of those gold assets, taken into the future.

We thought that there was a good story and you'll recall that this transaction was done when the gold price was still around about $1,700 and $1,800. And this was going to be a significantly-geared gold share.

So at the moment we've got just over ZAR228 million in unrestricted cash balance which means this is cash that is not committed by way of some sort of a guarantee. We've decided, though, not to pay an interim dividend. We did pay one last year. That was our first interim dividend. Before that we had six annual dividends, so we've paid seven annual dividends.

We've decided rather, since we are at a critical phase in the configuration of our operations with the float and fine-grind, and also in view of the fact that we've got the ZAR77 million still owing on the DMTN program, that we'd rather try to retire that debt prematurely, get it off the balance sheet and then we know exactly by the end of this financial year how much we have in the bank and how much we can offer to shareholders by way of a dividend or maybe a buyback, if the share remains undervalued.

So that will stay in the bank and be used only for purposes of the payment of the note program. We're obviously keeping a keen eye on the Village transaction, that will be a nice addition to the cash balance. And in the near term, our focus will be to optimize the floatation and fine-grind circuit.

Now what we're seeing, and I will elaborate just a little bit on that, and then Jaco's also here for that purpose to give you some more detailed answers to questions that you may have, is we started up the remaining two float circuits.

We've since gone back to running only the second one with the third one amidst this period of switching on and switching off associated with load shedding, and the fact that we are now doubling the volume into the circuit, we're back to two.

And what we are seeing is pretty much in line with what we expected to see and that is that there is an almost immediate increase in the [pulp core] which basically means more material, more gold, is coming into solution. And we're also seeing the carbon efficiency, or the pulp core, lag to the same extent that it did when we started up the first circuit.

A discussion that we've had over the last few days and weeks of very closely monitoring the performance of this -- now the second line, is that whether we shouldn't include in our thinking the fact that through the doubling of volume you're introducing a multiple that requires a proportionate increase in some of the other dynamics associated with this, namely raise it in its time and maybe -- well we won't be fooling around with the chemical balance.

But maybe there's some -- maybe we need to take into consideration the fact that we are doubling the volume through this and it's essentially a plant with the same capacity and throughput.

So we are keeping a close watch on that, it's pretty much stabilized and we are seeing increments in the carbon efficiencies. But the carbon efficiencies have not yet achieved the level which we saw in the initial test phase.

And we think that this, to a large extent, is associated with a similar lag that we saw with the first phase. But we're also opening our minds to the possibility that there might be a slightly longer lag because we have in fact doubled the volume going through the same circuit.

So I think we're comfortable with where we are, realizing that there is room for improvement but that there are absolutely no indicators as to that we're in a reverse trend or that we're seeing a reduction, an extraction efficiency. And we will give updates to the market as we go along in this regard.

So I think that pretty much summarizes our activities for the last six months, and also what we want to do going into the next few months. And myself, Riaan and Jaco, will now take any questions that you might have.

All right any questions? Adrian?

Adrian Hammond, Standard Bank. Yes, I've got three questions. Firstly on the yield; if you achieve what you expect with the next two streams coming on, in terms of carbon efficiencies, extraction overall, what sort of yield could we expect to see?

Secondly, could you comment around head grades; what are you seeing in the head grade now, and give us an outlook, if you could?

And thirdly, could you just explain a bit more about your ability to handle heavy rains? My understanding was that the thickener that was bought online would deal with that. Thanks.

Let me start at the back and then I'll give just the overview on yields and head grades.

Insofar as the heavy rainstorm was concerned, this was a particular instance where one of the reclamation sites had filled up and had choked the valve that's supposed to deal with excess water. So this wasn't something that actually went into the plant; this was restricted access into a specific reclamation site, and as a consequence of which, we couldn't mine that particular site.

We have done a post-mortem investigation as to why this had happened and apparently what had happened is, the rainstorm itself was a fairly heavy downpour, Henry my recollection was about 80 millimeters in an hour or something if I'm not mistaken.

Yes, so a heavy downpour and we saw a bit of debris that was onsite choke up the valves itself, the screens going into the valve, into the port. And we couldn't access that for a period of time and we weren't going to send somebody in there, because once you unblock, obviously you have significant suction, and that could pose a grave danger to whoever might be busy unblocking it.

So it's something that -- just simple housekeeping, there's no need for a change in systems or a change in configuration, it's something that housekeeping could prevent. And also that the mining configuration could prevent, the way that we basically have these ponds and paddocks and layouts on top of the tailings dam.

And in fact I think you're attending the Investa media -- the media day next week? I think they'll be able to show, more or less onsite, how this had come together.

On the issue of grade, I think, Adrian, we want to manage the whole issue of head grade and the issue of recovered grade with a long-term view in mind. So, whilst initially you would see a small spike in the actual recovered grades, and I think what we're targeting in the long term is about 0.2 gram a tonne, leaving out the three or four decimals after that.

But, ultimately, what we want to do is stabilize our recoveries at around 0.2 gram a tonne, and manage the mix in such a way that we can extend the life of mine. Because increasingly we're finding these little pockets of high grade that we can bring in from external sources. But those little pockets of high grade, it's like the smallish [fundate], you can't mine those in isolation -- you do need the volume throughput.

So if you can moderate the rate at which you exploit the rest -- the remainder of your resource, then it means that you can take your life of mine from eight years to 12 years, to 14 years, to 18 years. So there's no way that I think we will simply just take full advantage of the scenario as it currently is.

We'll carefully look at, how should we manage extraction rates and how should we manage the rate at which we access the more accessible lower risk sites, the larger sites where we've got a very large concentration of material; how can we mix and match those in order to extend the life of mine?

Because, ultimately, what we want to do is mine as much of this 11 million ounce resource as we possibly can. We don't only want to mine the 2 million that we've got on the reserve statement at this stage -- we want to mine as much of the 11 million as we possibly can.

And the longer you mine, the better chance do you give yourself to take advantage of an increase in the gold price, as and when it occurs. And these cycles are getting shorter and shorter and they're becoming sharper and sharper. You've got these really high spikes and these really low troughs, and they seem to be packed so closely together.

But you don't want to find yourself in a situation where for three/four years you've mined this thing as hard as you possibly can, and then five years from now, the gold price goes to $2,500 an ounce and the rand is sitting at ZAR10 an ounce, and you've now accelerated mining unnecessarily.

So, we are very much looking at it, and I didn't talk much about the golden thread that drives our strategic thinking of sustainable development and long-term sustainability. But we are very much looking at this mine, its configuration, our footprint, the potential for growth, expansion, etc., we are looking at that from the perspective of, we want to be around as long as possible and we want to mine as much of this 11 million ounce resource as we possibly can.

I think what we probably want to do next week, when we do the analyst visit, is give you some sort of an indication as to how this mix is combined. And how do we get to the head grades and the tail grades and so forth and so forth.

But I think what you ultimately will realize is that, what we are doing is we're managing and maintaining the mothership, our center of gravity, the Ergo [plant], in such a way that we have something that pays for itself as long as it possibly can. And then accessing these little green shoots that are out there and just topping up, topping up the bottom line with those.

And I think that's going to be our model for some time to come. That is certainly the way that we're approaching the allocation of strategic resources and capital at this stage.

Sorry, just jump back to the numbers there, I see the trough yield was about 0.16 gram per tonne and you've climbed nicely and steadily up to just shy of 0.2. And you were mentioning that your recovery has got -- your residue grade is now being contained down to about 0.03. And I was just wondering, what was it back then when the yield was 0.16? And then, therefore what is your feed grade gradient and how has your feed grade changed?

Look the head grade hasn't changed by much, but the recovery efficiencies are certainly going up quite a bit. I think we were sitting at about a 38% and we're now starting to bump against 50% and 51% of actual recovery efficiency.

Adrian, that's something you can -- I'm sure that you will want to write down.

We've identified the two main culprits as being, one, the fact that a lot of gold ended up in solution, ended up in the water, and a lot of water was being pumped out of the plant at that stage.

And our early sampling didn't quite pick up just how much gold had been dissolved, what the soluble gold content was, and what the dissolved losses were. So that we identified during this period after the suspension of the plant, during this period of analysis. We identified that as one of the main culprits -- the dissolved losses and the excess water that was being pumped up and going through the process.

Every time a thickener trips, you've got to drain that thickener -- much of it doesn't go through the process. Every time there's a rainstorm, and remember last year between February and March we had three weeks of uninterrupted rain, a lot of the water came in and we didn't get it out. And we didn't get it through the plant, it had to be pumped out, and there was gold in that water because it has gone through the initial float phase.

Second main culprit was the regeneration of carbon, the actual carbon efficiencies. We established that our carbon efficiencies were not where they were supposed to be because, at some stage, and for reasons that we had subsequently identified and that we have managed to intercept now, the volatiles on the carbon, which is really organic matter -- and this is carbon that had already been in inventory, been through the process -- wasn't removed to the same levels that we had done in the past. So it was case of a little bit of dirty carbon going back into the solution.

What you also need to appreciate and accept is that if there's just the slightest indication of carbon inefficiency. We now have a concentrate especially in the high grade. You've got a concentrated, concentrate by its very nature, of sulfides and sulfide's really the one substance or agent that gold associates with.

So if your carbon doesn't hurry up then your sulfides are going to get busy again and then you're going to find your gold going out the wrong end of the plant again.

So you've got to have a very finely tuned and very finely balanced process during which, after it's been liberated, after it's been leached, it's got to settle onto the carbon and if your carbon efficiencies are just slightly off then you start seeing a loss in gold. And those were the two key drivers at the time.

We saw carbon efficiencies down to, how much Jaco? You'll have to refresh my memory.

[1.17]. Sorry, carbon efficiency?

Carbon efficiency, yes.

The carbon efficiency's dropped to about 60%, you need that above 80% and that is constantly staying above 80% [at this point].

And I suppose that is something that afterwards was a concern for us, is the fact that, and maybe it's also because it was the commissioning of a new plant, it wasn't anything to do with the -- it wasn't to do anything with the operation of the flow plant, it's nothing to do with the operation of the actual mills, it was to do with the metality and key component being carbon inefficiencies. So it was manageable.

A concern that we had was whether the float reagents were having an impact on the carbon efficiencies. Were we having clouding of carbon, etc? And that turned out -- and that was a question that remained unanswered at the time when we started doing test work. And as it turned out the impact of those reagents is negligible.

Just one other thing. Could you just give us an idea of what's happened with cyanide prices?

Jaco, what happened with cyanide prices, I know our costs had come done?

It stayed the same, yes.

Some of our chemicals have actually come down a little bit and I think steel's also come down a little bit.

It's basically (inaudible)

There's been a change in the pricing regime with some of the monopoly suppliers where they're restricted from import parity pricing, they've got to do it on an export parity pricing basis.

An advantage that we have, I suppose at this stage, is the fact that energy associated with oil which is your delivery cost and so forth, oil is cheap so diesel is cheap, so you don't see that price volatility or that passing on of price increase in deliveries.

With chemicals and steel, similar scenario, steel prices are pretty much tanked, so those are down, or at least they've stayed flat. Chemical's also on the pricing regime.

And then we managed to extend our labor wage agreement by a year, so that's been locked in, we can pretty much plot that. The only uncertainty at this stage is what's going to happen with Eskom pricing, but there too our exposure is so much lower than many of the other companies, I think we're at about 16% of total cost, it's electricity cost.

If I could just --you mentioned a tail grade of 0.03?

Yes, sorry that's a drop in the tail grade that we're seeking, not the tail grade. Yes, sorry, Jaco, you're absolutely right.

So let's say, it's not the tail grade itself, that's just the improved efficiencies which flotation of fine-grind was specifically designed to do, was to reduce the tail grade by 0.03. So with 2 million tons that's 60 kilos of extra gold.

[Adrian Williams], AVR Capital Just a quick question. Can you give us a bit of guidance on where you see production for your full year?

And 4,500 kilograms, does that sound about right, if you keep your yields flat at about 190.

We're targeting roughly 145,000 ounces at this stage, I think, is the range within which we're targeting. We're on 76,000 ounces, so we need another 70,000 ounces to get to that. So I think the lower end of our estimate at this stage is about 145,000 ounces/146,000 ounces.

Allan Cooke, JPMorgan. Could you just explain, there seems to be a mismatch between the capacity at the high grade circuit now, post that expansion. If you go to 2.1 million tonnes, what happens to the flow for fine-grind, because that can only be 1.8 million tonnes?

Yes, we won't be able to put the entire feed through the flow plot, we're restricted to 1.8 million tonnes.

So that's -- the material from the fundate, for example, goes straight to the low grade CIL?

Well it doesn't necessarily have to be the fundate material but it could be from any of the three lines, yes, but some of it would go straight into CIL.

Okay, so you'll still be doing, assuming you run all three float banks, 1.8 million tonnes, through that circuit, is that correct?

That is correct yes. And the feasibility study was also done on the basis that it doesn't go through the float circuit, so there are [384,000 in a kilo], that's assuming recoveries that don't benefit from the float circuit.

Which is what, 50%?

No, that's lower, that's about a 42% recovery, between 40% and 42% recovery.

And if you decide at a later stage to increase the capacity at the high-grade circuit, what would that cost, roughly?

We won't do that, it's a really -- I suppose we could increase the float cells because we're only using, what, about half that building at this stage.

We do have a fourth bank now, that can be refurbished, but at this point in time whatever number I'm going to give you will probably be outdated by the time we do that. So, we'll have to do the full feasibility on that study to understand exactly the capital cost for that. But there is a fourth bank that we can refurbish to take it up to 2.4 -- Ergo was designed to do in totality 2.4.

2.4?

2.4, yes.

The other consideration, though, is that it's not just the capacity of the plant but it's also the capacity of your tailings dam. You've got to manage that rates of rise very carefully because there's a lot of material going up on to that dam. And something like that would probably form part of an expansion of the tailings facility footprint as well.

There's a whole site almost the same in size, well maybe not quite, but a substantial portion right next to the Withok tailings dam, that used to be tailings dam but Anglo has -- they have re-worked. And it's a licensed tailing site, but that would have to be refurbished as well, or that would have to be recommissioned ,rather, in order to take up this additional flow on an ongoing basis.

So you could have your little spice of 2.1 and so forth from time to time but you don't want to run it at full capacity and saturate your tailings dam prematurely.

And then just the last one. I think I got it right, you said when you start up the circuit it adds about ZAR14 million a month, is that all three banks?

That's all three banks, yes.

So that's to add to your operating cost?

Correct, yes.

Thank you, Niel.

It's about ZAR7 a tonne on total throughput, yes.

So the first question is on the ERPM sale, do you have any concerns re the fulfilment of suspensive conditions? One.

Well the only suspensive condition outstanding are the regulatory conditions and we don't see anything out of the ordinary there beyond the receipt of the required funds.

We've been given assurances by the buyer that they do have the required funds and this was done after an extensive due diligence by the funders, I think they were onsite three times. They also put a fairly substantial deposit on risk into the transaction, so that is -- about as far as the assurances that we've got.

We don't work any of that into our cash flow forecast or expectations at this stage, though, so we'll see the money when we see it, but there's been some assurance given of availability of funds.

When would you anticipate the payment of these funds?

That will happen on the ERPM sale, that will happen once the last of the suspensive conditions have been fulfilled, in other words once the DMR says that the deal is a go.

Do you have plans as to how to use these funds?

Yes, we'll pay off debt, if there's still any debt outstanding, and then we'll look at what our cash balance is. We want to maintain about a month's worth of working capital. And then depending on what the share price is, we'll either pay dividend or we'll ask the board if we can buy back some shares.

Alexandra Wexler, Wall Street Journal. You mentioned that Eskom is one of the biggest challenges that you're facing and that running the diesel generator isn't really economically viable. So are you looking into any alternative energy power sources, or what's the long-term plan there?

Most of the in-house power generating plans that we have are conceptual at this stage. I suppose the most realistic of all would be the gas turbine. There's a gas line from Sasol that runs past our doorstep and once an adequate supply of gas from Mozambique is secured and sourced we can approach them and say, can you give us x, was it gigajoules, is that the term that you use, of gas supply, and we could put up a turbine.

It's not that difficult to boil water, it's just a case of getting through the regulatory issues and so forth, and if the supply's there, the supply's there. Ask anybody who lives on the gas line in the northern suburbs.

Does that answer your question?

Yes.

Also, I think insofar as the Eskom situation is concerned, it's more the uncertainty, it's more the perceived risk. You've got good days and bad days, we've had a few good days, tomorrow could be different.

Right, I think we're all done. Thank you very much, everybody. We're going to be around for a while still if you want to meet any of the operational and other executives.

So we've got Riaan and Jaco here. Henry Gouws, who's the Management Director of Ergo, he's sitting at the back. There's Mark Burrell, he's the Financial Director of Ergo. You've got Bruce Ebell here, he talks in a language that I don't understand, he's head of our research. And then there's [Wayne], who makes sure that everybody shows up for work and they get paid on time.

Good, thanks very much.