DRDGOLD Ltd (DRD) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you very much for attending our Interim Results Presentation. Myself and Riaan will be presenting. Jaco is also here to answer some of the more technical questions as is the remainder of our operations team. You can ask them anything you want and they will then decide whether or not they will give you an answer. So we're going to be focusing really just on the operating and financial results of the last 6 months and reflecting maybe on some of the things that we done prior to that, that have set us up for these results and then we'll also talk a little bit about the transaction, Sibanye-Stillwater transaction and hope to give you some color on that as well. If you'll consider our disclaimer, forward-looking disclaimer, I'll give you some time also to look at that picture which is a really nice one, future of mining.

So highlights for the quarter or for the 6 months rather, am I pointing this in the wrong direction? Seem to have given up on us, there we go, all right. So we're very pleased with these results. If you compared these with the results leading up to the end of the financial year, then you'll see that the trends have been very, very favorable. We spoke a lot at the last presentation, the year-end presentation about all the things we did to set up the business, to reset the business both insofar as its cost base was concerned as well as its focus areas, moving from the West Rand more towards the Central Rand, the ZAR 70 million on costs as a consequence of that move, the changes that we made to the management of the plant and how we saved on some of the reagents as a consequence and also started seeing more stable production coming out of the plant or performance coming out of the plant, and also the Central Water Facility that allowed us to reach virtually every corner of our operations and that as you'll see later on in the presentation is still having a very significant effect on the amount of water that we using from potable resources and the cost of that water, but we did see a very healthy jump in operating profit [back] to over ZAR 200 million.

We saw a drop in all-in sustaining costs and that is a function of production. Production dilutes all-in sustaining costs like nothing else. We are pleased with the cost per tonne as well though. We've managed to keep those costs very, very much under control and that is as a consequence of a tighter network of assets and also some of the savings that we managed to bring about in the 12 months prior to this financial year. A very significant jump in headline earnings. I think it's more than the entire year, last year if I'm not mistaken. We saw some free cash inflows despite the drop in the gold price, very healthy cash inflows and that's what we're all about. I mean, our business is set up to generate free cash flows because we pay dividends and we want to maintain an uninterrupted dividend flow, which takes us to the next slide or the next point there. We've declared an interim dividend of ZAR 0.05 because our approach to dividend payment is, we look at what our near-term capital requirements are, we try to maintain a safety net. Depending on the state of the business, that safety net could be -- might have to be very big, but sometimes it could be smaller and the trends are very -- the trends are the telltale indicator for this all, informs this decision, and also the immediate outlook for the business inform this decision.

There's the point about the externally sourced water, which is a consequence of our Central Water Treatment Facility. And then, I think a very, very important one for us and there'll be a lot of questions about that hopefully later on because we've got more information today about that is the acquisition of the Sibanye-Stillwater assets that we hope to take to shareholders next month and we hope to be up and running sooner rather than later.

And then, we also spend a bit of time talking about the dispute with Ekurhuleni, the interdict that we had against Ekurhuleni was dismissed last week by the Constitutional Court. Constitutional Court thought that the issue as to whether a monopoly supplier ought to be allowed to withhold services pending payment is not a constitutional matter, maybe it is, maybe it isn't. Be it as it may, the line that we are taking is we are not going to be paying all of this money quite yet. We've managed to get an interdict against them, the Municipality that was set aside, but that was on one set of circumstances. Now we've taken a slightly different look. That interdict was based or premised on the [agreement] that Ekurhuleni is not supplying us. [Recommending to become] on that basis, again, but just looking at a sort of a broader set of facts and circumstances, the manner in which the surcharge is calculated, the account entries that we see in terms of the Municipal Systems Act and how that needs to overlap or at least align with constitutional principles, we believe that there is still some fight left in us in this regard. So over the next few days, we will be tendering payment of an amount and then we'll inform the market as to what that amount is, but it's certainly not the ZAR 120 million that's being held in trust and we'll then invite the Council to engage with us on the basis on which we believe that the rest of the money should not be paid at this stage and then we'll see where that goes. Maybe we will have another round in court depending on the stance that they take.

Okay, so just on the operating review, some of the highlights here, you can see that the volume trend is slightly down, but the combination of better grades which -- or better yield, which is a function of both slightly higher head-grade, but also a plant that's performing really well. So production go up quite a lot from just over 2 tonnes in financial 2017 first half to 2.3 tonnes for this financial year or for this period. On the sustainable development side, this is a very important aspect of doing business in a big city. You can't be a nuisance, so you got to make sure that you don't cause discomfort or inconvenience to the communities living around your operations. So the environmental spend again was high ZAR 19.4 million and this is where it will be going forward. We saw what we call dust exceedances, basically means that we've got [just over 90] dust buckets or collection points scattered across our operations and areas of influence and then we measure these and there's a certain threshold that we don't want to exceed, but that these buckets could be as reliable or as precise as you want them to be or choose for them to be. The fact is that they give us a very good indication of the trends of dust dispersion from our infrastructure over time. We set ourselves a target many years ago to half the number of so-called exceedances every year and we are comfortably sticking to those and it's now basically flattened out, it's plateaued. Most of the areas that cause dust to be lifted from our tailings dams onto surrounding areas have been vegetated and we followed a process in terms of which we designed the vegetation program with regard to prevailing wind direction and it’s been a very, very successful program for us. The Crown Tailings is just next to the highway on the way south is a very good example of what can be done in less than 10 years.

Program will continue until about 2022, if I'm not mistaken when all of the sides of the Crown Tailings Complex will be covered as well as the tops and then of course, there's some of the other infrastructure areas also where this is ongoing like Daggafontein way out in the east and also the Brakpan tailings dam. I made the point of reduction in potable water. It's is very much in line with our philosophy of sustainable development. The last thing about this, of course, is that by saving water to the extent that we do, we are not just saving water, but we're also saving costs and I think the annual saving calculated on last quarter's numbers was about ZAR 24 million just on water. So the initiatives from last year, cost-saving initiatives take us on the -- north of ZAR 100 million in costs. At this point, I'm handing over to Riaan to take you through some of the financial numbers.

Thank you very much, Niël. Good morning ladies and gentlemen. With that excellent operating [theme] foundation, it is really looking forward to take you through the financial trends and also the financial results for the 6 months ended 31 December 2017. Operating margin very healthy 17.5% for the 6 months. As Niël has explained, very much influenced by the 15% increase in average yield to the comparative period, but it's -- and that despite of a decrease of 4% in the average rand gold price received to just over ZAR 547,000 per kilogram. The other factor obviously playing in on that, that Niël has already alluded to is the cost. We're very happy with where our cost is trending and the cash operating costs period-on-period has only increased by 4%. So, a combination of those factors gives us a very healthy operating margin.

All-in sustaining costs margin obviously takes all those good things already into account and then adds a couple of other points, for example, corporate costs, which has decreased for this period and then it takes sustaining capital expenditure into account as well and a point that I want to make there is along the lines that Niël has explained around integrated thinking and sustainable development, we're not holding back on capital spend at all. So we're not depleting the business of any necessary capital, we actually give the required [return] not only financially, but also from an integrated thinking point of view as Niël has explained around water, so the environmental impact. So, our sustaining CapEx spend is up despite that, leave us with a healthy all-in sustaining cost margin of 8.7%.

Obviously, all the good results we ultimately want to see in cash flow, which we were able to do so this 6 months with free cash flow ending up at ZAR 63 million. Yes, partly some of it was a release of working capital, which very much influenced the prior periods, but mostly from very solid operating results and despite spending capital, which I'll point out later on the cash flow statement. And then yes, as Niël has explained actually a very [almost ZAR 0 per share for the last year, but negative ZAR 2.4] headline earnings per share for the comparative period. So a multiple increase to the [ZAR 14.3] per share that we are reporting this period.

Take you briefly through the statement of profit or loss or income statement. So revenue has increased by 6% period-on-period, which is a function of gold sold that have increased by 10% offset as I've mentioned by a deduction or reduction of 4% in the average gold price received. We have very much cost of sales stable period-on-period, there's some volume process adjustment there, but costs we feel very much under control, [it helps] our gross profit from operating activities to ZAR 115.2 million for the period. I mentioned corporate costs, administration expense and general cost decreasing. A large input in that line is the long-term incentive scheme expense based over a long period but its influenced by movements in our share price, which has come down period-on-period. So that has resulted in a smaller expense going through the income statement. Finance income fairly stable. Finance expenses as you would know, most of that non-cash, you'll see that on the cash flow statement, it’s very much an unwinding of the environmental liability obligation period-on-period and then yes, the consequence if there is a profit normally, you see some tax on that. For us, a very small portion of income tax. The majority of that charge through the income statement relates to deferred tax which you also see on the balance sheet. I mean at least as for the profit for the period of ZAR 60.6 million.

In the statement of financial position or balance sheet, very stable period-on-period, just briefly highlighting a couple of points. So that's a consequence of capital spend and depreciation for the period almost equaling one another. So the PP&E balance staying fairly stable. Good growth in our investments of about ZAR 10 million period-on-period. Healthy increase in cash and cash equivalents, which I'll elaborate on the cash flow statement in a moment and overall current assets, maybe current liabilities increased period-on-period, but both -- so it still leaves us in a very, very stable current ratio of 2.1. It could be a function of the profit for the period that has gone through the ZAR 60 million and obviously the dividend, final dividend from last year that we've declared goes through equity and [winding of the rehab charge], the interest chart going through there. There you'll see the increase in the deferred tax liability of the charge, which sets in the income statement. And then other non-current liabilities, a small finance lease that's regards to our [JSE at Ergo] and then the other bit of that relating to employee related obligations. Also, the short-term portion of that in current liabilities. So a very stable, a healthy balance sheet and again to point out no external loans, so debt free from an external loan perspective on the balance sheet.

Cash flow statement, well, I've alluded to in the free cash flow, you can see a marked increase there on cash flows generated by operations, yes, partly as a release from some working capital that was built up in prior periods, but very healthy operating results and as you've seen in profit as well as driving those cash flows. They have alluded to the interest paid, the cash portion very small in relation to the charge that goes through the income statement and the same with tax paid. So I'm going to pause for a moment on that line and again just put into context what Niël has said. So we spent ZAR 86 million on capital for the 6 months. So the ZAR 63 million free cash flow is after we've spent that money. And one excellent example that Niël has alluded to is the Central Water Treatment facility. So we've invested in that capital in prior years and that's resulted in a marked decrease in yes potable water use from an environmental point of view, but it also resulted in a 41% decrease in the cash cost of potable water that we need to pay notwithstanding a 13% tariff increase. So again just illustrates that we want to set up this business from an integrated thinking sustainable development point of view. So we're not scared to invest in capital as long as those projects give us the required return, hopefully financial, but also for the other capitals in our integrated thinking model. We'll keep on spending on environmental as Niël has alluded, the Crown Tailings Complex, we'll continue with that vegetation program into the future. Small finance lease and then that's the dividend I alluded to that we paid obviously in this 6 months period that's [paused] that was declared from the results last year. So a healthy ZAR 40 million increase that leaves the group with cash and cash equivalents of just under ZAR 300 million at 31 December 2017. I'm going to hand back to Niël now.

Thank you, Riaan. So just in some of the things that we'll be spending time and energy on in the few months ahead. Okay, it's a little bit too far ahead. Riaan took you through some of the capital numbers. 2 of the big projects in the 6 months that are nearing completion, for the zinc precipitation circuit, which is aimed at increasing ultimately throughput capacity by freeing up the elution circuit. And also, I'm told and asked my colleagues about this is that the technology allows for almost batch treatment. So the recharging of our solution with heavy metals is something of the past and it might be a nice little synergy also that can develop between our current infrastructure and that which we intend to build in the [fall wasteland] because of the addition of this. Nice little free flow exhaust system that's being added to the end of the Ergo metallurgical circuit.

We're also putting 2 mills, moving them from Crown to Ergo. Those are virtually ready to go and the reason really is that there are more and more of these high-grade sand deposits, none belong to us, belong to landowners that want to get rid of them, they want to clear their land, open it up for development and they got no way to go with this really. So we've been able to source some of this material into, we say deep plant and most of it is in the East Rand, so by setting them up here, we do anticipate bringing in similar kind of material, but maybe at higher rates and also at lower costs because there is a big saving on transportation cost and this is stuff that we receive over the fence. We don't mine it ourselves, we receive it over the fence.

And then a lot of time, effort, and enthusiasm going into the Sibanye-Stillwater transaction. Circular is about to be circulated and we intend to also have information sessions to just explain some of the key features of this circular and what we intend to do with this project going forward. So just looking at it from a execution perspective. So clearly for us in looking at this transaction as a whole, we've been earning enough free cash over the last 10 years to pay dividends without interruption. We're going into our 11th year of uninterrupted dividend payment. [Few] years ago I think we were the second highest dividend yield on the JSE depending of course on the months that you took into consideration.

So if there is a lot of free cash, then that goes to shareholders, not what we have goes to shareholders. And I think it was important for us to structure this transaction in such a way that we could indicate to shareholders that the earnings per share, the dilution in earnings per share because we're looking at a 38% initial dilution in equity, that 38% dilution will either be offset or improved upon by near-term cash flows coming out of this project. If this was a project where we'd only start producing gold after 5 years and very significant capital expenditure, it was going to be tough to convince shareholders that it's worth their while to simply just take this dilution and wait out the 4 or 5 years, you rather just get out now and come back in 5 years. So we wanted to be sure that the numbers stacked up to where we could go to shareholders and say that you will not have a significant dilution of earnings, not even from the word go, or if there is one, it would be short-term because we're setting up in such a way that there will be cash flows coming in, in the very short-term. We also wanted to ensure that we could go to the existing shareholders and demonstrate that the answers that we bringing in are value accretive and something that's maybe not entirely appreciated, but that will hopefully become clear once the circular has been distributed is just the quality of answers that are coming, that's coming on to our portfolio. So at the moment going forward, we have a certain anticipated hit rate that sustains our life of mine plan and our reserve statement, which is sort of on just south of the 0.3 gram a tonne mark. So out of that, we anticipate with current technologies that we have and engineering infrastructure to recover roughly 50%. We're doing better than 50% at the moment because we are still -- we still have a benefit of the nights for example, we still have the benefit of bringing in slightly higher great materials from here there and everywhere, but in the long-term, the reserve statement that sustains or the ore body that sustains our reserve statement, it’s just south of 0.3 gram a tonne. Recovery of that, of those reserves, those ounces around 50%. If we manage to bring this new resource into our reserve and resource statement, the average grade here is between 40% and 50% higher. So we anticipate, and this will all depend on test work as we go along and I don't like calling the cost per ounce or the cost per kilo before I see the goal on the table and I think my colleagues share that sentiment because it is a highly concentrated environment that we find ourselves in, but just looking at history and looking at the numbers and our past experience, we do anticipate recovering a higher percentage of the ounce per tonne out of the new resource than we anticipate recovering out of our existing resource. So the quality of ounce is better. So although there's only a 92% addition to our reserve statement, we are likely to see a better than 90% improvement on ounces recovered over life of mine.

Something that's very important to us, I think also was execution risk. The reason why this project is maybe come from goldfields of Sibanye and -- is now ending up with that, is the capital charge to get it up and running from the outset was very significant and I think if you are in an environment where you have a whole host of capital priorities or projects that require capital, then to spend the sort of money that was initially envisaged for a dual product stream, very large plant, very large tailings dam and so forth, it was going to be difficult to justify that capital because, in the realities of our operating environment, you earn your capital. You don't just give capital and say, C'est la vie and go and have some fun spending money on currency tools, you got to earn your capital, you got to be able to demonstrate that you are able to generate a yield, an adequate yield on the capital that you spend and that the leads and lags on the execution et cetera, et cetera, that those are justifiable, that you could, that your shareholders are comfortable with it and if you have one ore body where if you could spend ZAR 2 billion, you could be in operation and by opening up a few new panels or going down 1 or 2 levels can be up and running in a few months and you've got to then compare that with the project where you are going to be in construction 3 years or 4 years, spend all this capital and you are going to be producing less gold than what you are getting out of one of your panels and one of your mines, it's tough to justify that to your shareholders and to your board.

I think what Sibanye has allowed us to do here though is very innovative, the infrastructure that we are acquiring as part of the transaction allows us to get going to start producing gold, without having to spend all that CapEx. And the period of time over which we then look at whether or not this larger project [the 250 million tonne] Phase 2 project is a go. That project also allows us to look at a whole host of different permutations, of different scenarios, just the volume throughput, the right blend, the configuration of the plant, do we need to build a big tailings dam right from the word go or might there be other tailings with position space available -- become available over time.

So we can ease into Phase 2 while generating cash flow out of Phase 1 and I'll take you through some of that. Phase 1 can be up and running in less than 12 months after the deal is completed and you saw the pro forma numbers coming out the other day. Obviously, those are sort of laboratory test assumptions et cetera, et cetera, but it gives you a good indication as to just how -- what the potential of this could be, gold price and production numbers come together. And then, of course, as I'll take you through the rest of the slides. If we then don't get to do this Phase 2, what is the alternative? Where do we end up then? And it's interesting that the fair and reasonable assessment, for example, was premised on that scenario. Everything was thrown at this model in the fair and reasonable as you'll see when the circular comes out and it was tested in the final analysis against this alternative scenario assuming that there's no capital available, nobody wants to invest in the big project and we have to go back to the fullback scenario, where do we end up then? And it's against this, that we assessed execution risk and against this that we want to take this to shareholders.

The net present value of the alternative as opposed to the Bluesky optionality in the event that the numbers enable us to earn the capital required for the project. So this is what Phase 1 is going to look like. You'll recall, when you looked at the presentation that we did with Sibanye when we announced the transaction that there are a number of tailings dams coming into this portfolio, excludes the uranium surface resource. So the uranium asset is still with Sibanye and then I'll talk a little bit about some of the strategic considerations as to future equity participation and so forth and what role that plays or could potentially play in my view, but you will have remembered that as part of the dumps that are being purchased, there is a relatively high-grade dump, #4 dam, my apologies, #5 dump that's situated not too far away from the Driefontein 2 and 3 plants. So this will be the initial target. It's right there, right next to plant and reclamation station will built, pipelines will be put in. From there, pipeline [to] the #4 tailings dam, which was the big catalyst for us. I mean this is the one that really brought execution risk within a tolerable level, the fact that we managed to get the tailings dam as well.

Not a lot of CapEx. Based on all the contingencies and project fees and all the other stuff that are brought into these estimates, CapEx is ZAR 288 million. That assumes that we don't take advantage of the -- increase of synergy that I referred to earlier. So that's something that we'll consider as we get closer to commissioning and it also builds in a fairly hefty contingency, a project contingency. So after ZAR 288 million on this, we can get Phase 1 up and running between 400,000 tonnes and 600,000 tonnes per month production or throughput and it's a dump that contains average gold of 0.45 gram per tonne to 0.46 gram per tonne. And based on the Competent Persons report workings, the NPV of this is roughly ZAR 1.3 billion, which was the purchase consideration that we had, that we relied on or that we had picked the whole transaction on initially when we did the number, the share issuance that was going to take place.

Of course, [all other] mines in South Africa have seen a decline in share price since then. It's been pretty much proportionate although we find that [our doors] is opened up a little bit wider, both on the upside and the downside compared to some of the other mines. So it seems to be more of a gearing effect or a multiple and our stock price. That's maybe because of the trading trends that we're seeing on the New York Stock Exchange, in particular. I'd like the volatility and the liquidity. If you look at the number of shares that are going to be issued for this phase though 265 million. The number is well below the [1.3 billion]. So on today's share price, the NPV of this first phase that requires around [ZAR 250 million] to get going. We have positive NPV and look to put net positive cash flows in 12 months after the commissioning of the project, well less than 12 months if you consider the pro formas that were published last week or the week before. So during this period, this will take about 5 years to deplete, maybe just a little bit less, but 6 months into Phase 1, we'll start with test work on Phase 2, the bigger one and test work would involve bulk sampling from the remainder of the resources and really I've seen what is the best blend between all of these other resources and Driefontein #3 because Driefontein #3, which is just on the other side of the 2 Driefontein plants also has an average head-grade of just north of 0.45 gram a tonne. The others are lower, they are hovering around the 0.3 gram per tonne thereabout. You should have the statistics on some of the other presentations that we made. So we want to see just what is the optimal blend between Driefontein 3 and all of the others over the life of mine to have a relatively flat and predictable gold profile, production profile going forward. At the same time, we want to have another look at what the best plant layout is volume-wise, technology-wise et cetera, et cetera. And then just see what deposition options are available at that point in time. Are you going to build a very large tailings dam right from the outset and go for [a million] right upfront and work that capital down or the other disposition options, other volume throughput options and so forth. So it will be a very detailed look into what the sweet spot is between volume throughput cost, gold production, and capital expenditure. Of course, we are quite keen to do this because if we get this in place, it opens up the entire 250 million tonne resource and it establishes a very compelling long-term competitive advantage in that area in a sense that you could then consolidate the whole of that wastelands remaining tailings in the surrounding areas because you will then have a footprint on which you could build a large enough tailings dam to accommodate the tailings from all of those mines from Randfontein all the way through to the other side of Carletonville and we saw that with Ergo.

We built Ergo, what was it, 10 years ago, maybe a little bit less on an [HM] mine plan based on the Elsburg Tailing Facility. We've moved way beyond that by now. I think we've got another 10 years left after having been in production for close to 10 years. So once the infrastructure is there, once the tailings deposition facility and card infrastructure is there, then this thing sort of just feeds off itself because now you can almost [0 cost] new resources that you bring into, 0 capital cost just a pipeline, a reclamation station. The other capital, the big capital is already there, the factory has been built, the processing facility has been built, the deposition facility has been built and that's where this option, this model, although not the most attractive insofar as near-term cash flows are concerned certainly, if you take a 20-year, 30-year perspective, there is a very, very attractive option and to make a big difference also to the environmental impacts of mining over the years, over the 56-odd years that they've been mining in that area because tailings dams were intentionally built over [dollar mines] for water to leach into those aquifers and away. So that was the thinking in those days.

Now we know it's wrong, it should be done differently, you want to prevent that pollution plume into the aquifers, we don't really know if it has as profound an effect as it sometimes claim, but it just shouldn't be there, I mean it's as simple as that. We can take all of that away and clean up that entire area. There you the ZAR 2.1 billion NPV. We are specifically not talking about the CapEx numbers for those just yet because it is such a wide range. If you take a very conservative approach, build the biggest possible tailings dam with all the bells and whistles and so forth, then the capital numbers start looking a little bit intimidating considering today's gold price and our capacity, but then you can work it back very significantly to a number that even with what we have at the moment seems well within our reach. So we want to leave the capital discussion around Phase 2 out of today's discussion and we'll have follow-on discussions once the CPR and the Competent Persons Report and the circular are out because I think proper context is required to understand these CapEx numbers and a lot of water has to flow into the ocean before we get to that point where we say this is the number and this is the number because that's the return and this return earns the capital for this project and we think the market will be excited about it. It's a few years into the future.

Now this is the fall back situation, so if we get to that point 3 years from now where we need to pull the trigger on Phase 2 and the money is just not there, the environment is just not favorable enough, then this is the fall back situation, not our preferred situation, but this is as bad as it's going to get and that is, #3 dam now also comes into the equation and then the total resource that's mined is a 77 million tonne resource with the higher than 0.45 gram per tonne head-grade and based on the calculations of our Competent Persons Group an NPV of ZAR 2.7 billion, which is almost double our market cap and this we're buying for 265 million shares. So I think the fact that the downside looks like this in the event that we cannot exploit the full potential of the resource is something that insofar as execution risk is concerned and dilution of earnings over 12 years from now because this is how long it will take us to do all of this, both very significantly address those concerns. I have to confirm, I have to reiterate though and this has been the perspective of our management team, of our board all along, executive management and the board all along is we are not in it for the short haul. This looks very tempting, but you will find during this process that we are going to take a very long and a hard look and do whatever we can to get Phase 2 up and running. We don't want to be limiting ourselves to 12 years. Yes, it will be 12 very attractive years even at today's gold price, well within our reach. I think the CapEx in order to get from Phase 1 to this Phase is ZAR 300 million thereabouts, between ZAR 300 million and ZAR 400 million which has been working to this NPV number of course. So although this is a very attractive option and attractive for 12 years, we don't want to do the 12 years and be limited to only that, we want to do the 15, 17, 25, 30 years and set up the infrastructure capable of doing that because from a perspective of long-term value and full-on sustainable development that is a better option, but this is the downside scenario if we can't do that, hell of a downside. Right, so ladies and gents, that's the story and we'll be happy to take your questions.

(inaudible) can you just clarify something for me on this deal. You are asking shareholders to waive the requirement for an offer to all of them, but at the same time, you're letting Sibanye have the right to buy, control through the market up to 50%. When they get to the 50%, is there then the option of a offer to all shareholders to take up the company?

No, the waiver is not because remember the waiver or the compulsory offer threshold is 35%. So they will, they will cross the 35% right now and the resolution is then to waive it now, but taking it beyond to [50%, there isn't another waiver required].

Is that legal?

Yes.

Niël, from where I sit and correct me on what I'm missing, but you seem to be giving away or selling control of your company on the cheap to Sibanye. I mean that's how it strikes me. What am I missing?

It is -- I think it does appear like that, it's certainly something that's been raised by a number of people looking at the sort of the terms that we've announced up until now. I suppose what one needs to consider and then this is the way that I approached it is this is the price to get the asset. So, on the one hand, we have DRDGOLD, which is a good business, but it has a limited life of mine and it has a single asset and your share price trades not on -- your share trades not on what it is worth today, but what the market thinks it's going to be worth tomorrow and if you run your models, if you run, look at the sort of the growth multiples that are typically factored into that sort of calculation, then it's difficult I think on current gold price. To come to the conclusion that the share price is going to be stimulated by much other than changes in the gold price. Production forecast is pretty much a given, the costs are pretty much a given, it's a very predictable, it's a very predictable production and revenue flow assuming what your gold price assumptions are. So for this to become exciting for shareholders, you need movements in the gold price. Not much else is available to give it that impetus or that energy and at this stage, shareholders own 100% of that. The moment that we do the deal and assuming that Sibanye does not exercise the option just yet, for a 38% sacrifice in equity, our shareholders get to own -- existing shareholders get to own 68% -- rather 62% of a ZAR 2.7 billion NPV. Now that in anybody's language is value accretive. That is something that does give some impetus to the share price now. It's an energy source, an external energy source that provides some potential upside. In addition to that, assuming that we do see the gold price going to [rate], many of the prophets of gold say, it should be going with just silly levels of debt globally and fear of currencies being sustained by nothing other than sentiment, the fact that you've got a second footprint with a 250 million tonne resource, close to what's it 3 million ounces of gold and opening up the rest of that area, that too is a sort of impetus or energy source that could give better traction to your share price.

So you compare size prospect of what we've got now compared with size prospects and value with what we're bringing in and we can demonstrate to those shareholders that I'm not too concerned about issues of control or issues of who gets to say what and who's picture is in the front page of the newspaper, we could demonstrate to them that there is, in fact, the prospect, a very real prospect of much enhanced earnings and a dilution in ownership that is certainly not disproportionate to the value that's being achieved. So that's the one thing. The second thing is, this is how much the asset costs. If you want this asset, then this is what you are going to have to pay, this wasn't a competitive process in terms of which Sibanye said, we want you to bid and we'll decide who we are going to sell it. We went to them and said, we believe that this asset belongs with us and that we could provide value. So, yes, fair enough, you could have it, but because we also know that it’s a very attractive asset, one that is perfectly capable of being separately listed and justifying its own CapEx and you just saw that it is, in fact, capable of doing that. I mean, people can write out a check -- one fund can write out the check necessary to get the initial capital infrastructure up and running. It is capable of being separately listed where they could just term in what level of participation they want. Yes, you could have this, but we want to have a significant proportion of the future upside. We're not just going to give it away and because of just what the net cash flow profile going forward is going to look like, what your current asset base will contribute and what this asset base is likely to contribute, we want to be in a position where we could have a majority of that and we'll pay for it. I mean we've done a valuation on the asset, which I think just looking at the NPV of the fallback position was a favorable valuation from our perspective.

So we've done the valuation and we'll pay for the shares what they are trading at and considering that it might be right there at that point where we want to do Phase #2, the cost of capital is 15.5%, at least, if you want to raise it, most expensive way of getting money to do something is by issuing shares. So here we are avoiding all of those costs by offering a 10% discount and you know what, control is neither here nor there. Control is something that people write about and they get excited about, but once you sit there in the boardroom or in the engine room of the business, the guys who control this, so what, is he really going to feel differently about where the business needs to go? Is Sibanye really going to be a tougher taskmaster than our existing board, probably not because they set a very, very high standard for us. So if I were in Sibanye's shoes, I would have insisted also on at least that sort of participation or the option to participate on it. And then there is something else, you also have to as a corporate, look after your assets and look after your interests and I remember Sibanye and this is not something that ever came up in any of the discussions and (technical difficulty) don't know if this is foremost in Richard's mind in negotiating the deal on the terms that he did, but they have a very, very large uranium resource, which they paid a lot of money for and in order to process that uranium resource, they are going to ultimately also require access to a large tailings deposition facility.

Now, all the rights that they currently hold in terms of which they could establish that facility are rights that we now are acquiring. So if we decide to take the [bib] between our teeth and just run off and say to them, sorry, we're not going to accommodate you on this tailings dam, then, they would have just, then they would have sterilized the asset and that would be irresponsible because some of their shareholders, you're going to ask though, so what's now going to happen to your uranium asset? Why did you go and sell this asset to DRDGOLD and not make sure that you at least have access on to a tailings deposition facility, that they can do whatever they want with the trigger, the catalyst of [$100 million, $200 million] asset. So clearly there is some strategic consideration as well. Whether or not Sibanye will exercise the option at that time is entirely up to them and I don't think they are going to make an emotional decision. I think they are going to make a clinical, objective decision. Is it worth paying that much for the additional 12%? Are we going to see the cash flows? Do we have sufficiently solid a relationship with management and the board that they will build the tailings dam and honor the agreement that we have in terms of which we have the right to deposit or do we have to sort of rein them in a little bit.

So I think those will be the decisions. I am and it seems to be the thing that's foremost in many minds, it's the one thing that I'm least concerned about. Ultimately, these things are determined by one simple thing and that is, are you making money or losing money? Are you doing well? Are you making a complete mess of this asset base? I don't see the Sibanye team as it currently is making some sort of a silly emotional decision about that and that's only to bully. And he [also asked me] about this because I didn't ask him about it. We had a long discussion about how this thing is going to be structured and who's going to be doing what and so forth and I never raised the question with him and I think he probably wondered about that and he said, are there any issues that concern you about this for example, the equity split and so forth and I said, well, for us it's a leap of faith, but we think that we can do this well enough for you guys also to -- the standards that you measure performance that you'll be happy with what we are doing. And of course, if we don't do it, then we expect to be fired the way that we expect to be fired by our current board if we don't deliver value, but if not, we're assuming that you will let us continue with what we do and hopefully it will be good enough. Then he said, yes, there's one thing that I want to make very clear, the market needs to understand that we don't consider this to be an acquisition, we consider this to be an investment.

That's how I look at it. I don't think we're giving anything away. Leon is going to ask me exactly the same question -- he's bonded to you.

I'm not, I don't agree with you, giving away control of your company is a big thing. You talk about if we are there, we'll do this and we'll do that and as you know, you're not going to do anything, Sibanye is going to call the shots. Now, you are right in saying, well they are not stupid people, they will do the right thing for the company making money, but if you look at the track record of Sibanye over the last 2 or 3 years now, they've done a significant amount of very dilutive deals, all of them on the premise that it will ultimately deliver a lot of value and it may or may not happen. I'm not saying that they are wrong, but you could end up in a situation where DRD gets used as this mop up vehicle for other tailings businesses all across the world, PGMs, I don't know. I'm just -- so I'm trying to sketch a picture here that giving away control of your company is not nothing.

Well, Leon, what I had to measure up both personally and what we considered as a team is that risk so profound that we should settle for what we have and give up the opportunity to develop this asset which worst-case scenario offers an NPV of double our market cap, that was the question and you know what, I think I rather just take the risk on the -- at this stage, a possibility, but hardly a probability. They can if they want to, we can't stop them. So are we going to walk away from this opportunity only because we are afraid of what they might do, of course not, then you'll never do anything.

Sorry, Niël to carry on, I hear you and I'm not booting that but when you really get those values and I don't know what the gold prices are pointing there or the discount rates or anything but [2 point whatever billion] why is Sibanye not doing it themselves number one. Well, if you could just answer that first.

Look, I don't think Sibanye ever considered this project on the sort of from the vantage point, that we did, namely, let's do this incrementally, let's do it step by step. Their approach has always been and this is the way that it was initially pitched or discussed rather. Their approach has always been a very large tailings dam, dual stream gold, and uranium and I think that they simply just -- that they just thought that the likelihood that they were going to do this themselves in the short-term considering all the other projects that they've got because they built most of the platinum mines -- have the Stillwater deal, it's a team that can also only do so much. So what do you do? If you like the business and you want something done, then you go and buy another business that comes with a ready-made team that can actually execute it and by reserving the right to buy back control of the asset, they are almost achieving what they would otherwise have achieved if they just did it in-house. Also, remember that by staying separately listed, you could go and generate your own capital, you can go and find your own capital. You don't have to compete with capital internally with all the other projects that they've got.

Okay so, sorry if I'm arguing with -- just 2 more things, so what you basically just said is that they need you.

No, I don't think they need us. I think they just --

Can't do it themselves.

No, I don't think they can't do it themselves. Is they wanted to do it themselves, then they can, but here they are juggling 100 balls at this stage and they've got one team and here is an opportunity to achieve what they set up, what they want to achieve with this asset in the long-term without having to go and raise their own capital and without having to go and recruit their own teams and it took us 7, 8 years to really set up our plan to the point where we're comfortable that we are looking at all the different contingencies, you don't get these skills just off the shelf. They would have to go and actually recruit the right team to go and do this. So they like the team and they said, well, let's invest in this business and maybe it can give us the desired result without being a distraction.

Okay just the last one then, if that value is real, why don't you just up the price and not give away control?

What price?

So why don't you play more. I mean you say this is the price of the assets, take it or leave it. Why don't you just play more instead of giving away control?

It's not for sale on those terms.

Okay, that's what bugs me. They want to take control and then --

Leon, let me worry about the control. Why don't you just work out the numbers. If you want to take something away from this, take away the downside number. It's my job that's at stake, not yours. Any other questions? All right, that seems to be it. Anything from the -- nothing.

Ladies and gents, thank you very much. Nobody is allowed to leave until we've eaten all the snacks. So please join us for a tea and a few sandwiches. Thanks very much.