DRDGOLD Ltd (DRD) 2023 Q2 法說會逐字稿

Hey, everybody. Thank you very much for joining us for this results presentation for the 6 months ending the 31st of December. Before we start, just a few house rules. We will take questions at the end of the presentation and there's a chat box where you could post your questions, and then it will be relayed to me.

Joining me today is Riaan Davel, our Chief Financial Officer; as well as Jaco Schoeman, our Chief Operating Officer.

I'll review some of the initial slides, and then I will hand over to Riaan to take you through the financial performance. And then I will finish up with just a few thoughts on some of the moving parts as well as the looking forward as part of the presentation. And then the 3 of us will be happy to take any questions that you might have.

So we're going to go straight into the presentation. Give it a chance to just move on. You'll see these are disclaimers, so please just familiarize yourself with the content of the disclaimer.

And then moving straight into the highlights for the 6 months. You'll see that again. We paid quite a lot of income tax, ZAR 92 million as well as employee tax, ZAR 121 million. So we contributed just over ZAR 200 million again into the fiscus and still hoping that it will be spent wisely.

Revenue for the 6 months was good. It was up 6%. Gold price was higher. So we were in a position to place ourselves in a position to take advantage of that. Operating profit, slightly down, though on the back of an increase of about 10% in costs. And there's some more color on that at Riaan's slides.

Production was slightly down as well. I'll deal in my letter to shareholders with some of the dynamics that impacted on production. In essence, the plants were performing well, plant efficiencies were good, but volume throughput was a big challenge for us as a number of -- as a consequence of a number of events. And then I'll spend a bit of time on that as well to illustrate to you that those are indicative of events and multi-emerging trends. But there are a few things that require our attention.

And then you'll see that there was an increase in headline earnings of 8%. And as a consequence of that, we're in a position to again declare an interim dividend of ZAR 0.20 per share, and this makes the 16th consecutive year that DRDGOLD paid dividend.

We saw a very nice increase in the average Rand gold price, just over ZAR 960,000 a kilo. So even for mathematical illiterates like me, it's actually quite easy to calculate revenue. You just say it's ZAR 1 million -- or just under ZAR 1 million per kilo. That's where it's trending now. You multiply that by your tonnes, and that takes you to the revenue number, so hovering around ZAR 2.6 billion, ZAR 2.7 billion at current throughput rates.

You'll see that our women in mining number has also increased. 24% of total staff is women in mining. And these are in core positions and increasingly diverse makeup is also yielding rights with the dividend in terms of operating resilience and work ethic.

Socioeconomic expense, up quite a bit. You would have seen that environmental spend is down ever so slightly, but that was taken up by an increase in our socioeconomic development spread. And then you will probably start seeing a tapering down of environmental spend. A lot of that's gone into the past into cladding, into vegetation and so forth. And many of those initiatives are now nearing sort of the latter part of those projects, many of which are 10 years in the making, talk about the current tailings, for example, where vegetation is nearing the latter portion and also the Brakpan tailings -- the clearing of the tailings. So looking at production, as I said earlier, just over 2.7 tonnes, and that gave a nice boost to our headline earnings.

Moving on to the next slide and talking to some of the operating trends. So we'll just give the slide an opportunity to move. And the next one. So there you see illustrated what I was saying earlier in terms of volume throughput in terms of yield and the consequent production gold production at cargo.

So volume throughput was a challenge for us during the quarter. And you'll see in the letter to shareholders that I give some more color on that, some of the higher-volume sites on our nearing depletion. And as a consequence, a lot of the work that's happening there is the lifting of the floor of that particular site. You don't really know what the floor is going to look like until you get there. So a lot of that is done mechanically. So you'll see a tapering down of tonnes. But then typically, you'll also see an increase in grade because gold settles down at the bottom of the tailings step. So yields are up, but volume down. Of course, it wasn't only just that. There was also a few issues with electricity supply. We had a few trip-outs -- it's going trip out at the Brakpan rather at Ergo at our plant. Now because we're in the mining industry, we don't get cut off completely in terms of direct Eskom supply lines, but there is a load curtailment arrangement.

What we are finding though is that Eskom is also finding it increasingly hard to keep the lights on. And we had a number of trip-outs, especially towards the latter portion. Grids under pressure, I think there's also quite a lot of tampering happening with supply infrastructure, the criminal vandalism and theft of copper cable and so forth. And we're really looking forward to seeing some sort of decisive campaign being launched hopefully in the not too distant future due to curve the scourge of this criminal activity. Rain also played a role especially now in the latter part, these depleted sites.

They're not particularly accessible, like it's muddy, like it's wet. So rain also plays a role in distorting the flow or disrupting the flow of material. Of course, the supplier that gets the first price for nonperformance in the 6 months is the Johannesburg City Council, it's Joburg City Power, where our delivery into one of our key pumping sites. It's just been a complete mess. And as a consequence, we've decided to just come off that group and connect that substation that particular site directly into an Eskom substation. It's just not working in terms of maintenance, in terms of turnaround, et cetera.

So trends are better there, but this particular pump station is responsible for about 1/3 of the volume throughput into Ergo, and that impacted particularly during the course of December -- quite a bit on Ergos volume throughput. Now typically, what we do in anticipation of the depletion of sites, and I'm going to talk about the entity, the supplier that gets the second price will not perform for the period. Typically, as we near the end of the site's life, we would start gearing up the next site and we had 3 sites ready to go.

All of these sites, I refer to them in our letter, what are the sites required water is license. And that process started 3 years ago, and we got a belated supply in one of the sites just before the licenses were supposed to be issued and cleared of a change in technical standards for an emergency spillage that emergency products at these reclamation sites. Obviously, all of the loans get washed into a sample then come to the plant. And if there's an interruption in pumping capacity, for example, if there's no electricity in the (inaudible). There's still some slime moving towards this collection point. And in order to make sure that this slime doesn't spill into the environment, you have a rather modest in size containment paddock, and then the slime gets captured or the spillage gets captured into this paddock.

And then afterwards, it gets cleaned up, but we introducing to the system. The departments of water and sanitation has now decided after many, many years that these paddocks are also now required to be lined. And as I said, this is unfortunately a standard that was communicated very later in the process. And that's added about a month or 2 to the entire process. It's a relatively small fine in terms of inconvenience and cost, but it's really something that we would have loved to learn about maybe 8 months or 9 months ago.

Be that as it may, it's now being done, submitted. Redesigns are in place and now somebody just needs to sign that permit and send it to us and then we can start. Hopefully, it won't be later than March.

At another site, we had an appeal against the issue of a water usage license by -- it's an appeal that we believe was inspired by an external entity, but community was assisted in lodging this appeal. As it turned out, the appeal had very little to do with the conditions of the water usage license and to do more with sort of an expectation of financial participation in the project itself. We are now fighting the appeal, but under the water usage dispensation. The lodging of an appeal immediately suspends the issuance of the license unless the Minister sets it aside for listed suspension.

We approached the Minister in October of last year. And in January, that suspension was lifted. And that site is also now being commissioned and it will go into production any time any time soon. So the replacement sites are in the making. They're ready to go. Obviously, next time, maybe we'll start 4 years in advance to apply for the water usage license when these sites are nearing the end of depletion. But these are the sort of -- this is part of course, these are the sort of things that we need to anticipate and conducting business here. It doesn't detract from the attractiveness of the resource, we just need to get going, and we just about ready to get going. So the volume trend will hopefully change. We had this conversation in August. The volume trend will have different for Ergo. The yield than is going to look different as well, obviously, because we'll be back into high volume, so they will be slightly lower yields. But at the moment, indications are that we're still trending along on guidance. So it will be pretty much along the guidance slides that we gave.

So you can see where the production then came in from Ergo, just under 2 tonnes of gold. Moving on to Far West Gold operations, obviously, quite a lot smaller -- so at Far West Gold, the story is one of consistent tonnage delivery but a drop in yield. And the combination of 2 things. One, it is mining, a slightly lower-grade section of the #5 dam. But then also in terms of its load-shedding an managing or balancing load shedding, but Far West Gold actually switches off months during load shedding in order to say that 10% or 20% or whatever in low curtail beside of that or there's no under water pumping of water and the ground up in the quarter rather. And we can't afford that. It's important that we have a consistent supply of water. So the underground pumps keep running, number 10 shaft, right next to the Driefontein plant, but the mill gets shut for that period of time.

So you're seeing a slightly lower recovery, a client called plant all efficiency factor as a consequence. That -- having said that, the numbers are still good. Far West Gold still produce lot of gold and made us a lot of money. And some of that will find its way to our shareholders. Good. So looking at the -- on a group basis, you'll see the impact of the volume throughput and then the various issues that I just described to you. The yield was good. For us, anything above 0.2 is really good, and production in the circumstances, I think testimony to the level of resiliency that's been built into this business over time. It needs to be enhanced, especially on the electricity side. It's a new chapter in enhanced embedded resilience, which we'll talk to a little bit later. But all in all, considering we're not dissatisfied with the performance of the business. Everybody worked very hard, but that's pretty much what we expect and manage [developing] to these results. So I'll hand it over to Riaan now. I think we've reached the financial part of this. This is the financial review. And once he's done, (inaudible).

Thank you very much, Niel. Good morning, ladies and gentlemen. As always, my privilege to take you through the financial review. As you would know, we analyze this current period. So the 6 months ended 31 December 2022, with the comparative 6 months, 31 December 2021 in our analysis. And as Niel indicates, obviously, there's a lot more detail that we could probably necessarily in a presentation in our results look that we prepare with great care. So we encourage you to have a look. Obviously, our 34 financial statements are also in that booklet. I want to add on to what Niel said around the challenging circumstances. And from our point of view, I believe these are excellent results, taking into account some of the challenges. And again, I want to give credit to and say well done to the operational teams that's just through and ultimately enable us to produce these excellent results. In our 24 hours a day, 365 day-a-year operation.

So obviously, with the context that the voice burden provides around the tonnes and the yield and the cold -- from a financial point of view, explaining that in that context. So for Ergo, if we look at period-to-period. So that is 6 months, 31 December '21 or first half of the full financial 2022 years to this 6 months, there was a 9% increase in revenue, obviously, aided by the 11% increase in gold price to ZAR 961 per kilogram. And in that period, gold sold was down only 2%, which I believe with the challenges and the tons down and many things outside of our control, I believe, is an excellent revenue result for Ergo.

Looking at the cash operating costs, obviously, tons down 14% period-on-period for 31 December '21 compared to 31 December 2022. And that cash operating cost increase totaled 8%. Obviously, taking into account that the tonnes were lower and double-digit increases that we expected in our budgets coming through in our actual results. But overall, not a bad cash operating cost position for Ergo. And then for those of you who calculate (inaudible), the operating profit then takes into account movement in building process as well, which for Ergo was a negative ZAR 50 million for the 6 months, but still leading Ergo with a very solid operating profit contribution of more than ZAR 330 million. and very much in line with some of the previous periods. So a very good result. Our flagship operation with our more challenging complex operation, many sites, many clean up sites and some of the detail that Niel alluded to on the results.

Far West from a financial results point of view, revenue, marginal increase, basically stable period-on-period, as gold sold was down by 10% with the 11% increase in gold price to just over ZAR 961,000 per kilogram. Here, you can see the more clearly the impact of cash operating costs increasing as we expected. And similar to Ergo in all our core components making up our business, for example, cyanide, steel, steel-related products, transportation, obviously, electricity, making up that basket of costs.

So there, you could see an increase of 18% period-on-period in the cash operating cost of Far West. But still, if you look at what a contribution, it makes a completely different operation obviously than Ergo. But with the 2 together, a beautiful combination. So as you know, far we're single site at the moment close by, but they had an ZAR 8.2 million positive movement. So in combination left Far West with an operating profit contribution of just under ZAR 460 million for the 6 months ended 31 December 2022.

And if we look at the group financial trends, operating margin is something we track closely. And yes, it's always fighting cost increases versus gold price increases. And at the moment, a very healthy, just under 30% still, obviously, lower than the 33% that we saw for the comparative period and even for the second half of our financial year. For most businesses, that is still very healthy. And as you know, we do not hedge any of our gold sales and just try and optimize the daily gold position. And the cost side of it is something that we must always keep track of and try and manage that is under our control as best as we can.

So all-in sustaining cost margin, obviously built from the operating margin but then it adds the all-in sustaining CapEx. And here for me, which is encouraging to see -- I do not see that as a negative trend. There's also an increase in all-in sustaining CapEx. So for the comparative period, we spent ZAR 145 million for the current period, ZAR 236 million. And obviously, that impacts on the all-in sustaining cost margin, but still a very healthy 17% if we look at our all-in sustaining costs as a margin.

Free cash flow, similar impact if you compare it ZAR 115.4 million in the current period due to ZAR 46.9 million for 31 December 2021, impacted in the current period by more capital spend. So roughly just under ZAR 205 million more in the current period in both sustaining and growth CapEx. And most of the growth CapEx has come to a very exciting solar project. That's continuing at pace at Ergo. And then the overall result, our headline earnings per share, solid performance, I believe, at ZAR 0.623 per share, a 7% increase in comparison to the ZAR 0.58 per share in the comparative period.

Moving on to the income statement, the statement of profit or loss, as it's called now, with the 6 months ended 31 December 2022. Aa Pretorius already explained revenue, yes, it just looks at gold sold, which is down 5%, the gold price up 11% period-on-period, leaving us with a revenue increase of 6%. Cost of sales, the number there, up by 8%. Niel mentioned, cash operating costs is a big component of that by 10% period-on-period with some other adjustments in that line, leading us with gross operating profit stable period-on-period, just under ZAR 670 million.

Administration expense and other costs obviously something we track closely and something that we don't want to get out of hand, and we managed to achieve that in this period. Finance income, yes, slightly higher because of higher interest rates that we earn on our cash balances. Finance expense the majority of that relates to the finality of our rehabilitation obligation period-on-period. You'll see in the cash flow statement, the cash portion of that is very small. And then [income tax tracking]profits, as Niel alluded to, that's not the tax that current tax that we paid as a provisional payment.

That's a combination of current and deferred tax that obviously [tracks] the performance for the period, leaving us with a very solid ZAR 535 million profit for the period. Moving on to the balance sheet or stay with our financial position as it's called, like balances. So we can call it a balance sheet. Just quickly going through those lines. very, very encouraging property plant and equipment increase. And that's what we want to do. I would say that's good spend. So it's sustaining CapEx, it's growth CapEx in that line, but we're continuing to invest in our business to make sure it's sustainable into the future.

So a very positive trend, if you can spend money on property, plant and equipment. Non-current investments and other assets, majority of that in our rehabilitation funds, period-on-period, an increase of growth of 10%, which is encouraging. Also as part of that, our investment in Rand refinery reflected at [fair value]. Cash and cash equivalents, I'll explain quite some detail on the cash flow statement on the next slide. Other current assets and also on the current liability side, working capital stable overall period-on-period.

Then equity, simplistically, it's the growth in profit [based] dividends, some other small changes, again, in our booklet, and the statement of changes in equity setting out that detail. Provision for environmental rehabilitation. [Decrease] increase period-on-period. Obviously, remember at 30 June at our financial year-end, every year we do a reestimation based on our estimates that change based on life of mine and other rehabilitation estimates. But again, I want to emphasize that we are in the privileged position that present value of that liability that we carry on our balance sheet that we do have more environmental funds invested in our noncurrent investments line.

Deferred tax liability goes up, obviously, as we spend more CapEx. As you know, the CapEx regime in the mining industry that we can claim CapEx against profit immediately. So one way to look at it is if deferred tax goes up, it shows that there's a probability that there will be tax paid into the future, which means that the operation will stay profitable, which is normally not a bad indication.

And then, yes, total equity and liabilities just over ZAR 7.2 billion. And our current ratio is slightly increased at a very, very healthy 5.4 at the end of December 2022.

Then on the statement of cash flows. As I always say, one statement no investor can ignore and should ever ignore. This probably tells you the most about any company, stripped of any fair value changes, estimations, just talk about cash flow. So looking at cash flow for the 6 months from operations, a key indicator is the business is still viable and very much so between Far West and Ergo generated just more than ZAR 600 million from those operations.

Finance income, as I've mentioned, higher, based on interest rates higher and still a healthy cash balance that we carry dividends mostly from Rand refinery. And there you can see the finance expenses paid just over ZAR 2 million, much smaller than the amount in the income statement as that relates, as I mentioned, through the unwinding of the discount on our rehabilitation obligations.

Income tax paid that Niel mentioned as well, ZAR 92 million, specifically our first provisional tax claim. And then the number that I already mentioned on the free cash flow and some of it under all-in sustaining costs is the acquisition of property, plant and equipment, which is more than ZAR 200 million more than the comparative period, up by 112%. Indication of a healthy business, we have cash available, we will invest it in our business as we've indicated to the market, both in sustaining and growth CapEx.

In the dividends line, that obviously is the final dividend that we declared and paid based on our 30 June, 2022, results paid in September 2022. And overall, then we showed a net decrease for the period as a result of the investment in CapEx, increased investment, but still just under ZAR 2.4 billion in cash and cash equivalents, a very, very healthy cash balance. And obviously, looking at the solvency in our balance sheet and the liquidity available as Niel alluded to it, we are able to declare an interim dividend of ZAR 0.12 per share.

And then just a comment from my side on the share price before I hand back to Niel, some positive trends over the last couple of months, which is very, very pleasing to see from levels below ZAR 10 per share to its current levels. So it's good to see that trend in the share price.

Niel, at this point, I will hand back to you, as you indicated, to talk us through the ESG factors and also (inaudible) looking forward. Thanks, Niel.

Thanks, Riaan. I think everything is back on again, so I can go. So just in terms of sustainable development, maybe just on this term that we've now adopted ESG, maybe just, again, reiterate that I believe ESG is something that you do on your way to sustainable development. And having had a 12-year commitment to sustainable development, our story line is not too hard to bring into the sustain - into the ESG narrative.

So just looking at some of these drivers in terms of dust emissions, in terms of potable water, environmental spend and on tailings deposition. The vegetation of tailings deposition, I think these numbers is a continuation of the previous conversation, pretty much an update. I must say that -- but we are likely to see going forward is a further decline in the use of externally potable water. In terms of an arrangement to draw a little bit more AMD from the TCTA purification plant. So these are pretty much ongoing.

And as I said earlier, a continuation of the earlier conversation. We are starting to take that down on vegetation. The bulk of this is being done. [Plant tailings] for those of you that drive [faster] occasionally, you would have seen the transformation over the last decade. There's very little dust coming off those tailings. And we're now in the latter part, the last 2, 3 years of the final [vegetation]. But those parts of the dam that [are hit] by wind, they've been cared for many, many years. But I think quality of life, hopefully in that area as a consequence also reduced. A line that you would want to maybe look at going forward, total carbon emissions, especially now that our solar plants construction is up and running and ongoing.

So we really hope to have that at first phase at least 20 megawatts. To have that installed soon. Jaco could maybe talk a little bit about that towards the end of the presentation, if you wish. And then, it will be nice to see how that number comes down on total carbon emissions. Then moving on to -- here we go. Moving on to the next slide on our broad-based livelihood, -- so this too is a story that's been many, many years in the making. I see that we've bumped it up a little bit. A lot of that in terms of training, a very exciting program also with the University of Pretoria in designing a number of programs, which we could launch and roll out using our [DLL] or BBL rather platform or network, our social network as a platform and then for leverage to slightly more -- actually significantly more integrated and inclusive process and enhancing quality of life, taking a different view of your future, maybe lifting the horizon just ever so slightly.

And sharing this idea that by living in an informal settlement, (inaudible) has to end. There is, in fact, a life beyond that. The opportunities are there. So knowledge and a match, which is integral to our approach in this regard, it's also now finding finally its way into the social labor programs. In the past, we had to do this in parallel with social programs or plans. DMR really wanted some of the big things, big launches, buildings, infrastructure and so forth, whereas our focus was on alleviating abject poverty and taking that first step out of abject poverty because we thought that way was we going to get the best dividend for our investment and bringing out a measure of social stability in areas where we operate. We simply cannot operate in an ocean of anarchy.

So we believe that these are good investments. We're also finally seeing some of our candidates for many years who attended extra classes that we offered maths, science, accountancy, going through university on (inaudible) are now joining the company as employees, so a full circle, it's a delight to witness.

Then moving on to the next slide, on the regenerating communities. These things are now starting to start looking like businesses. There's a little micro economy that's starting to emerge of exchange of product revenues being generated. And I can tell you that the amount of food that's being produced right there on land that in the past was just not being used sustainably. That was just users rubbish -- value of land that it's not a place where you liters a place where you grow where you generate life. I think that is increasingly also starting to take effect that mindset.

And -- this would be, as I said earlier, this would be have a platform of which we could [deliver] some of the other initiatives going forward. There's nothing [point] about this. There's not a sort of like a total exercise and nice pictures. People are genuinely improving the quality of their lives and the dignity of being able to provide to a family that comes for them to delight to see. And moving forward, I firmly believe that the informal economy is what we're doing, ultimately, poverty alleviation and social development established there.

And a big part of what we're doing in terms of this program is now being launched. And (inaudible) also living at this, a very, very dynamic individual that drives this program (inaudible). She loves this, and she's also looking at some of these programs. And you imagine (inaudible) gets that massive [gap] obviously will accelerate. So lovely to watch.

Moving on to the next slide. So Riaan, can spend a bit of time on this on how we're increasingly aligning our reporting and our governance standards to this over and above what Gold Council and our sustainable development goals, you'll see that there's more and more being said. Actually, on the website, there's a very brief summary on that and how we're also developing our tailings management protocols to still be consistent with the local standards, but at the same time also increasingly reflecting the ICMM standards and the GISTM standards that have been driven really hard by the industry internationally. And we believe that it's a conversation that we want to be part of.

We believe that it's a very good initiative to bring about -- these standards established these standards and to enhance safety and with that the reputation of the mining industry, especially since we are going into a massive boom period now with the demand for the materials required for the transition to clean energy. And that being the case, it's important that these conversations are that they're sensible, that they are applied and that we establish a regime of appropriate standards and protocols considering the sort of risk that pose. And we definitely want to be part of that conversation. Our Chairman, in fact, attended the tailings summit that was hosted by the Church of England earlier this month or earlier this year rather late in January. So we have a seat at the table, but we are participating in that conversation to remain on top of developments, but at the same time, also hopefully influence the conversation.

And then in terms of looking ahead, so Nic has posted a question in that regard. So I want to be careful not to make forward-looking statements here, but we don't have to adjust our guidance at this stage. Again, you can jump in and maybe also make a contribution and answering that question. But yes, what we saw in the previous half were a number of incidents in the banks that we are in the process of addressing and the impact of which is [not] diminished. So the trending in terms of guidance at this stage, it's not such that we want to adjust our guidance downward, but that we want to, at the very least, maintain guidance, sort of midrange guidance in terms of both production and not change anything in terms of cost.

And I will talk a little bit about costs and some of the cost pressures that we've also had in the last year and then how that's been factored in and how we're experiencing that now as well. So the guidance for cost is basically where it is and consistent with what we've reported. We are adjusting capital investment down about ZAR 500 million, I believe. And that's really because of the rate at which we can [spend]. It's not that we've changed the capital investment many of the targets, but you can only invest at the rate at which you are actually rolling out these projects and money will be spent just be in the next financial year.

At [DRDGOLD], we're very excited about the completion of Phase 1 of the solar power plant and in anticipation of one of the other questions that was by asked by (inaudible) in terms of load shedding. So at Ergo and at Far West, all of those stations that are connected to Eskom power, there is no load-shedding. We did have the occasional trip out, especially towards the end of the period. But there, it's a curtailment arrangement. And what you do there is then just switch off parts of your circuit. In the past, typically, water pumping was preferred because that's something that you could do at reservoirs, you could manage your water balance.

With all the rain that we've had, it hasn't really been the #1 go to. We're going to keep our tailings that same could keep pumping water off tailings [stems] to manage the water balance and protect [free board] in order to make sure that they remain safe. So increasingly, you would have seen multiple example, getting switched to in order to save power. And then it also depends that at the -- at what stage you're in, whether it's a 10% reduction or a 20% reduction. So then, this was -- it doesn't happen often, but it did happen once. We were asked to not curtail and that was during Stage 6. And that was because Eskom was having a hard time just balancing our delivery. And they needed a consistent draw from the mine, so there was a request to not reduce. So it's dynamic.

What I must say is that as much as we criticize Eskom and (inaudible) the pet target for criticism, the engagement that we're having with the staff that actually manage the curtailment, which is done centrally, that's actually been pretty good. These people work really hard. Their technicians work very hard to restore power when there's been interruptions. The maintenance has been lagging, that's being caught up now any instances in terms of the group. So it's not an easy job.

Oftentimes, they have to work in areas where they get attacked. Cable theft has now become cable robbery. People getting shot at in order to sort of paying the way for cable theft. So I want to give credit where it's due and Eskom and its technicians working really hard to manage this aspect. I want to express a view on the Board, some of the policies and some of the past practices. It's a tough job that tests a tough job. I think he's done pretty well and sort of just finding a way through this legacy this hospital part that it was built. But there's some very, very good people still working at Eskom, work really hard to keep the lights [on] for South Africa.

Having said that, we're very pleased that we're now moving towards the solar power project. Not only will it alleviate the risk of interruptions in supply. It's cleaner power, and it will also bring certainty in terms of the cost profile going forward. Cleaner power in the sense that (inaudible) spikes and dips that has an impact on our instrumentation. And ultimately, I do believe and you will see that I referred to that in my letter to shareholders, ultimately, when the political stranglehold on progress in this regard, when eventually, it's no longer a [drought.] And I think it's only a matter of time when it won't be around, we're going to be able to participate in the private sector delivering back into or supplying back into the grid. That's the size of the infrastructure that we're putting up here. And in order to restore the electricity supply balance in the country and they're part of, once again, growing the economy. I think there are just a few there just a few individuals that are still building fast to this whole idea. This notion of the government monopoly on the supply car needs to be attainable costs.

The -- giving them the benefit of the doubt, all the kindest words, sentiment that I have in that regard is that maybe it's ideological. The state has to be involved in everything. (inaudible) that there's a lot of money to be made if you are conveniently placed or strategically placed in terms of coal supply, diesel supply contracts with external parties, et cetera, et cetera. These are something can be so I wouldn't pay too much attention to that. But eventually, we're going to work through that and the private sector and what's left at the utility will collaborate.

We will get electricity back to where it's needed. I personally believe it's going to be a little bit more regionalized [person] also believe that we probably are looking at certain dark spots developing in South Africa, where it has become unsustainable to continue to go back and put back a cable that was stored in the month before and continue supplying communities that simply just don't pay municipalities that just don't pay -- and eventually, maybe the [best] that somebody living in those areas can help for as a panel in 2 clubs, and not much else, maybe a small screen.

But I just will the [light of we] cannot see how this could be sustainable. Repeatedly, you have infrastructure that gets installed only to be still in the next[day]. So it's either dark spots or somebody deciding maybe we should do something about the criminal element systematically destroying public infrastructure, sample Transnet Be that as it may, hopefully, by the end of next year, we will have 60 megawatts of solar power capacity and very significant battery storage capacity hopefully by then. The regime would have become lighter, sensible, more accessible and they could be supply back into the grid and also the [welding] offset arrangement where we could get the benefit of our contribution being drawn somewhere else, both DRD and also Sibanye, some of the units.

So in terms of volume throughput, I did mention that we had the issues in terms of delays. So with (inaudible) hopefully being commissioned in the near future. That trend will reverse. In the meantime, what we're seeing coming out of the it's not disappointing at all.

And to the next question. So if there's going to be an adjustment to guidance, it's not downward at this stage, what we're experiencing at this stage. In terms of Far West gold recoveries, they're moving on to the second dam. Driefontein 5 is nearing completion. Driefontein 3 is next up there. And that should also be before the end of this financial year that some material from that side will come through and you would have seen a slight increase in the cost there obviously to move from one site to a second site and still well tie of Ergos 15 active sites or sites where there is activity. but that typically would have initially at least until stabilized and everything is now off one side would have an impact on the per tonne unit costs having 2 distinct teams working to distinct sites.

Then maybe just in terms of what we're looking at towards costs. So I'm not really going to go into the sort of details that will place me at the risk of making forward-looking statements, but maybe just reflect a little bit on some of the cost pressures that we've had and some of the trends that we have witnessed in the past. The increase in the natural costs, the number that we spent, the ZAR 1.8 billion plus that we spent and the 6 months of this period. That number is consistent with what we budgeted for.

And so we factored in some of the very steep inflationary impacts on some of the key consumables and other products that we use. And there's a lot of material that's being is a lot of activity that involves trucks and back actors and front-end loaders and so forth and see the massive [feet] moving stuff around. And these contractors witness an 84% uptick -- a little bit more, in fact, move in the price of diesel. So obviously, that had to be factored in as well. And there was -- and it was sacrificed on both parts and you do then reflect on what's really necessary and certain things just no longer happen.

But the fact is that there were these inflationary pressures that we would missed last year. But it appears to have moderated now. So it was (inaudible) and it's -- I wouldn't quite say that stabilized, but we're certainly not seeing similar trends now. Hopefully, it's plateaued to an extent. The one that we are a little bit concerned about is cyanide. We are probably one of the largest users of cyanide, consumers of cyanide in South Africa, if not the largest. And then we've seen, in our view, an artificial adjustment to the price of 77%, which we think is just wrong, if not illegal. And that is what we believe in anticipation of the transaction for the sale of the cyanide plant by our main cyanide supplier to sort of soften us [for the] impact of what we believe is going to be the anticipated pricing policy that you earn to introduce a large measure of import parity pricing into the pricing of the product. So it's wrong, we're taking issue with us. And actually, we believe that there is same measure of unfairness for unfair pricing as legally defined in the competition legislation.

So Workman's is helping us with that. So that's the one anomaly that we saw in the last quarter that we're still seeing in terms of these ongoing and then somewhat on the face of the irrational movements in price. But other than that, it's really just the dynamics that everybody else is experiencing. Logistics internationally have not recovered since COVID better, but it hasn't recovered. So we, in the past, something took a month. It's now 2 or 3. So your planning is going to be a little bit better.

You want to lock in prices sooner rather than later, especially when you're taking foreign currency exposure in terms of supplies and instrumentation and equipment. We've seen example, switch boards, we've seen pumps, et cetera, et cetera, where the stuff is just not there. It's just not available. You've got to anticipate. We've locked in the 40-odd thousand solar panels that we need [that we will be] delivered on time. And then in terms of some of the other projects, too. We saw some delays, but at least in terms of the reclamation sites, what we need to be up and running once that the precious license arises is in place.

Yes, I spoke to the late phase clean-up and the impact there. Yes. I think I've covered what I wanted to cover in terms of looking ahead. We could jump right into some of the questions that have been -- I just want to ask my co-analysts if we let anything out that we should maybe have covered here. Jaco, is there anything that you thought we ought to cover that we didn't. I'm not -- I'm sure that there may be a question on the class action. We can talk to that and also on the conversations that we've been having with Sibanye-Stillwater on the PGM surface project. So we could do some of that. I don't see anyone of you suggesting that anything (inaudible). So shall we go to the questions.

Okay.

Okay. So Riaan, I don't know if you want to add to Nic's -- Nic Dinham's first question (inaudible). It's certainly not an ambiguous question. It's very much to the point (inaudible).

Yes. So Niel, just to confirm what you've said. So we work in that range. We're obviously hoping not to end up at the bottom. We're aiming to end up at the top, but I think it's right to say it's in the middle. And obviously, as volume dependent and sites coming online on time as we anticipate. So I don't think we can say more on that. But the next right. We take the first 6 months into account, and we end up at the bottom at [160,000 ounces] essentially that would constitute in our terms, also not a great second half of the year. But hopefully, we don't end there. We -- as Niel said, we're putting everything in place to get more sites online always for our business (inaudible) at the end of the day. So I have nothing more to add from that perspective.

Would have in order to end up at the bottom of the guidance, we would have to -- quarter we have to be significantly worse than although half year will have to be significantly worse than the half year than we reported on. And certainly, at this stage, there's no reason to just guidance to provide for that (inaudible). We don't know what's going to happen in the remaining 4 months to be up until that nothing untoward.

Jaco, I'm going to just talk briefly to Nic's next question on the vital amendment. You could come in with some more of the specifics. But just -- I mean, does there any better question, when would you change your bottom line and annual reserve. So because of some of the delays and the -- and the fact that it's a pretty hard position or absolute position has been taken in terms of environmental container. It forces us into looking at contingencies. So the if these licenses and I'm referring to both this one here, the Withok license and also the RTSF. If these licenses and the process to get these licenses can't be the indicator, there's got to be -- we've got to create a measure of flexibility. And let's call it the contingency plan, we will use the word contingency within that context the whole [farming] order not to confuse to make sure that the market understands that what we're working with here is back up there.

So the adjustment of life of mine and reserves will take effect once it becomes apparent that the contingency will have to be implemented. Contingency in terms of Ergo means depositing onto another dump, which at this stage performs part of our resource base. Now once it becomes an acquisition side, albeit for an interim period of time, obviously, it can oil be a resource. And there your reserve and resource will have to be adjusted to accommodate for that. But then at the same time, I think you're familiar with the site, it will probably include some other resources or convert some other resources further west, further towards the (inaudible).

So these are typically the triggers for any change to that. So what you will see in our communications in the near term towards the end of the financial year is -- and I'm talking about applications that we're required to do nowadays in terms of technical (inaudible) report. As we will introduce and explain what that contingency plan looks like and the implications of having to implement that continency plan. Jaco, you could maybe just expand on when -- by when do we have to start construction at (inaudible). And that is really what will inform whether or not we go contingency or whether we expect to move much currently life if you want to elaborate on it?

So we won't -- if all stays equal, we will probably need additional deposition facilities within about 3 years -- 3 to 4 years.

Okay. And construction would have to start about a year before that...

Correct.

2 years to get the licenses in place to be through that. And I mean this because it's critical what we have decided to do is that certainly these things, although it might not be the sort of thing that pulls up at is a big day. would become a dedicated portfolio. So an individual at a particular level in the organization that drives this the whole time to make sure that we don't get pulled into the cycle of e-mail and response and nose on the part of the most. Remember, they're dealing with an entire industry requests and letters and applications and so forth and so forth, we're dealing on -- so we need to push it. We need to make sure that we are seeing. I hope that gives you some sort of sense, but nothing is changing now, and there will be a change if there saying if we have to go to (inaudible) asked, if we could say how are we dealing with extreme load shedding and what effect this has had on your operation and cost. So Jaco, if you want to maybe just elaborate on that.

Yes. (inaudible), firstly, during the previous quarter, we had 437 hours of low steric and power interruption at one of our main pump and transfer stations. And the way that we address that is by putting in a dedicated line directly from Eskom in. So now it falls in within the curtailment agreement and that gets us away from load shedding. Then secondly, load curtailment is part of the Ergo big operation as well. And then the third leg of that is obviously the solar and battery project that we're currently running.

So Phase 1 of the solar project, which is a 20-megawatt part of the project will be completed during quarter 2 of this calendar year operating quarter 3 of this calendar year. The full project will obviously run over, and that will include 60 megawatt of solar power and 160 megawatt of battery power. And the batteries are essentially used as CPUs for the plant, cleaning up your power, making sure that you do not have nuisance trips, a 2-minute nuisance trip can put us out for 4 hours. It cleans up the power. It then also assists in [arbitrizng] or load shifting. And it will also assist in reducing the cost during peak periods. And then obviously, we'll run the plant of solar and also charge the batteries for solar during the day. So Niel, I think that's a broad enough statement in terms of how we handle power.

And maybe Riaan in a position to say, we'd love to say how much CapEx we spent on the solar project in the 6 months.

We can, Niel. So it's in the results. So it's in our segment results, you would see a number for Ergo, just over ZAR 150 million for the 6 months under non-sustaining CapEx, and the majority of that was spent on the solar. Maybe just to complete that picture then, as Niel has mentioned, we previously said ZAR 1.4 billion. We're just revising that down. But it's very much cut off, as (inaudible) explained.

So the solar project is running flat out. So of that number, -- we've just spent under ZAR 400 million, so roughly a ZAR 500 million spend expected for us, but we're probably at least half of that, even more towards the solar project for the remaining of the financial year. But as I always mentioned, it's sort of an arbitrary cutoff many times. It's a necessary one. But I mean all these things continue to pace over year-end and over the next 2 years, essentially (inaudible).

And then maybe Niel, just a comment around costs. Obviously, load setting or – with this trip outs, obviously, that helps us from a volume point of view. And obviously, there's a big standing cost -- fixed cost component that we need to cover. So it's always around volume, loss tonnages, loss production as such, which is the important if you look at the unit cost, obviously, that will go up if we produce less coal. And that's where it hits us most, as I mentioned, were with 24-hour a day operation. So every minute lost is an opportunity cost essentially for us, and that [is] our bottom line.

I want to move on to next question on the S-K 1300 document. Before you answer that, Riaan, maybe just on the use of the word endemic issues we face. I'm hoping that the endemic issues that you refer to as sort of the broader economic issues that we face as a country as a whole. I'm hoping that we provided sufficient information on what the -- those dynamics were that impacted volume throughput to establish early established the message that these were events and not part of trends going forward. If we have been issued the water use licenses for (inaudible) L3 in October, and there was actually no reason why they shouldn't been issued at the time but it and just minister today then we wouldn't be having this conversation because more likely the volume throughput would have been a lot closer to what we are targeting at least in terms of fans that trend line has been quite a bit flatter.

So looking at the business and the setup of the business. And we came through one of the [biggest] crises to hit the global economy or not the flying colors because of what I believe to be systematic investment over time in risk and the sort of things that can impact the crucial aspects that will influence our business. Electricity interruption. Jaco will remind you that we have a better part of 5 megawatt of sand by diesel generation capacity just to make sure that our system stays in motion [if it] breakdown. So if you have to [sell] down, you don't have on choking and in 2 weeks to clear your thickeners and your pipe of network that stays in motion (inaudible).

So that's the fact that we have access to water other than the normal suppliers, the fact that a very significant investment has gone into plant efficiency, especially the information, how we deal with information to ensure consistent plant performance, [strengthening] the range and understanding the overlap between different dynamics and [extraction efficiency, to logical] efficiency. All of those things were done with risk in mind, nobody have (inaudible), obviously, but your business ultimately becomes almost -- is almost any bedded resilience that follows the sort of investment that had been made over time targeted at specifically your biggest possibilities for those things that can impact the business most. Nothing has changed. We're still continuing with that process. We're investing in -- we're investing in electricity infrastructure rather.

We're maintaining infrastructure and building an infrastructure that gives us certainty of water supply. We're making sure that we stay on top of things in terms of criminal behavior that things don't get too far before we started running back to make sure that our people are not to say just at work, but also on their way to work, et cetera, et cetera. So this particular instance, I believe it's been unfortunate that especially in terms of load shedding towards the end of the year, what we have in place was inadequate to keep the (inaudible) deep part of the business going, but it's been fixed. It's now linked in to Eskom. It's unfortunate that we couldn't commission these sites when we want it to. But that's a process that we just need to manage more proactively and assuming maybe a different standard and anticipating that standard from the regulator to make sure that we get these things in place.

So the endemic issues are certainly not internal. There may be external endemic issues, and we will continue to invest to make sure that we are increasingly resilient also in terms of that in terms of survivability, I think we are still exceptionally well position, Riaan, you want to maybe (inaudible).

Yes, Niel, and maybe just to build on from that, if I can summarize your question, you may be asking what we're seeing now. And if you take the last 6 months as a 6-month period, obviously, in a very long life as we've set out in our Eskom (inaudible) around Ergos Life. I don't believe, as Niel said, there's anything that we still want to do differently. So it's a specific period around challenges, many sites, many cleanup sites. But essentially, the long-term plan, I believe, for Ergo, hasn't changed. And it's in line with our strategy for now to say we want to mine as long as possible, all the resource we own because that ultimately creates enables us to achieve the environment for cleanup. And that's your question to Niel around the Withok extension and even if we look at Far West as well the positioned capacity.

So that's all in our plan still. And yes, we've experienced challenges and regulated challenges. So I don't think that will stop. But at this point in time, that is the future for Ergo as we've communicated to the market. So it is a simpler single site or maybe a couple of sites model that operates at only a slice model at a lower cost per time. Ultimately, there is -- that is still where it is. But obviously, on an annual basis, we'll re-estimate look at all the challenges and see if any of that has changed. But at the moment, that is still the model that we are pursuing.

And obviously, what has just indicated to us that timing is becoming more important and it's going to be a challenge. A couple of examples that Niel used around water use licenses, not in time. We will have to understand what the impact on timing is. But ultimately, I don't believe anything that we've seen has changed the longer-term plan, and that's why we've indicated in our report as well that we don't believe there's any material changes to the reserves as we've communicated to the market for our 30 June 2022 results. Thanks, Niel. So I just want of that clarifies or just say that from our point of view, our intention, the plan hasn't changed.

Thanks Riaan. Then, I see that there's anything on the in surface project. So I'm not going to volunteer other than to say it's a decision [time now] -- work's been done and... are we going to get a key or we're not going to get a key. If you want me to elaborate on that, I'm happy to. But in with the class action first. And then the key is a key to the plant (inaudible).

So in terms of the class action, I think maybe just by way of background, so class action consists of 2 phases. There's an application for the class to be certified and then also for -- in this instance, there was an application for a (inaudible) that a particular remedy be extended. Now once what that has done, and it's clear that there's no settlement. Then the second phase would be to issue the [summons] against those parties who, in this instance, didn't make an offer or rather than maybe I should be taking to more correct parties who did not participate in the settlement that was reached.

So by starting the appeal from the role. But the judges of the Supreme Court that you basically said was that the issues that you brought before us are not because that are appealable to procedural aspect. Although, particularly in terms of the second aspect, it was big and broad difficulty, et cetera, et cetera, the doesn't believe that the (inaudible) before which the action is to that quarters to hear that part of the dispute. So when the [someone] has issued to work, there will not only be a play on the fact of the matter. And the claim for damages based on negligent. So it won't be just the allegation of negligent and the consequent damages, they will also be an [appeal] on those facts. There will also be these, let's call them, legal issues or technical issues involving the class itself and then also the extension of the (inaudible). And that's in all likelihood going to be determined by the way of a special plan.

So the (inaudible) by not resolving this. And obviously, the courts have very good reasons, and they motivate those reasons as to why they decide to determine issues and whatnot, but by not making a determination. There is still no embedded legal remedy in line with that, which the plaintiffs are asking. And that being the case, in fact, there be 2 difficulties here. On the one hand, in terms of the allegation of negligence, the mining industry's position have they gone to court would have been that there was a standard and then decades of record keeping will demonstrate [ventilation] records that are mild will demonstrate that there is a consistent delivery to that standard. It's only if the standard was wrong and by I'm not anticipating and foreseeing that the standard is wrong, you're acting at committing an [act of] negligence that negligence could stay.

But go above that, the fact that the remedy has not been embedded and adequately articulated. That basically means that you can't, but there isn't a legal basis, some which you could determine whether or not there would be a liability absence of that -- if you then do have over money to the plaintiffs, and it's more than what would be, I think, in the circumstances, be term convenient or towards managing a particular risk towards costs. Then you are donating, you're making a donation. And whilst this whole thing, and I think we're all agree then that one cannot be insensitive to work -- people that have worked on mines and that they then suffered both in terms of the length of their career and also in terms of (inaudible) cannot be indifferent to that. You have to have a measure of sympathy.

But at this stage, the legal mechanism that is in existence in South Africa [isn't] perfect, inadequate, at least from the point of view of the defendants to determine whether or not I should be writing a check, is the -- an established, adequately defined set of legal principles in terms of which I can quantify to a determined liability and then funded by the (inaudible). So they doesn't exist.

And that's maybe one of the realities is that maybe this dispute should never gone to court. Maybe this was one better suited for parliament because what is failing these plaintiffs is not just the inadequacy or lack of particularity in terms of the legal remedy, but also the system that has been put in place to address their potential loss and damage at some point in time. And where the standards were, maybe government ought to be a party to this and how that's been regulated.

Interestingly, there hasn't been any significant other than -- legislation that discriminates some (inaudible). There hasn't been any significant changes in the regime that it can apply (inaudible) like saying that perpetuating legacies of (inaudible) so forth. There's been 30 years to change that legacy, create another system, and it hasn't happened. So maybe parliament also should be part of this conversation.

But be that as it may, at this stage, not enough to show that there's legal liability and not enough to quantify. And that being the case, it's not a basis on which we can formulate an offer and settlement other than some of the conversations that we've had based on proportionality and apportionment, et cetera, et cetera.

We feel strongly that we have to make a contribution towards any sort of contingent fee arrangement simply because we believe that this matter should (inaudible) parliament and up to the courts. Some of the other companies didn't have the luxury of batting through the innings and then (inaudible) legal principle and what we believe is an important part of obligation to our shareholders, maybe to preserve the capital and not gift it away only because of social pressure and being associated with some of the things that have been said.

But be that as it may, some of the other companies had to raise spending. There were contingent liabilities that they had to raise which is going to make it very, very difficult for them to advance their businesses, being a smaller company with a much lower, I believe, threshold of exposure. But our lost deep level mine, which was [not] in a subsidiary closed in 2001. It was a small mine at the time. The -- I think it would have been irresponsible for us to grab a checkbook and just make this go away for the sake of making it go away.

So no, I don't anticipate at this stage based on the evidence that we have that there's a large liability and the legal remedy and also the question of legal liability, it's simply not being adequately articulated for us to take a firm view on that or at least a view firm enough to make -- to take -- to be more clear on what we're saying in the letter to shareholders. And (inaudible), maybe you could just cast your eye over that because it does contain some of the considerations.

All right. I do not see any other questions. I think a lot of people have also had to drop off because of the duration. I want to thank everyone. Before I -- Riaan, anything else that you want to add?

No. Thank you, Niel. Thanks very much.

Jaco, from your side?

Nothing from my side. Thanks, Niel.

I want to thank everybody for dialing in. And if you do have any further questions, please -- you have our contact details. So don't hesitate to ask. Yes, looking forward to our presentation in August. Hopefully, we don't disappoint. So thank you for your time. Goodbye.