DRDGOLD Ltd (DRD) 2012 Q4 法說會逐字稿

Good morning, everybody, and welcome to our annual and quarterly presentation. A special word of welcome to all of the analysts, all of the shareholders, fund managers, media; also to our Chairman, Geoff Campbell.

Geoff lives in London, and this time around, we managed to convince him to stay a little bit longer after the Board meeting to join us; sitting here second from the left.

He's been with DRD for many, many years now. Joined just before I did, if I'm not mistaken, 2001/2002, thereabouts; and has seen many CEOs come and go, has seen many different iterations come and go, and has certainly brought a lot of strategic sensibility and governance into the way that the business is approached and managed. And we're very thankful that he stayed with us during the tough times and led us into what I hope to be calmer waters.

We had a consultant many years ago who spoke to us about business efficiency, and he used this mantra. He compared it to the Australian President's Cup team, this yacht race around the world. And they were building a yacht, and the concept that he was selling at the time was does it make the boat go faster.

And that sort of stuck with us. When the Australian team, when they were building their yacht, apparently, they measured every little thing, every little step against the standard or the measure does it make the boat go faster.

For example, they didn't have a kettle or a coffee machine. There was a Starbucks around the corner. And that is the one example that I use; because the coffee machine wouldn't make the boat go faster.

And then a few years after that, a chap working at DRD in the Operations, and he was in charge of the underground side of Operations, and he showed me a picture one day of people doing white river rafting. And he says, well, that's how fast the boat's going in DRD at the moment.

And I remember at the time we started thinking a little bit differently about this does it make the boat going faster, because it was going too fast down those rapids. And we started aiming for calmer waters and maybe a boat that doesn't go quite as fast. And Geoff stuck with us through those days and led that process. And I think we are in much calmer waters at the moment operationally, DRDGOLD, compared to what's going on in the industry at the moment.

He will be here afterwards for a few minutes, so if you want to meet with him and find out more about him, he'll be around for a bit.

Getting into the presentation, I think you're all familiar with our disclaimer. We do explain targets, certain operational financial targets; and those I think fall within the definition of forward-looking statements, so please just be cognizant of those and read through the disclaimer.

Highlights for the year, or the key features for the year and for the quarter, we're very relieved, very grateful, very pleased with how we finished the year. You will recall that we've been very busy over the last few years, first with the integration of all of our smaller plants, with the exception of one, into the bigger Ergo plant.

It cost us just over ZAR300 million the year before last to build the pipelines and to do the plant upgrades, to achieve that. And with every one of those reconfigurations and repositioning -- operational repositionings, you do encounter volatilities. There's always a bit of an inventory buildup over time. And you really only know how much gold you're going to see when you see the gold.

So you design your engineering and you design your infrastructure and your metallurgical processes, and so forth, towards certain targets, but in this mega volume environment and ultra-concentration environment, you really only know what the results are going to be when you see them.

So we were very pleased to see an increase in gold production. We've been telling the market that we are targeting between 140,000 and 150,000 ounces. I think there was a subtle adjustment of that to 135,000 to 145,000 ounces at one point or another. But we were targeting 146,000 ounces per year following the consolidation of our various circuits and that obviously assumed an increase in gold production from the previous year on the surface reclamation side, and we're very pleased to have achieved that.

And that was notwithstanding the fact that towards the tail end of the financial year there was a bit of lock-up, there was a bit of inventory buildup in the new circuit that I'll talk about a little bit later in the presentation.

We've been focused, squarely focused on cash flow. Our strategy really consists of three lines or three concepts; cash flow, cash flow and then some more cash flow. And we're pleased to see that the cash flows have been good and the operating profit also increased year on year. And that's on the back of I think solid cost management, higher gold price year on year, and also an increase in gold production.

Headline earnings increased. Craig will take you through some of the underlying drivers of that. And then this concept of all-sustaining costs or NCE; I know that it's something that's been punted by especially Gold Fields for quite some time. We never really had the -- in the last few years had the luxury of worrying too much about the non-cash items on the balance sheet and on the income statement, because we only spent what we made.

So all-sustaining costs, or real profit, cash in the bank profit, has been our parameter, has been our measure or yardstick now for several years. So this was something that was quite easy for us to slide into from a reporting perspective, and we're very pleased to see a 10% increase in the all-sustaining costs.

Well, in fact, the standard that's been announced by the World Gold Council is slightly lighter than the one that we applied. We applied one that involved all-in costs, including growth CapEx. Growth CapEx is stripped out in your -- in this all-sustaining cost formula, and we came at ZAR365,000 a kilo.

The margin, which is the free cash flow margin, excluding strategic CapEx, maintained or stayed steady at 20%. You'll also see later on in the presentation that EBITDA actually increased quite substantially to just over ZAR500,000 million for the year.

I'll take you briefly through the Ergo trends. We've consolidated all of our surface operations, the various plants, into one operating unit with two plants, one smaller one and one bigger one, and we report them as a unit.

Here you can see what we've been doing with volumes over the various quarters. Our target clearly is 2 million tons a month. We managed that quite handsomely in the second quarter of the financial year, and just touched or brushed underneath that in the last two quarters.

Our game is a volumes game. If we get the plant -- if we manage to fill the tanks, the gold comes out. Metallurgical process has certainly shown a lot of consistency and improvement in consistencies over the last few reporting periods.

Production. There too you could see we achieved about 4,500 tons for the year; just over a ton per quarter. And that should increase marginally going forward with the fine-grind and flotation circuit that is now in the final phases of being commissioned.

Now the financial indicators Craig will take you through, and then I'll take you through the balance of the presentation after he's done.

Thanks, Neil. Morning, ladies and gentlemen. Yes. So these are the key financial indicators, as Neil mentioned, that we really focus on within the Company. The first one that I want to talk about is our operating margin.

The way these graphs are set out, you'll see in gold is the previous year, and in gray is the current year's performance. We've broken it up by quarter. And in the last two bar charts on the right-hand side is the year-to-date numbers; in other words, the full-year's numbers.

And you can see that our operating margin has remained or tracked pretty much what we had in the previous year. It was just really in the last quarter when we saw the gold price, the rand gold price decline, that obviously that margin dropped down to 22%. But you can see overall for the year, the margin has held at about 32%

But more important in terms of margins is to look at this new measure that the World Gold Council has come out with. This really looks at your cash costs, or operating costs, plus your sustaining capital and your corporate costs. So there's a whole lot of additional costs that have been added into this number. And I think it gives you a truer reflection of effectively the cash that you're generating within the business.

So what we've done here is we've recorded what we're calling the all-in sustaining cost margin. So it's the margin after looking at your all-in sustaining costs. And you can see that that has remained pretty steady year on year. In the last bar chart there, you can see it's about 20%.

Yes, that margin did drop down within the last quarter with the rand gold price dropping. I think it dropped down to about 15%. But with the current gold price where it is today, that number's back up at 20% again, which I think, and you'll agree, is a healthy margin, especially when you compare it to some of our larger peers within the gold mining industry in South Africa.

Our EBITDA, which is something we track as well, and I know that the guys looking at our debt and looking to give us more funding tracked this number as well. You can see that that has increased to ZAR502.8 million for the year compared to ZAR372.6 million in the previous year. And that was largely driven, obviously, by the higher gold price that we received during the year, as well as the increased production, as Neil mentioned.

The free cash flow, which we also track pretty closely on a monthly basis, on a weekly basis even, you can see how that's -- what that looks like over the full year. Just to state, obviously, we did see a drop in our free cash flow in this current year to ZAR98 million from the ZAR208 million in the previous year. However, that was obviously impacted by the lower gold price that we saw in the last quarter, as well as the large amount of capital that we've been spending on our flotation and fine-grind circuit, especially in the last quarter of this year.

So that obviously impacted that number, but it was still positive. And that's something that we track and, obviously, with the lower all-in sustaining costs going forward, the lower amount of capital that we're going to be spending in the next year, we expect that to track back up again.

Headline earnings per share. Obviously, that was up, as Neil mentioned in his slide as well, to ZAR0.68 from the ZAR0.61 in the previous year. And that was largely driven by the higher gold price that we received during the year, the rand gold price, and the higher production.

Okay, just on the financials. I'll quickly take you through the income statement and balance sheet, just some of the key numbers. You can see that our revenue was up 18%, and again, as a result of the 8% increase in production as well as the higher rand gold price received.

Yes, costs were up 22%. But you must understand that this is the first full year that we're reporting these costs with the new restructured Crown operations as part of Ergo. So remember, we built, as Neil mentioned, two years ago we embarked on a ZAR300 million capital project to effectively link up our Crown, City Deep and Knights plants through to our Ergo plant and deposition site. So this is the first full year of those costs that we're seeing of that newer, bigger operation.

Obviously, higher volumes coming through. You can see there was an 8% increase in volumes, so we're pumping higher volumes through those pipelines. And we're also pumping the material over longer distances, which does have an impact on costs.

And then the balance of the cost increases obviously were due to labor, electricity and other costs; inflationary increases on those costs.

Our operating profit for the year was up 9% to ZAR679.3 million. Depreciation charge, obviously, you would expect that to be higher with -- over the last two/three years we've been spending a lot of money on capital infrastructure, so the depreciation on those assets is now coming through and hitting the income statement.

Under other income and costs, obviously, that number is a lot higher because of the impairments which we recorded during the year of ZAR238 million against various assets.

The discontinued operation numbers in our income statement in the previous year obviously relate to Blyvoor, which was sold with effect from June 1, 2012 so, obviously, those numbers aren't in our numbers for the current year.

And as I've mentioned before, headline earnings per share up 11% to ZAR0.68, and our EBITDA up 35% to ZAR502.8 million.

On the balance sheet. The reason we could pay such good dividends this year is, obviously, what helps us is having a strong balance sheet. And you can see from our balance sheet that it is a fairly strong balance sheet. We've got a lot of cash still sitting on our balance sheet. Our liquidity is very strong. That's improved over the last year to ZAR2.5 million.

And we have a very conservative debt policy. Our debt/equity ratio is sitting at about 10%. I think if you look at most of our peers, their number is closer to 50%, and in some instances closer to 60%, which can be a bit tough when the gold price does go -- it does drop.

So I think we've been fairly conservative and prudent with our debt. We've got ZAR165 million worth of borrowings on our balance sheet. Those are all listed bonds. And so as I've said, that's all contributed to a much stronger balance sheet.

I'll hand back now to Neil who will take you through some of the remaining slides.

Thank you.

Thanks, Craig. We spoke a bit in the past, or a lot in the past in fact about the upgrade, technology upgrade that we are busy with at the Ergo plant. The challenge remains to drop residue grades because, obviously, head grade will over time continue to decline with more and more of the dumps that we're mining being modern dumps or recent dumps.

Flotation fine-grind project is aimed at capturing that portion of the gold in the [runner] mine that remained inert, that did not respond to our metallurgical process. And it's a simple process of floating out pyrite and then grinding it to an appropriate fraction, and then putting it through the same CIL process. Although this section has a dedicated CIL circuit for the high grades that we're getting in in this concentrate.

It cost us just on ZAR300 million; maybe just a little bit less, about ZAR280 million over the year. Clearly, now with the capital spend having come to an end, we're looking at a significant saving in capital expenditure for the next year. Our ongoing capital is quite a bit lower than what you would find in the traditional underground environment because the factory has been built, and now it just needs to be maintained.

In fact, over the last five or six years, we on average spent ZAR300 million, or $30 million of CapEx per year. And just on the budget for the next year, you could already see a significant drop in CapEx. I think the total saving, or avoidance, capital avoidance in the next year is just over ZAR200 million, ZAR220 million-odd, which is hopefully what will provide us with a bit of headroom now with the gold price having gone into a slight decline, although it seems to be lifting its head again.

So back to the flotation fine-grind circuit; it's in final commissioning phase. The assumptions that support it or motivated the project upfront, those assumptions are being achieved. Mass-pull is around 4%, and gold retention is about 40%. The float tail is at around 0.182 grams per ton.

That float tail obviously contains the gold that previously had not been attached to pyrites in any format, and that responded to the conventional CIL process. So that will still go into the main CIL tanks, and it will be interesting to see what sort of recovery we're getting out of that. We do believe that insofar as the mass-pull or the concentrate is concerned that the efficiency there would be around 75% due to the higher grades.

The elution circuit, which is an old -- a dedicated elution circuit for this line, that will be commissioned over the next few weeks and should be in full flight by the end of September, and we hope to see the full benefit of this initiative by December.

Clearly, at this stage, the circuit is being saturated. There's some inventory buildup, so there's marginal gold lock-up as well. But the encouraging part here is that the residue values do not reflect any kind of increase. They do stay very consistent. So all indications are that the gold that's not presenting in the smelt house is, in fact, being locked up in inventory buildup.

And that's really just like a normal polony machine or a mincer. It comes in the other way, you've got to fill that tube and then the meat comes out the other way. And we're starting to see some of the meat coming out the other side, some of the ground meat coming out the other side.

Focus area going into the future is very much going to be sustainable development. We've brought sustainable development and all of its components on board as a key and a major strategic decision-making driver, all aspects of that.

We will look at sustainable development within the context of nature capital, our technology that we employ to make sure that it's compatible with good practice, nature practice. We'll make sure that we'll maintain healthy financial margins. I'll spend a bit of time on the social side.

But all five components, or really the three components that have been subdivided into five components of sustained development, sustainable development, it's going to be very much part of the visible decision-making processes of DRD.

It's been part of our decision-making and capital allocation processes in the past, but not on the public platform. It hasn't been something that we've been sharing with the market in too much detail. But you'll see a lot about this in the presentations going forward, and it does have the full support of the Board that we embark on this very visible and deliberate commitment to sustainable development.

On the financial side, we've been reporting on an ongoing basis the parameters that the investment market, that's people who manage other people's money, the things that they look at before they decide whether they're going to commit their clients' wealth and savings to our capital. And these numbers I think you've seen in the past. We've added some of those because, obviously, we serve a broader interest base than just shareholders. We also have our communities, we have our government, and we have our employees that are impacted by what we do.

So you can see how much goes into salaries and wages as well. We didn't put in how much goes into tax, direct and indirect taxes, which is probably something that we could also add here. But government is still a very happy shareholder of DRDGOLD in the sense that they do earn quite a lot of money out of pay as you earn, VAT, and I think sometimes even a bit of income tax, if I'm not mistaken.

Total expenditure on goods and services just on ZAR1.2 billion, and then dividends to shareholders is just on ZAR100 million.

There's been this notion or this idea, this concept that -- and this has been the driving force behind a lot of the talks around greater government involvement in equity ownership or nationalization, the concept or the notion that money leaves South Africa, that the mines generate wealth here but then exports that wealth, that it doesn't stay inside of South Africa. And I think based on these numbers, you can see that most of the money, most of the revenues, in fact, do stay in South Africa. Less than 3% of our revenue, in fact, leaves our shores.

So from a corporate citizenship perspective insofar as the application of our financial capital is concerned, I think there's no reason why we have to drop our eyes when we're confronted about these issues. We could look all and sundry squarely in the eye.

Intellectual and manufactured capital; it's important that we match these with the other capitals. Obviously, you want to build circuits that will make more money for your shareholders and that will offer a healthy return on your capital investment, that offers real economic value add. And that is certainly a number that we look at from time to time.

But at the same time also, you want to make sure that you don't destroy nature in the first instance, and that you in fact rehabilitate nature in the second instance; that you use natural resources in such a way that you don't compete with other users.

Potable water, for example, is something that is going to become increasingly scarce. We've had -- and I'm from the Karoo so I know what it's like to through a drought. South Africa is a dry country. We don't have an unlimited -- I almost sound a cell phone advertisement. We don't have an unlimited supply of potable water in this country. We have to manage it very, very carefully. And our technologies are geared in such a way that we can in fact move closer and closer towards that.

The same applies to our carbon footprint and power consumption. It's not an unlimited supply of power. We all know that. We know that Madupi and the rest are hopelessly behind time, and we'll have to see just how efficiently the commissioning takes place as well. So we've got to be very careful how we consume power.

The pipelines that we use at Ergo, the new pipelines, consume 18% less power than what -- or has the effect that there's an 18% power saving on pumping costs because of the agent that's used inside the pipeline to align the pipe with lower friction. We have -- and also an automated process that means that these pumps run at slightly less than full capacity. We have an 18% consumption on power use if you had to use other technologies to do that.

And this we will want to do on a continuous basis. We want to make sure that the development towards extraction efficiency in particular, still a lot of gold that enters the plant that still leaves the plant. And our Chief Operating Officer and his team of researchers, our Business Growth Executive and his team, it's very much a priority on their menu, on their dashboard, I think is the new fancy word, which they check and which they pursue, and in respect of which there are clear and very deliberate objectives to work towards better technologies so that the material that goes into the plant becomes more valuable because the product that comes out of it is more valuable; and without spending more power, without using more water, in order to do that.

The fact that we now have a consolidated footprint, everybody driving to one place, saving on transportation, not having to go into 100 different directions, to a lesser extent also contributes towards a reduction in our carbon footprint.

Human capital is something that we take very seriously. We distinguish between human capital and social capital only based on the following. Social capital is more something towards external and borderline charity type initiatives to alleviate hardship, whereas the human capital is more towards development of skills and development of human resources, both internally and externally.

So there might seem a bit of a -- lot of contradiction, but an overlap between the two. But if somebody's taught how to do better math, we don't call that social capital, we call that human capital.

We have an initiative that was recently launched at our operations called Best Life. It's something that evolved from the previous initiative called Vuselela, which was an employee process, an employee focused process of establishing what the value systems were and the value sets were of our employees, and trying to bring those value systems into the workplace so that work feels more like home, that you don't feel offended by what is happening around you.

Now the human -- the Best Life initiative takes that one step further. And that's very much geared towards financial independence and financial literacy, of own personal development; of making sure that every employee -- remember that we are increasingly moving towards a knowledge based labor force as opposed to a manual power based labor force.

We want people to think more than what they move stuff around. And providing the opportunity for employees to develop personally to the best of their potential and have a fulfilling professional experience.

There's also health and wellness initiatives in that regard. We've brought in a very sophisticated team to assist with that giving personal counseling and so forth.

We know that a lot of the social upheavals that we've seen in the mining industry, about the conflict, has been because people just simply -- they run out of money. And they run out of money because they don't manage their finances properly.

Mine workers are still paid better, even on the broader arena, still paid better than most teachers and nurses and young professionals like article clerks and young audit clerks. And yet they run out of money, and they run out of money quickly.

So there does seem to be a real gap in commercial or financial literacy amongst mineworkers and managing their affairs. We've seen how people end up having huge percentages or portions of their disposable income attached through garnishee orders, and so forth and so forth.

We have 39 garnishees or 40 garnishees in our organization out of 900 employees, and we think that that is 39 too many. So we are very much focusing on that as well, teaching people how to manage their finances properly. You don't get out of your financial issues by just being paid a 15% increase. You get out of your financial issues by managing your finances properly.

And we want them to have the benefit of these programs. It's caught on quite nicely. And we are confident that this program will be successful.

Ultimately, what we really want to see is that people end their professional lives when they go on retirement being financially independent. At the moment they just get a lump sum payment, so we're also looking at restructuring some of those to see if we can have a more sustainable retirement, annuity type arrangement, but there's still some work to be done in that regard.

But ultimately, the target is for them to be financially independent when they leave their employment, and have a place -- some security of tenure. We don't believe in these concentrated villages. We think people should be able to choose where they live. And the initiatives that we are driving at this stage is, for example, an accommodation allowance, which is not a housing allowance or a living out allowance, but it is an allowance which is aimed squarely at acquiring a long-term right in respect of occupancy of security tenure.

Right. Going on to the focus point of our external human capital development, we do believe that the future lies with the younger people of our country. And as a consequence we set up initiatives -- these have been running for about three years -- to assist high school pupils with their math and science. They come to EBDA. And we also have satellite campuses. In the last six months, we had 191 pupils benefiting from math and science, the Math and Science Centre of Excellence.

Some of these guys have managed to increase their marks by up to 40%. They go from the low 20s to the high 50s or early 60s. And we've seen a market increase also in the passing rates from some of those schools.

And we're not talking St. David's, and so forth. We're talking about schools that are way, tucked away, in the townships, and then sometimes even formal settlements. These are pupils that are at the bottom end of the hierarchy when it comes to the allocation of resources.

Teachers have taken advantage of this as well. We've had more than 60 teachers have come to our Centre of Excellence for refresher courses, and so forth. So that's definitely having an impact on those schools.

We've also opened up -- we've extended this now to also include accountancy, and I think we've just appointed another mathematics teacher as well. And they can take advantage of those initiatives.

We have 63 community pupils enrolled in a three-year entrepreneurship course. Entrepreneurship in these development initiatives more often than not does not achieve much more than a curio shop. We want to take it to the next level. We want it to be real entrepreneurs, people who deliver actual, relevant services into their communities on a sustainable basis. And these guys are doing really well. We've got some very encouraging video material. They're real conquerors, these chaps, and they're going to make use of this enlightened democracy in which they live, with all the assistance that are available out there.

285 community learners. These are adults who want to improve their own lives and their own skills. They've gone through this too at EBDA. And then we've also achieved a 46% HDSA margin in our operational environment.

Natural capital. You cannot manage the footprint that we manage without being sensitive to natural capital. We put an additional 24 million liters of water into our circuit on a daily basis. If you think that there's going to be a sustainable source of potable water from Rand Refinery to deliver into that in the medium term, you're deluded. You've got to find alternative sources of water.

And we've done that from two places, both from [this rising] lake under our feet in Johannesburg, where we've secured at least 30 million liters a day, but we're likely to not use more than 8 million liters. And we've also agreed with the municipality to source water from two of the sewerage facilities. And of course, the type of water would be very conducive to the type of initiative that you see in this picture here at the bottom, where I'm pointing at my screen; this here.

That's the top of the tailings dam and it needs water to grow. Rain water can't really supply into all of our requirements. The rate at which we vegetate our tailings dams at this stage is held slightly back because of constraints from rain. And it's not supply constraints, it's pressure constraints and infrastructure constraints. But once we've got these pipelines up and running, and we're going to be starting with construction probably within the next six weeks, if I'm not mistaken, the capital has been allocated, we would have a healthy supply of water to also go onto these tailing dams. And the last bit of tailing dam that has not yet been covered around the [Nasrec] area would very quickly be covered in vegetation.

Very little dust is still coming off these dams. The only bit of dust that you can still see, and they're in the decommissioning phase, the only little bit of dust that you can see are those coming off buttresses and access where some of the roads --

But the sides have been vegetated, the tops have been vegetated. And this too is sustainable vegetation. It's a mixture of I think mushroom and molasses, if I'm not mistaken; and into that cocktail of local grass species is mixed, and they grow. They need to be watered for a few seasons, and after that, they take root and they're there for life.

And we've spent plenty on that. In the last five years, we have on average spent about ZAR80 million just on the environmental management aspects of our tailings dams. The only way I think that you can gauge the real commitment of an entity towards nature capital is by what's in the cash flow book, and a lot of money has gone into there. The commitment is a real one. I spoke about the pipelines earlier on.

On the social capital, EBDA is our academy that was established four or five years ago. A lot of capital has gone into that. We sourced quite a bit of skill, or a lot of really solid educational skills into that. Our material is open source material. So whomever wants to take advantage of that, the Government doesn't have to go and spend millions and millions of rands on course material; they can just come and collect it from us. We're collaborating with them to set up something similar to that.

And once again these are programs that are aimed not at teaching people how to sell little dolls and beads at the roadside, not that those are not good initiatives, sometimes it's all that they have with regard to the availability of resources and so forth, these are real businesses, teaching people real skills in a mature economy, sophisticated economy.

Our employees have taken full advantage of this. Literacy is going up. And I do believe, I choose to believe that the surrounding communities too have been taking advantage of that.

Just on that maybe just one topic. I think where we are focused on high school, and I'm glad my colleagues are here because it's the first time that I'm sharing this with them too, we've been spending -- and I see them flinching and the financial guys are grabbing the check book and sitting on it -- we've been spending a lot of resources, time and money, on high school children.

But I do think going forward we're going to be dividing the focus insofar as younger people are concerned in three segments. The newborns to seven-year-olds, we'll be looking maybe at nutritional needs. And I'm talking about the areas of impact. The seven to 14-year-olds, which would be more geared towards early phase education, and then from there on the 14-year-olds further. So that the material that we receive into the Centre of Excellence have had at least some experience with our methods and so forth. [Promise] we'll keep it at the right pace, I promise. I won't spend all your money.

So looking ahead, obviously, we're here to make money for our shareholders, and also be socially relevant and be good corporate citizens. So we want to make sure that this flotation and fine-grind circuit that cost us a small fortune, that is in stable production by December of this year; that we see the additional 15% to 20% extraction efficiency, an increase in recovery in real terms of about between 7% and 10% I think is what we said by then.

We want to make sure that we achieve sustainable profits. What I didn't mention in this presentation is that last year, we did save 5% on our potable water use, and I think an 11% drop in the cost of water, if I'm not mistaken. So we want to make sure that we see more of that.

There will be real targets around potable water usage and dust emissions. We have 94 dust monitoring points in and around Johannesburg. We have built and have commissioned, or are in the process of commissioning, a very sophisticated, real time monitoring tool, where a single dust emission is shown up on a screen. And depending on where it happens and the intensity of the breach, so to speak, of the standard, that gets fired up all the way to the Executive Committee to ExCo. And it also has prompts for follow ups and so forth.

We want to invest substantially in internal social capital. We want to make sure that our employees know how to manage their finances better.

We also want to -- and I think increasingly, this is something that I find very encouraging. Increasingly, I'm sensing that the ideal, the concept that certain people get paid more than other people because of their level of education and not because there's deliberate exploitation and, therefore, it's good to invest in the future of my child and make sure that he gets a good education. That notion is certainly starting to catch on and be appreciated more widely.

The younger people are hungry. They are so ready for these sorts of initiatives. We're overwhelmed by the positive response from them. And then, of course, the new technologies.

Two key operational focus areas in the near term. The one is maintain volume flow. We'll maintain the skill set that can deliver volume into the plant. You saw what happened in the second quarter of this year when the volume shot through 6 million tons as we had a phenomenal quarter. I think it's the best production quarter that we've ever had. Got to keep those mills full, got to keep those tanks full, as people managing the systems that deliver that into the plant that can do that for us.

And extraction efficiency. Fine-grind and flotation is not the end of the road. We want to drop that residue value even further. I think there's a lot of potential upside in that.

All right. Yes, I think that's more or less it. I'm anticipating that there would be some questions about labor issues and negotiations, and so forth. So if anybody wants to ask that question then I can answer it before I sit down, or else I can sit down and you could take the questions in its natural, normal sequence.

Start with the labor one first (inaudible - microphone inaccessible).

Okay. All right. We are in labor negotiations at the time. The -- we don't form part of the Chamber of Mines labor forum, so we're not -- I think there are four or five mines that enter into a single agreement on wages. We're a member of the Chamber but we don't negotiate as part of that forum.

I know that the Chamber unions are going into dispute as we speak. I think we're still some way away from that. Both parties have stated their position and they're now going into the mediation phase, if I'm not mistaken.

The actual outcome of the wage talks are, if history has anything to go by, it's probably a little academic. We've had a profit participation scheme in operation at our operations for quite some time now, and basically what that means, in the past two years, I think the base increase was about 8% and then employees could earn up to 15%; in other words an additional 7%, depending on the real profit, the cash in bank profit, after everything profit. And they've been earning that, and it's on a sliding scale, so they have been earning -- over the last 24 months odd, they've been a double-digit increase in any event, regardless.

Indicators are that at least the business and the way that costs are being managed and the rate of which materials coming into the business, that is not far-fetched that a similar sort of scenario could play out going into the future.

Having said that, I think it's important for the negotiating unions to remain credible in the eyes of their constituencies. I think it's important that we as a corporate also recognize the fact that we are able to deliver into these financial results because our employees didn't go out on any kind of illegal labor action in the last year. They didn't do anything around the disruption of operations. They didn't cause harm to the operations, to our infrastructure. They didn't intimidate any of their colleagues. And as a consequence, I think the gold came out and we can offer our shareholders something. We've got to be cognizant of that too.

Management team is also very cognizant of the fact that 5% of ZAR100,000 is ZAR5,000. 5% of ZAR5,000 is only -- how much? ZAR50. ZAR500, rather. Sorry, ZAR500. So one's got to be sensitive to the fact -- or 10% rather is ZAR500. One's got to be cognizant of the fact that at the higher end, a slightly lower increase means that you maybe have to manage your discretionary spending a little bit better, the stuff that you do because you enjoy doing it as opposed to staying alive, whereas at the lower end, things are a little different.

Transportation costs go up, food inflation is fairly high. And then ultimately, labor or the wage bill as a percentage could be managed in such a way that you can give a fair and reasonable award/compensation to your lower end without really impacting -- and maybe a little bit less at the higher end, without really impacting on the lifestyle of your higher end employees.

In addition to that, we have very good bonus and -- or incentive, rather, and phantom share option schemes that are directly linked to the financial performance and operational performance of the business.

So the senior guys have the opportunity and the mechanism through which they can increase their discretionary -- well, not discretionary, their variable income, not to the same extent that the lower levels can do that.

So we've been sensitive to all of those things and we want to deliver into the best life objectives that we've set. Obviously, we're not going to not maintain a healthy balance between the interests of our employees, our laborers, senior management and our shareholders. I think we've managed to maintain a good balance in that regard in the past, and we'll come up with a solution that works.

But there is still some time to go. Obviously, the circuit, and it's not really the sort of thing that you want to repeat too often because it almost sounds like you say to labor do what you want, and that's certainly not the message; do what you want, we don't care.

The fact is that we are probably more resilient to strike action than most others. We've had strike action in the past. That didn't affect operations at all because the delivery of material takes place through a different agency, not in-house. And as long as the material comes in to the plant, then there's enough skill left in the organization to check the valves and to wash away the overflows, and so forth, and to keep things going for a bit.

Obviously, people get really tired because they work 12-hour shifts in that sort of scenario, in that strike contingency plan, and we don't want to go into that and we don't want to have that too long because that strike action will have the impact.

But the social issues that have caused to -- that have led to the incidents elsewhere in the industry more than often or not are triggered by exactly that; where people are denied income for a period of time. Obviously, the no work, no pay principle applies very strictly in our environment.

So I don't think there's angry discussion at this stage. I don't think we are too far apart. I'm not suggesting that we would be able to deliver completely into the unions' wish list, but then at the same time, we are not going to be difficult just for the sake of being difficult.

I think we do have some room to maneuver, and certainly, I think there is a collective willingness at the higher end to see that this thing is dealt with in a responsible way.

Okay. Martin?

What unions do you have [at your Company]?

The unions that we have at our Company are UASA and NUM.

And you don't have AMCU at all?

No.

Just two obvious questions. Where -- what are you actually offering? What have you got on the table for the various grades?

And you said you were in talks and whatever, but when might there actually be some kind of conclusion, or what timeframe do you perhaps have in your mind for these talks to come to an end.

My own timeframe for the conclusion of talks is anything between three weeks and six weeks. And I'm not divulging what we have on offer for our employees.

Adrian Hammond, BNP Cadiz. Niel, could you just give us your outlook for grades -- for yields in FY '14?

Look, we want to recover about -- what is it? 0.2 gram a ton, Charles?

I think that's in line with what we have now, so --

Thanks. And then just second question. What happens to the shares, your Village Main Reef shares held in Escrow? And are they [being] -- well, planned for liquidation?

I've pretty much put that on the backburner before I take a specific view on that. I haven't looked at the legal implications just yet. It's not something that I want to deal with with any degree of urgency just yet either.

We have dealt with it in terms of the financial treatment of it. And at some point or another, we're going to sit down, myself and the executives at Village, and we'll have a discussion about it.

Thanks.

Allan Cooke, JPMorgan. The Village shares you currently have, not the shares in Escrow, those -- what is the status there? Is there anything preventing you from distributing or selling those shares currently? And if not, why are they classified as non-current investments on your balance sheet?

There's nothing preventing us from selling them. Craig, you could maybe elaborate on the counting treatment.

They're treated as available for sale instruments. But, yes, they would be held under non-current, because there's no plan really to sell them at this stage.

So you could do something with them immediately, but --?

We could. There's no restrictions on ZAR65 million of those ZAR85 million.

Yes. And that's the ZAR34.1 million that you're now showing non-current investments?

The full ZAR85 million shares are [shown].

The full ZAR85 million, okay.

Correct.

And then just the status at Blyvoor. I know you haven't spoken with the Village guys there, but perhaps from the shareholders' perspective, is there any risk of contingent liability through the Blyvoor liquidation process? And what's the quantum thereof, please?

I don't think so. And without getting involved in a discussion as to what lies where, I think our position has been very clearly stated in the SENS announcement that we brought out a while ago. And I'm confident that that statement is solid.

But contingent liability is something that depends to a large extent on what is provided for in the Companies Act. Because remember, Blyvoor is a legal entity. But even before, you wonder whether, even Village at this stage, is carrying some sort of contingent liability, you have to go and look at what the Companies Act says with regards flow-through responsibility and flow-through liability. And the last time that I looked, I think Village had said in a statement that they advanced ZAR190 million into Blyvoor over the last 12/13 months.

Liability, at least when I used to be a lawyer, and that was a long time ago so I've probably forgotten most of what I was taught, but in those day and, Themba, you can predict me if I'm wrong, there would be liability on the part of the controlling entity if it is shown that the independent legal personality of the subsidiary was abused to the advantage of the parent and to the detriment of other creditors.

And ZAR190 million investment into this entity in order to build it, in order to stabilize it, and so forth, that is not indicative of the abuse of [separate corporate] personalities.

So penetrating the corporate veil in the first instance here, I think, is going to be a very, very long shot. I'd rather be the lawyer on the defendant's side than on the plaintiff's side on this one.

Okay. Thanks, Niel. And then maybe just finally, the guidance. I think through the presentation you gave us some indication. But in terms of your volumes, I think you said your yield, 0.2 grams a ton, your CapEx expectations, are you still targeting at 140,000 to 150,000 ounces for financial year 2014?

I think we can be a little bit more robust in our target maybe. Charles says, no (laughter). Yes, 140,000 to 150,000 ounces. He caught my eye there.

So should we be factoring 140,000 to 150,000 ounces -- 2 million tons per month, 0.2 grams a ton recovered? And then, CapEx, what? ZAR220 million, I think you said?

No, we're looking at much less than that. I think it's ZAR130 million sustaining capital. And then there's about [ZAR18] million of the floatation of fine-grind which will roll over into this year, just a carryover. It's just a timing issue. Some of the capital spend will still happen into this financial year.

So for all intents and purposes, our capital is going to be about ZAR130 million, the new capital. That includes also the project that Niel mentioned, the gray water project. I think that's about ZAR20 million of that. We're going to be sourcing hopefully cheaper water into the circuit.

Then there's no reason why we can't make the same amount of gold this year than last year, at least; 145,000 ounces, other than external dynamics.

Okay. There's a question from Jana Marais, from Sunday Times, with regards the issue at Blyvoor, whether we foresee legal disputes with Village or other parties. I really can't say. There hasn't been any indication at this stage. It's early days though.

I suppose it depends on the sort of pressure that's applied. There will be a legal issue, or there could -- a legal dispute could be manufactured if there is some sort of a pressure point that gets pushed out enough and a lawyer who's ambitious enough to take the brief.

Employees are obviously anxious, I would imagine, because whether or not they get paid. In that regard, I suppose the only comment that I can make at this stage is that the old Employee Trust that was established by the former DRDSA that's now called Ergo Mining Operations, distributed ZAR6 million-odd in dividends into the Trust. That's still being held into the Trust. And some of the Blyvoor employees would be entitled to a distribution in the event that the trustees decide to do a distribution.

So I suppose from a hardship perspective, there's an expectation, I think a legitimate expectation on the part -- or there could be on the part of the Blyvoor employees to look towards their trustees and ask that some of the dividends that have been paid over years are distributed. But obviously, that would be an issue between the employees and the trustees.

But there's also a question about the New Order Mining Right and permission from the minister. I do believe that there was a date set for the conversion of the New Order Mining Right, but that there was an administrative hiccup, and that it's been on and off for the year [overall], for the execution of mining rights since November of last year.

This is something that we would want to investigate with Village Main Reef because, obviously, those communications would have been with Village Main Reef.

Right then. David Pleming from Tantalum said could we get a better handle on the costs below the line; i.e., C1 costs for financial year '14 and beyond. Craig, I think this is probably the sort of thing that you would have to look at. I'll hand this to you just now.

And then Paul asked, please give your opinion on how you see this round of strike action ending, and the implication that this will have on the rand.

I think the strike, or rather the -- at least in our corner of the -- little corner of the universe, the negotiations are certainly not as hostile as we had feared initially. On the contrary. Maybe in the public domain they need to be a little bit hostile, but we've experienced them to be quite civil. And I don't know if we're that far apart. I'm not really in a position to comment on the rest of the mines. d I know that some of the executives have taken a very firm position on where they would go and where they would not go. But then typically, they would have operations where there's competition between the unions and they need to be seen to take a very firm position. And I think if I'd been in a similar position, I more than likely would have taken exactly the same kind of position.

If there are three or four parties around the table and they're competing, then at the very least they know more or less -- they need to know, not just more or less, they need to know absolutely where they start with regards management and management position so that they can get the show on the road, that they can get it over and done with if they do want to go on strike.

But as I say, in our little corner of the universe, I am hopeful that we are not too far apart.

Craig, do you want to have a look at David Pleming's question?

Yes. I just don't know what he means by all -- by below the line, but I assume he's talking about all-in sustaining costs, which will be fairly in line with this year but with inflation increases.

I wouldn't be surprised if it's not something that [Allan's] already asked.

Below C1 costs, yes. I'm not sure what that is. But all-in sustaining costs will be pretty much in line with this year; maybe slightly up because of inflationary increases. And then we've already mentioned, or we've covered the capital guidance for next year.

All right. Well, thank you very much, everybody. We're going to be around for a bit still. So if there are any more questions, we'd be happy to take them. And also, please make use of the opportunity to shake our Chairman's hand and see who's been driving it from behind the scenes.

Thank you very much.