In the media

DRDGOLD to expand Ergo production

14 February 2012

[] -- DRDGOLD is to use some of its booming cash flows to fund the construction of additional treatment facilities at its Ergo plant, which will increase gold production by between 16% and 20% through higher recoveries.

CEO Niel Pretorius said at a presentation to financial media in Johannesburg on Tuesday that it would cost R250m to build a new flotation and fine- grind circuit.

That amount was equivalent to the net cash of R243.9m that DRDGOLD had earned from its operations in the December quarter alone.

DRDGOLD doubled its net profit to R165.1m for the December quarter (September quarter – R83.1m) despite a 3% drop in gold production to 63,659 oz (65,523 oz), thanks mainly to the 11% rise in the gold price received to R437,316/kg (R395,568/kg).

Group cash operating costs dropped 2% to R292,988/kg (R297,808/kg) and, following the sale of the Blyvooruitzicht (Blyvoor) mine to Village Main, DRDGOLD’s costs in future will reflect only its surface dump recovery operations.

These amounted to R263,569/kg (R260,189/kg) for the December quarter.

Pretorius said DRDGOLD had now completed the capital expenditure programme required to build the pipeline connecting its Crown and City Deep operations on the West Rand with its Ergo operations on the Far East Rand.

“That has come together nicely for us, giving DRDGOLD sufficient weight and economic life to be a recycling business. We now have the infrastructure in place to gain access to the remaining 11m oz of surface gold left.

“We are now working in very much an ultra-high volume environment, because the high-grade dump material is long gone.”

Pretorius pointed out that DRDGOLD’s total production cost was favourable when compared with underground operations, because ongoing operational capital expenditure amounted to about $42/oz of gold produced compared with between $150/oz and $250/oz for underground mines.

Turning to future dividend policy Pretorius said DRDGOLD “would not sit on excess cash” and would pay it out in dividends after allowing for capital needed for future growth projects and building up a “fall back” cash position of around R100m.

Pretorius indicated the Village Main shares received in payment for Blyvoor would be sold over time after an initial, agreed six-month holding period.

He said the proceeds would be dealt with in the same way as other cash flows and declined to be drawn on the issue of a special dividend. Pretorius added a particular concern on paying “multiple” dividends was the administration fees charged in the United States on DRDGOLD’s ADR stock listing.

Turning to DRDGOLD’s remaining deep-level asset – the untouched ERPM Ext 1 and 2 deposits on the East Rand situated below the former Sallies gold mine – Pretorius said R19m had been budgeted for further drilling work over the next 12 months.

He added these deposits sat adjacent to the ground owned by JSE-listed Goliath Gold and, judging by the market valuation accorded Goliath, the value attributable to DRDGOLD shareholders could be around R500m.

“There’s no recognition of that in our market capitalisation at this stage. We will be working to raise awareness of this asset.”