Gold price, exchange rate fuels threefold profit increase
09 May 2008
Power cuts, ERPM grade drop-off reduce production
Johannesburg, South Africa. 9 May, 2008. DRDGOLD Limited (JSE: DRD; NASDAQ: DRO0) reported a 199% increase in cash operating profit to R142.2 million for the quarter ended 31 March 2008, reflecting a 32% increase in the average gold price received to R228 836/kg.
Gold production was 9% lower at 70 378oz, due both to the negative impact of power utility Eskom’s power cuts in January at the underground operations and to a significant drop in underground grade at ERPM.
Cash operating unit costs increased by 2% to R162 806/kg.
CEO John Sayers said it was estimated that, had it not been for the power cuts, the company’s operations would have produced an additional 3 000oz.
“For so long as South Africa’s current power dilemma continues, it will be difficult to anticipate operational performance going forward,” Sayers said.
“However, provided that Eskom is able to continue to supply power at 95% of its previous level and to continue to give notice of impending cuts, we remain optimistic that - all other operational factors remaining stable - we will be able to maintain current production levels.̶
Sayers said the decline in underground grade at ERPM was “an unfortunate reversal” but the pattern of declining production and rising costs over a number of quarters could not be allowed to continue.
“Management anticipates a re-organisation and re-sizing of ERPM’s underground operations and as a consequence, has entered into a 60-day, facilitated process of formal consultation with representative unions, as required by the Labour Relations Act.”
Sayers said that, while it was fortuitous that the power and ERPM situations came at a time of gold price bouyancy, “we are conscious that we cannot fall into complacency and that our drive to return our operations to sustainable stability must continue apace. Further, we must continue to pursue growth in terms of both our various brownfields underground projects and surface retreatment”.
Regarding Crown Gold Recoveries’ application for a mining licence to mine the Top Star dump, south of Johannesburg’s Central Business District, Sayers said: “In our view we have complied with all of the requirements. We enquire weekly regarding the progress of our application and still await a positive response from the Department of Minerals and Energy.”
At the Ergo JV with Mintails, Sayers said, Phase 1 refurbishment of the Brakpan plant is on track, the site establishment plan for recovery of the Benoni dump has been finalised, preparations for the installation of the necessary pipelines have begun, and the rehabilitation contract for the Brakpan tailings facility has been awarded.
“In respect of Ergo Phase 2, a specialist process engineer has been appointed in an overseeing capacity, consultants have been appointed to conduct uranium and sulphuric acid feasibility studies and dump evaluation continues.”
James Duncan, Russell & Associates
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Barbara Cano, Breakstone Group International
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Many factors could cause the actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, adverse changes or uncertainties in general economic conditions in the markets we serve, a drop in the gold price, a continuing strengthening of the rand against the dollar, regulatory developments adverse to DRDGOLD or difficulties in maintaining necessary licences or other governmental approvals, changes in DRDGOLD’s competitive position, changes in business strategy, any major disruption in production at key facilities or adverse changes in foreign exchange rates and various other factors.
These risks include, without limitation, those described in the section entitled "Risk Factors" included in our annual report for the fiscal year ended 30 June 2007, which we filed with the United States Securities and Exchange Commission on 14 December 2007 on Form 20-F. You should not place undue reliance on these forward-looking statements, which speak only as of the date thereof. We do not undertake any obligation to publicly update or revise these forward-looking statements to reflect events or circumstances.