In the media

Moneyweb Interview: John Sayers: CEO, DRDGOLD

View the video interview

Moneyweb: Welcome, and Durban Roodepoort Deep as it used to be known, DRDGOLD now, it’s 113 years old, John. Do you think there’s another 113 years left in the company?

John Sayers: I’m pretty satisfied there is, actually, Geoff.

Moneyweb: How do you see it changing? I mean, clearly mining has changed an enormous amount in the country over the last 100-odd years, and the sector is definitely a lot older than it used to be - how do you see mining in the country changing?

John Sayers: I see it becoming much more efficient. For example, we use hydraulic jacks underground; we don’t use timber, which is also safer as well. I see it becoming much more efficient, a continued focus on cost, and I do believe genuinely there’s another geographic Witwatersrand Basin under the existing one at about 5 000m. And I think you’ll probably see people getting quite interested in that at current gold prices.

Moneyweb: That’s a very far way down underground [laughter]. Do we have the technology at the moment to mine that deep consistently?

John Sayers: Yes, we do. In fact, in Sweden you’ll find that miners already live underground when they work, and that’s probably what you’ll have to do at 5 000m.

Moneyweb: How long would it take to get down 5 000m?

John Sayers: Well that’s why the miners would have to work down there, because it’ll take all day to get down and all day to get back.

Moneyweb: [laughter] Kind of ups your productivity levels, but if we look at how it would work then, in terms of DRD’s mines, clearly you’ve got quite a few old mines, how would they change? Are you looking to the future to mine that deep going forward?

John Sayers: Well, we do have one prospect, Argonaut, which we’re drilling at the moment, which is that deep, but we don’t have any yield results at the moment. I think with the existing mines we’ve got stability, they’re running well. We’ve put a lot of focus onto costs and of course the one thing that DRDGOLD has going for it is the surface circuits that produce at about $500 to $550 an ounce. So there’s a good margin in that business, and in fact, we are seeing the efficiencies coming through in our underground mines at the moment. Unfortunately ERPM hasn’t turned around and today we issued a SENS notice that we’re entering into negotiations with the unions to reduce the workforce there.

Moneyweb: Talking about the unions, clearly a major part of your costs as DRDGOLD, and I want to get into costs a little bit later, is your workforce, it’s about 35% or there and thereabouts, there is a two-year contract now going forward - is that set in stone? Can that change given the high food prices, given the rumblings we’ve heard from unions over the past few weeks around the high price of living at the moment?

John Sayers: No, we have a contract in place for two years, but you must remember there are bonus schemes which do assist the individuals in earning significantly more than their base pay.

Moneyweb: And are your union members, are you in negotiations or not in negotiations, but are they feeling the pinch as much as people are expecting them to?

John Sayers: I think we’ve recognised, in the settlements we’ve reached, we recognised the situation, I mean, in ERPM for the RDOs, the rock drill operators, they have been behind in the industry, they got a 14% increase.

Moneyweb: Why didn’t ERPM turn around? Or what were the problems there?

John Sayers: It’s a difficult ore body, a good ore body but it’s a difficult ore body with a fault running through it which we’re addressing at the moment, and we’ve moved to a different strategy there. But at the same time we have reassessed costs, which every manager should do all the time.

Moneyweb: Talking about costs, is there any way to really bring them down at this point in time? How much leeway is there?

John Sayers: There is leeway. For example, efficiencies - we were 10% under our previous electricity consumption before Eskom started the issues with their load shedding, so we’re saving quite a bit there. There are efficiencies to look at, but we’re satisfied that we’ve got a good handle on our costs.

Moneyweb: Is there a tipping point where, in terms of clearly the gold price has come down a little bit, it is a lot higher than most people had expected it to be - is there a point where you say, OK these operations are no longer viable at the lower gold price?

John Sayers: It would have to be a very, very low gold price, because our assets are at around about the $250 to $280 an ounce mark. It’s really a question of mining efficiently, which we believe we do pretty well.

Moneyweb: How much more efficient can you get?

John Sayers: That’s difficult to say, but we think there’s as much control required as there is efficiency to come through.

Moneyweb: In terms of the gold price itself, clearly the last time I chatted to you, you said you did see a gold price in the $1 000 level, it did get there, it has come down quite a lot since then, it’s around 880 at the moment. Where do you see it going forward?

John Sayers: We’ve still got 1 000 as a target. We believe it’s moving in quite a nice tunnel at the moment, and we think with the problems in the world economy we’ll see 1 000.

Moneyweb: Is there, or how much of the flexibility or the elasticity in the price comes into play now, with gold prices this high, we’re seeing jewellery demand slackening, that sort of thing - are you concerned that that might go or continue?

John Sayers: No, I think you’re bound to see a reaction to the high price of gold, but it’s becoming as much a currency of defence as it is a jewellery product, and I think that’s going to be quite heavy with the threat of recession coming through, comments from the States and the rest, so we’re satisfied the demand is there. At the same time, output is dropping, and of course we have a wonderful cushion in the dollar/rand exchange rate.

Moneyweb: Where do you see that going, or I’m not asking you to call the currency because that is $100m question but where would you like it, as DRDGOLD?

John Sayers: I think we would like it at whatever the market requires, because the market recognises the gold price in the rand. So as you will have seen, it strengthened when gold went to 1 000, it’s come off now gold’s come down.

Moneyweb: Talking about power, clearly DRD, because of the surface operations, hasn’t been as affected as other gold miners, by the power cuts. You were under the 10% threshold already. Has that impacted you since then? Have you seen any impact really?

John Sayers: No. We lost some gold when we had to close for safety reasons in January for five days, but other than that, all our operations are running productively and within the targets set for them.

Moneyweb: Are you happy that you can continue then as normal almost with the 10% reduction that looks certain to go on for a couple of years still?

John Sayers: The only thing that we can’t call is what happens when winter comes. That’s the only thing we can’t call. Other than that, it’s not really having an effect on our business at all.

Moneyweb: How has the interaction between the mines and Eskom been? Has there been a very good relationship so far?

John Sayers: Certainly I think that, if I look at the industry, yes I think there is. I mean, we all understand the problem, and hopefully Eskom, I do believe, understands how important the industry is to this economy.

Moneyweb: And if there is significant load shedding in winter as the doomsayers have predicted, what might that do to DRD?

John Sayers: Well, our first thing is safety. If we’re not satisfied that we’ll get enough notice of a power-out, then I’m afraid we won’t be able to operate our mines.

Moneyweb: Talking about safety, that has been a big issue on South African mines for a good number of months now - is it getting better? What’s being done to get it better? And how much better can it get?

John Sayers: Well, I think there’s a long way to go. I think that our behavioural-based safety programmes are really beginning to have an impact. We haven’t had a fatality now for a long, long time, and I think that the programmes are coming through. But I do think there’s a lot that can be done and one thing we’ve found is, safety is a matter of reinforcement. You can’t not do it on a regular basis, training.

Moneyweb: In terms of the interaction with the Chamber of Mines, there was that safety audit that was proposed - has that happened? Is it finished? What is the status quo?

John Sayers: Well, Blyvoor’s been through the safety audit, it’s one...

Moneyweb: That was the ...

John Sayers: Yes, it’s won the safety award for 10 years running, it’s now got an award for safety from the government.

Moneyweb: And are there likely to be any further safety-type audits from the Chamber across the industry, or is that not really mooted?

John Sayers: Yes, they can happen any time, and certainly when there is an accident, there is an audit.

Moneyweb: And if we look at the other costs, obviously oil, those sorts of things, how is that impacting the business?

John Sayers: Oil impacts everything, because everything’s got to be transported, and that uses energy. So when we look at our forecasting, we have significantly moved up the inflation rate for next year.

Moneyweb: And what other challenges do you see on the horizon for DRDGOLD?

John Sayers: I think we see, we have a string of investments to make for growth, and the trick is to bring those through. ERPM, we’re looking at a new mine, we have some consultants looking at a new mining method at the moment. We’ve got the Way Ahead project at Blyvoor, which is beginning to bring results, and we’ve got Ergo which will come on-stream late this year for gold, and that will be a $500 producer, and I think that’s a tremendous growth prospect.

Moneyweb: Talking about Ergo, in terms of the deal that you have done with Mintails, how big can that get? How many surface operations or tailings operations are there potentially in your sights?

John Sayers: There’s 1.7bn tons of material to process.

Moneyweb: And how much gold is there likely to be in that?

John Sayers: There’s an awful lot [laughter]. We can’t give a precise number because each dump, it’s either slime or rock, but the yield is different from each one. So what you will see in the Crown operations and Ergo is the yield will go like that, so at times you’ll get a tube of gold coming through, at other times you’ll get a steady state.

Moneyweb: And are you still on track to start by mid-09?

John Sayers: Absolutely.

Moneyweb: If we look at the various operations, you are releasing results on the 9^th, are you happy, is everything on target? What would you, what are you thinking as you go into the third quarter?

John Sayers: I’m thinking I’m a very happy CEO, got a good business.

Moneyweb: Well there you have it, John Sayers, a very happy CEO of DRDGOLD. That’s all from Power Lunch in association with Moneyweb.