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Niël Pretorius, CEO – DRDGold

Miner narrowed its loss and withheld paying a dividend.

SIKI MGABADELI: Gold producer, DRDGold, narrowed its loss in the interim period to end December and withheld paying a dividend as it focuses on paying down debt. The company, which extracts gold from on-surface tailings dumps, reported a net loss of R2.8m for the six months, as compared with a loss of R26.4m before. We’re chatting now with the CEO, Niël Pretorius. Niël, thanks so much for your time this evening. You saw a 6% increase in output as well, how are you going about getting those improved yields?

NIEL PRETORIUS:  The improved yields are really a function of the stabilised plant and we’ve also managed to pretty much stabilise volume flow into the plant through this period. After having suspended the flotation and fine grind plant in April of last year we also did some test work, which gave us valuable information, which we’re applying on the metallurgical mix in the plant itself and that all seems to be coming together quite nicely.

SIKI MGABADELI: How do you plan to optimise the performance of that plant in the circuit?

NIEL PRETORIUS:  Well, we did three months of planning towards the end of last year and we were running the plant at only one third of its capacity. In January we started both the additional two circuits, the flotation and fine grind, and this is now aimed at producing a concentrate, which contains gold that previously did not respond to our metallurgical process and that should give us about an 8% increase in recovery efficiency. So following the test work we are really now trying to get that part of the operation to a steady state and that should help us to offset in part some of the volume sacrifices that we’ve had to make because of electricity, and also diminishing grade that we’ll probably see over the next 12 to 14 years over the life of mine, if we can extend the life of mine to that point.

SIKI MGABADELI: How significant was the effect of the load shedding? What did you have to do?

NIEL PRETORIUS:  It wasn’t as bad as we thought it was going to be. I heard you referring to the headline loss, the fact is that the company managed to generate just over R110m in free cash flow over the six-month period and managed to pay down the better part of R77m of debt that was due at that time. Now that was despite the fact that we had load shedding on and off towards the end of the year. So it was not as profound or as significant as we feared it might be. We’ve since also agreed with Eskom on a consumption curtailment arrangement, in terms of which they don’t switch off the power but we use a little bit less power in the event that they require a reduction of load off the grid.

SIKI MGABADELI: And you’ve spent some money on backup generators?

NIEL PRETORIUS:  We have, yes, that’s part of the non-cash movements that you saw and there was obviously impact on the income statement, about R23m has been amortised over life of mine. That also helps us if there is an unannounced interruption in power supply to keep crucial portions of the plant going, so that once power is restored that you can go back to a stable state virtually immediately, so you don’t have a long start-up process after the interruption of the power supply.

SIKI MGABADELI: You also had the heavy summer rains to contend with.

NIEL PRETORIUS:  Well, we had one burst of summer rain in December, which marginally impacted production as well. One of the reclamation sites was basically out of action for about a week while we were busy unplugging a drain that had become clogged during a particularly heavy thunderstorm, about 89mm over an hour. But other than that it really hasn’t been a terrible year or it wasn’t a terrible period rain wise, it was just that one particular one. We have spent a bit of time and resources just managing the flow of water and through the plant and so forth, we’ve got additional reservoir capacity. So I think the water circuit on a whole, following some of the improvements that we made between April last year, when we suspended the flotation and fine grind through to December. Some of that is now also coming through to assist in just managing the volume throughput.

SIKI MGABADELI: Something else that you’ve been focusing on and you just touched on it, was paying down debt, where do you stand now, what’s your target?

NIEL PRETORIUS:  Well, we’ve got a final debt payment that’s due in August, it’s R77m, we’ve got just on R250m in the bank or just under that, we don’t need that much, we try to maintain about one month’s working capital as a cash buffer. We decided not to pay an interim dividend, we’ve been paying annual dividends for the last seven years and we’re very determined to have another one this year if circumstances allow but we thought that we’d rather get this debt out of the way, so we’ll be approaching the noteholders of the R77m debt and see if we can retire that prematurely and get that out of the way while we’re sitting on this surplus cash.

SIKI MGABADELI: Commodity prices have not been very favourable, what’s your feeling about where the gold price is?

NIEL PRETORIUS:  Well, the gold price in rand terms has not been as bad as in jurisdictions where gold is being produced in dollar terms, so the weakening of the rand has helped us quite a bit. We think that the fundamentals for gold are not bad, they’re certainly not worse than what they were when gold surged a few years ago and it does seem as though buying for investment purposes is picking up among some of the central banks. Look, the gold price will go up when Goldman Sachs decides it should go up, if I can express that [laughing].

SIKI MGABADELI: [Laughing]

NIEL PRETORIUS:  That’s a cynical view, not really. I think that because not a lot of capital is being spent globally on new projects and development and so forth that you may find that gold production globally will probably start going down or come under pressure and if gold purchase for consumption stays at current levels there might be a bit of a supply pinch in 18 to 24 months. So I think if producers can stay in business over the next 18 to 24 months and keep their costs under control and not be too frugal on necessary capex they might be in for a much improved situation after in the medium term, 18 to 24 months I believe.

SIKI MGABADELI: And you think you can manage to keep your costs down, I see cash operating costs are up about 5% but that’s not a huge margin.

NIEL PRETORIUS:  It’s not significant, we’ve got a three-year wage agreement, we managed to extend our wage agreement by another year. The price of cyanide stayed flat, the price of steel has actually come down a little bit, we don’t use as much electricity as many of the other companies, it’s only about 16% of our total cost. So we’ve got a fairly stable cost profile going forward, we are making money at this stage, as I say, we managed to turn about R120m free cash in the last six months, which was a busy time for us, it was a time of recovery and stabilising and test work and so forth. So that’s the ability or the capacity of this business. So if things stay the same, if the gold price stays at more or less at current levels in rand terms we should be able to see through the next 12 to 18 months and make a bit of money, and then hopefully take advantage of a much-improved situation, I believe, in about two years from now.

SIKI MGABADELI: Alright, we’ll leave it there, thanks for your time. Niël Pretorius is CEO of DRDGold.

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