BUSINESS DAY TV: DRDGold top line not in sync with bottom line
Niël Pretorius, CEO of DRDGold, speaks about interim results, which show a headline loss as it started the final clean up and closure of its Crown sites
BUSINESS DAY TV: DRDGold has posted a sharp fall in interim profits after closing a number of sites, laying off staff and depreciating its assets. So while revenue was up 5%, the miner has reported a headline loss per share of 2.4c compared with 2.6c per share a year ago.
CEO Niël Pretorius joins us in the News Leader studio now. Niël, so, the top line not translating to the bottom line for the period to the end of December. DRD not managing to leverage off the higher gold price as much as it possibly could have, with operating costs really eating into the 5% climb in revenue. So talk us through the weight you’re feeling and the extent to which that’s now under control.
NIËL PRETORIUS: Yes certainly. Operating profits were up 4% but obviously with us retreating out of the West Rand and with the associated costs and provisions that are required, the laying-off costs, depreciation of that particular site, and then also the favourable adjustment in long-term incentive value because of the higher share price, there was a swing of about 11c attributed to those three items.
The costs themselves we knew we were going to incur. We were moving systematically out of the far West Rand and more towards the central Rand. So there were two sites that we wanted to close properly, so it was production coupled with rehabilitation because once your infrastructure is gone, it’s just going to cost so much more to do that. That’s almost behind us. The one site has been closed off. The second one will finish, hopefully, not later than March.
And then there are three new sites that will, hopefully, restore our production throughput profile to where it was and with significantly lower unit costs coming off those particular sites.
BDTV: Give us guidance on the production side first of all because over the period we’ve seen gold output down 7% because of lower throughput, and of course that 6% drop in yield as well.
NP: A combination of things, the major one being the fact that we were cleaning out those particular sites. So the rate of throughput is not erratic but it’s not as consistent as you would require to keep the plant in balance. We’ve had some weather interruptions but those, by and large, we tend to overcome. We’ve put in systems to overcome that so the moment there has been a weather interruption, we can hit the ground running, virtually immediately. In the past we had interruptions of up to a week-long from time to time to clean out sites and to open up choking pipes and restart thickness, and that sort of thing. So that system is working quite well.
We’re mining grades that are slightly lower than what we had done in the past, but higher volumes will make up for that. So I believe that we’ve positioned ourselves nicely with this retreat. It’s a good systematic organised retreat into a new site, and hopefully the systems and the infrastructure and the resource combination will be such that we can leverage that going forward. A year ago, the gold price was roughly R130,000 per kilo higher than what it is now. With every three months, one quarter for us, that is at a tonne per quarter, R130m worth of revenue. So the fact that we haven’t really been eating into our cash supply, that we’ve been able to more or less maintain a neutral position from a profit perspective or an earnings perspective of normalising for those two non-cash items, gives us comfort as well as courage for the future. I believe we are very nicely positioned to take advantage of what is likely to be a higher gold price going forward.
BDTV: And you alluded to at a much lower unit cost as well, so what are the cost parameters you’re trying to work within on that front?
NP: Our efficiency parameter is obviously how much gold we can extract per tonne of material that we process through our plant, and then our cost per tonne. Your cost per kilo is more of an indication of the quality of your ore body than a true efficiency parameter. So if we can bring our costs to within R70 or R80 per tonne, which is what these new sites will enable us to do consistently, we are on a healthy unit cost profile or trend, and if we can obviously also maintain the current plant efficiencies which have been trending quite nicely now with some of the new material coming through, it does put us in a favourable position.
BDTV: What timelines are we looking at for those to start contributing, those new sites that have been commissioned?
NP: They’re already contributing towards better volume throughput. We are seeing some of the numbers in the plant itself improving as well because it’s a plant that treats 1.8-million tonnes of material per month at very low grades, 0.3gm a ton, so obviously the leads and lags are fairly significant and it’s very sensitive as well. We will probably start seeing some of the benefits flowing through to our stakeholders with effect from the new financial year. So I am anticipating better results from July, August and so forth. We’ve set aside this year as the year for repositioning, tying up the loose ends, repositioning ourselves, making sure that we’ve got these sites commissioned and ready to go, and then, hopefully next year, we can hit the production focus a lot harder.
BDTV: Yes, and refocusing at a time when that gold price is climbing steadily higher. What’s your outlook on the gold price moving forward because certainly, at this stage, we’ve got global uncertainty lending bulk of the impetus?
NP: The US is increasing interest rates and that usually weighs a little bit on the gold price, it pushes down the dollar gold price to an extent. How the market will interpret that and apply that going forward, I really don’t know. I do believe though that the euro might be vulnerable. The political dispensation necessary to support the euro debt structure is disintegrating and that might bring about a degree of uncertainty with regards to the future of the euro. So from an investment perspective, one might see improved demand for gold, and then maybe there isn’t enough physical gold out there to deliver in to all the positions in physical gold delivery that needs to be closed out at some point or another.
We’re getting a flurry of banks approaching us with hedging arrangements and so forth, so they have to cover some sort of a delta at some point or another. We don’t know what the open positions are because they don’t have to declare that. But I believe there may be a shortfall, a squeeze in the physical availability or the physical supply of gold in order to cover current paper gold positions. And that could be very good for us.
BDTV: That could be very good, but then you’ve got to consider the political dispensation here at home to support mining business in SA. How are you feeling about that right now because regulatory uncertainty is top of mind?
NP: Absolutely and there has been a lot of noise in the media lately about that. Both parties have started to use much more robust language in explaining their positions. In the past it was, as long as we don’t offend, and then maybe communications where ... there was probably a bit of static on the line. Those communications are now far more unambiguous and not everybody is equally pleased with everybody else, if I may use that ambiguous description of the current situation. What we are finding though, is if you were to isolate the actual issues in dispute, the previous mining charter has run its course and now it’s a matter of interpretation.
The new mining charter has to be implemented at some point in the future, and there has been robust interaction and consultation behind the scenes on what could work and what could not work. I’m cautiously optimistic because while government’s primary stakeholder is its constituency and it needs to deliver to those expectations, and our primary stakeholders are our shareholders and we’ve got to deliver into those, at some point or another, sensible people will achieve the necessary overlap to make it work for both of us as we have in the past and I’m sure we will in the future.
BDTV: Let’s hope so...