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Q4 recovery unable to salvage DRDGold’s Ergo-dented FY showing

2nd September 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Despite a welcome but somewhat unforeseen production recovery by DRDGold in the fourth quarter of its 2014 financial year, the tailings retreatment specialist was unable to fully recover from the effect of the April shutdown of its Ergo processing plant, which depressed output for the year ended June 30 by 9% to 132 909 oz and, ultimately, swung the group to a loss of R54.7-million.

“The income statement for the year does not make for pretty reading… [but] the [quarterly and full-year reports] are two very different sets of results.

“We kicked off the year with huge expectations and then we just didn't get it right with the new technology and had to take a few steps back,” CEO Niël Pretorius told investors on Tuesday, referring to the issues the company had been experiencing at its East Rand gold-from-slime recovery flotation plant.

Mining Weekly Online reported in May that the one-time reputed world leader in surface gold tailings retreatment was forced to suspend the recently constructed high-grade section of its faltering new flotation/fine grind (FFG) circuit on April 4 to determine the cause of metallurgical problems that had resulted in reduced, rather than elevated, gold recovery.

Pretorius said the company had employed an independent analyst to investigate the cause of the plant’s underperformance and had since spent some R2-million a month to deal with the identified issues.

“The actual engineering and theory behind the plant itself was bang on target, but it is what we did with the additional gold [that caused the problems],” he commented.

Noting that there remained “about three months” of testwork ahead, Pretorius said that DRDGold had corrected the problems associated with the water balance, carbon efficiencies and thickeners, but had yet to determine the full extent of the impact of float reagents on recoveries, as well as the extent to which the high-grade section impacted on overall recoveries.

“Action measures” that had, thus far, been implemented included the restoration of the low-grade carbon-in-leach section to steady-state; the sourcing of new, high-grade material to supplement yield; and the implementation of carbon efficiencies and water management through engineering and infrastructure upgrades and management protocols.

“The high-grade circuit still needs to be tested in isolation to the circuit until proven,” he added, noting that around a third of the flotation circuit was currently fully operational.

Notwithstanding its plant challenges, the gold producer would remain “fully committed” to remaining a technology-driven tailings extraction business.

“The FFG circuits are key to the opportunities we think our technology-based model can unlock. We will continue with our research and development and our focus will remain on technology in the future,” Pretorius asserted.

QUARTERLY RECOVERY
The NYSE- and JSE-listed group recorded a 13% increase in gold production to 34 143 oz and a 5% rise in revenue to R447.4-million for the quarter ended June 30, offsetting the impact of a 4% drop in the average rand gold price received to R437 770/kg.

A quarter-on-quarter increase in cash and cash equivalents allowed DRDGold, despite a “very challenging” third quarter, to declare a dividend of 2c apiece – the seventh consecutive year the company had declared a dividend.

“This dividend was under threat in the third quarter, but we ended the year in a position to pay a small dividend without distorting the other measures,” said Pretorius.

He attributed the improved operating and financial performance in the quarter under review to the decision to declare “time out” on the new high-grade section at Ergo to stabilise the operation of the established low-grade section and to prepare the high-grade section for further testwork.

Higher gold production resulted from a 5% increase in throughput to 6.13-million tons, a consequence of fewer power- and weather-related disruptions, and a 7% rise in the average yield to 0.17 g/t, owing mainly to improvement in loaded carbon efficiency.

Cash operating costs during the quarter dropped 8% to R379 039/kg, reflecting the increase in gold production, while all-in sustaining cash costs were 27% lower than the prior quarter at R339 315/kg.

Operating profit, at R52.6-million, was 3% higher than the third quarter and the cash operating margin improved by 44% to 13%.

Earnings before interest, taxes, depreciation and amortisation strengthened substantially to R114.1-million from R16-million and headline earnings of 10c a share were recorded, compared with a headline loss of 7c apiece in the third quarter.

FULL-YEAR DECLINE
Results for the full-year, meanwhile, reflected the negative impact of problems during the year relating to the integration of the high- and low-grade sections.

While throughput year-on-year increased 3% to 23.9-million tons, this did
not offset the impact of a 12% decline in the average yield to 0.17 g/t.

Consequently, gold production was 9% lower, at 132 909 oz, narrowing gold sold by 8% to 134 420 oz.

Cash operating costs were 20% higher, at R372 671/kg, owing also to lower gold production, while all-in sustaining costs rose 10% to R401 691/kg.

“This cost increase was the result of a fully operational circuit that was eating cash and not giving returns,” outlined Pretorius.

FUTURE PLANS

DRDGold expected testwork on the FFG circuits to continue until at least the end of the second quarter in 2015, the results of which would inform the rate of build-up of material passing through both the high- and low-grade sections to full capacity.
Ergo was now also successfully processing higher-grade material sourced “over the fence”’ from an independent operator, while similar cooperative ventures would be considered to take full advantage of its “considerable” infrastructure.

“We are actively setting our sights on extending the reach of Ergo, either through cooperation or acquisition and will continue to entertain this model to optimise our reach and supplement our resource,” he concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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