JOHANNESBURG (miningweekly.com) – Johannesburg- and New York-listed DRDGold has gone some way towards honouring its first-quarter promise of restoring production levels, posting a 4% increase in gold output to 35 043 oz for the quarter ended December 31.

While acknowledging a 4% quarter-on-quarter decline in Ergo plant throughput to 5.856-million tons, CEO Niël Pretorius said at the company’s results presentation on Tuesday that the plant’s high-grade elution circuit contributed marginally to a 9% increase in the average yield to 0.186 g/t.

The Brakpan plant’s new flotation fine-grind (FFG) circuit was completed during the quarter under review, but took longer to build – and cost more – than initially planned.

This was largely owing to a decision to bring a third thickener online to maintain adequate float volume throughput, which lifted capital expenditure at Ergo by 6% to R55.6-million.

“However, I am also pleased to report that, on January 28, three days after we finally achieved full capacity throughput of all three flotation banks and full-scale operation of the high-grade elution circuit, Ergo cast the first 22 kg doré bar comprised entirely of gold flowing directly from the FFG circuit – a significant milestone for us,” Pretorius commented.

Higher gold production resulted in an 11% decrease in cash operating unit costs to R330 585/kg, while all-in sustaining costs narrowed 14% to R375 246/kg.

Revenue for the six months was 7% lower at R450.6-million, owing to a 4% decline to 35 043 oz in gold sold and a 3% drop to R413 359/kg in the average gold price received.

“However, after accounting for net operating costs, which were 11% lower at R366.5-million, operating profit was 17% higher at R84.1-million,” Pretorius noted.

The South Africa-focused gold miner’s operating margin improved from 13% to 20%, while the all-in sustaining costs margin increased from -2% to 9%.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 68% to R46.3-million, while the company swung from a headline loss of R12.5-million for the previous quarter to earnings of R900 000 for the period under review.

HALF-YEAR REVIEW

Meanwhile, looking to the six months ended December 31, gold output dropped 8% to 68 640 oz compared with the first six months of the 2013 financial year, owing to an 11% decline in the average yield to 0.179 g/t.

Plant throughput, however, improved 2% to 11.954-million tons, while cash operating unit costs rose by 19% to R351 557/kg.

“Capital expenditure at Ergo was 42% lower, at R107.8-million, as we neared the end of construction of the FFG circuit,” asserted Pretorius.

Revenue for the first six months narrowed 16% to R969.1-million, reflecting a 7% decline in gold sold to 71 437 oz, as well as a drop in the average rand gold price received to R420 616/kg.

After accounting for net operating costs, which, at R778.5-million, were 12% higher compared with the first six months of the prior year, operating profit tapered by 62% to reach R156.1-million.

Ebitda declined by 74% to R73.9-million, driving a headline loss of R11.6-million.

“Applying our established guideline of distributing about 30% of free cash flow, there is no room for considering distribution at this time. The board has, therefore, decided not to declare an interim dividend,” Pretorius noted.

CASH BUFFER

Looking ahead, he asserted that, owing to lower-than-planned gold production resulting from the late commissioning of the FFG circuit and because “easing into steady-state is only happening now”, the company’s approach to costs and capital expenditure would remain conservative to maintain an adequate cash buffer.

Moreover, with each component of the new circuit operational, DRDGold’s near-term objective would be to further synchronise the operation of all plant components.

“A simple leach and elution process now has an added four layers. These components all interact and need to be coordinated to achieve and maintain steady-state.

“By and large, the measures required to achieve steady-state are operational and within our control, and achieving this will continue to be our main priority,” Pretorius noted.