DRDGold says it is stable, but ERPM needs turnaround

DRDGold (JSE:DRD, NASDAQ:DROO) chief executive officer John Sayers says the former embattled mining company has reached stability over the past half year and now has a platform for growth, but the company is yet to implement successful turnaround plans at its strategic East Rand Proprietary Mines (ERPM) in South Africa.

DRDGold is currently awaiting the outcome of a feasibility study for the ERPM Extension 1 project which could be the solution to ERPM's struggles as the project would double current production volumes from existing infrastructure. Sayers said the project would be successful in turning ERPM around as the orebody contained similar gold grades to the current ERPM mine and the company would use cheaper methods to mine it.   

While the company is waiting for the feasibility study on the ERPM Extension 1 to be completed, it has cut costs by retrenching about 300 workers from this mine and apportioning water pumping costs. Niel Pretorius, managing director of DRDGold SA and group CEO designate, said the company has realised a saving of R40m ($5.17m) annually with the measures taken while the feasibility study was underway.

With these measures taken, DRD was confident it could break even at ERPM on cash after capex in the next financial year.  

The company completed a conceptual study to determine how to best access the ERPM Extension 1 orebody in the last quarter. As a result, the company plans the development of a "pay-as-you-go" decline circumventing the current incline belt that is under much stress since it runs at too steep an angle of 14 degrees.  

The planned "pay-as-you-go" decline will enable the comany to mine the orebody from three points of attack, while it uses new technology that is both safer and more reliable.  

Sayers reminded that ERPM, which made a cash operating loss of R2.3m ($297,732) in the last quarter, was of strategic importance to DRDGold as it supplied water to its surface circuit and was host to the Elsburg dump that will be mined by the ERGO joint venture.

"The strategic value of ERPM will become evident in other operations such as the surface circuit once the company reaches the break even point," he said. 

At Blyvoor, DRDGold has achieved the stability it envisaged for the operation over the last half year with gold production showing a steady increase to over 34,000 ounces per quarter from a low point of 32,000 ounces in March this year. In the last quarter, total gold production increased by 7% to 34,561 ounces, while the company reached a milestone of one million fatality free shifts in the period.  

The Five Shaft Way Ahead Project at Blyvoor to access the orebody between 27 and 35 level from this shaft is "ready to go" and values in the targeted areas in the shaft are "encouraging".  

Pretorius said the company once again did well at its Crown Mines in central Johannesburg where production has been stable and above 21,000 ounces in the last quarter. The company has also received notification by the department of minerals and energy that its mining right for the Top Star dump, "a fairly lucrative resource with good NPV", is now imminent. Pretorius said it could be issued within a day.

Sayers said the company has had two quarters of sustained performance and the business now had a platform for very sound growth to 400,000 ounces of production by 2011.  

DRDGold today said it was proud of the 57% increase in its cash operating profit to R364.3m ($47m) for the 2008 financial year ending 30 June. The rise in profit came as revenue increased 20% to R1,843.9m ($238m) on the back of a 29% increase in the average gold price received to R192 143/kg ($24,872).

The group recorded a net profit of R1,225.1m ($158m) for the 2008 financial year compared to the previous year's loss of R1,165m.  

The company's gold production declined by 33% to 321,432 ounces for the year as it withdrew from Australasia and restored South African operations to stability.