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DRDGold cracks it for once
Brendan Ryan
Posted: Fri, 09 May 2008
[miningmx.com] -- Way better-than-expected March quarter results from DRDGold show what can be achieved on the back of the soaring gold price provided a mining company keeps control over its costs and production levels.
The marginal gold miner posted a cash operating profit of R142,2m for the March quarter which is nearly treble the R47,6m profit for the December quarter.
Headline earnings rocketed to 27,5c a share compared with just 2.4c a share in the December quarter and a loss of 21,2c a share in the March 2007 quarter.
The fundamental factors underpinning these financial results are that DRDGold’s production fell only 9% to 70,378oz (December quarter – 77,259oz) while cash operating costs rose 6% to R162,806/kg (R153,690/kg).
Analyst estimates were for a much sharper drop in gold output with JP Morgan predicting that DRDGold would produce just 51,000oz in
the March quarter because of the Eskom power problems and the Christmas holiday breaks that fall into this quarter.
DRDGold CEO John Sayers attributed the drop in output to a combination of lower grade from the ERPM mine and the Eskom power problems. He noted that production would have been 3,000oz higher were it not for the Eskom power cuts.
On the basis of that performance DRDGold reaped the full benefit of the soaring gold price which was 32% higher at R228,836/kg (R173,606/kg).
The $64,000 question is whether DRDGold can maintain this kind of performance.
Sayers said, “Provided Eskom is able to continue to supply power at 95% of its previous level, and to continue to give notice of impending cuts, we remain optimistic that – all other operational factors remaining stable – we will be able to maintain current production levels.”
DRDGold is restructuring ERPM which underperformed badly in the quarter showing a 21% drop in overall gold production to 17,362oz which resulted mainly from a 34% drop in underground yield to 4.68grammes/tonne.
Sayers commented, “the decline in underground grade at ERPM is an unfortunate reversal. The pattern of declining production and rising costs over a number of quarters simply cannot be allowed to continue.”
He said DRDGold was fortunate that the gold price had compensated for these
operational problems but added, “we are conscious that we cannot fall into complacency and that our drive to return the South African operations to sustainable stability must continue apace.”
DRDGold’s future growth is increasingly viewed as being dependent on its surface dump retreatment operations through subsidiary Crown Mines and also through the JV with Mintails which is re-establishing the former Ergo operation on the East Rand.
So Sayers’ apparent frustration with the Department of Minerals and Energy (DME) over permission to treat the Top Star dump south of the Johannesburg CBD is understandable.
He commented; “In our view we have complied with all the requirements for a mining licence to mine the Top Star dump. We enquire on a weekly basis regarding the progress of our application and still await a positive response from the DME.”
Sayers added the refurbishment of the Brakplan plant in terms of the Ergo JV with Mintails remains on
track.
The writer owns shares in DRDGold
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