John Sayers, CEO, DRDGOLD
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Power shortages to dent DRDGOLD's revenue
Julie Bain
Posted: Thu, 21 Feb 2008

[miningmx.com] -- SOUTH Africa's power shortages will cut DRDGOLD's revenue by R12.5 million in the first three months of this year -- the company's third financial quarter.

"The estimated impact on revenue is about R12.5m," Niel Pretorius, CEO of DRDGOLD's South African operations, said at the company's second quarter results presentation. The company posted a four percent decline in December quarter revenue of R417m because of reduced output.

South Africa's mining companies and heavy industry have been asked to cut their electricity usage by 10% as state power utility Eskom struggles to keep up with demand after declaring force majeure on 25 January, effectively halting mining for a week.

"We have had to move our pumping schedule around. It would be a convenient excuse for this quarter, it is not one we will avail ourselves of, other than the R12.5m impact on revenue," said group CEO John Sayers.

DRDGOLD's South African gold output fell 13% in the December quarter to 77,259 oz compared to the same quarter last year, with the main reason being the loss of production at its Blyvoor mine, which was temporarily shut down for seven production shifts after two fatal accidents there in October.

Sayers declined to give a production target for the year but said historically output in the third quarter (the company's financial third quarter is January to March) was similar to the first quarter. Production in the first quarter of this financial year (July to the end-September) was 89,157 oz.

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DRDGOLD subsidiary Crown has significant mine dumps it is processing for gold. It is probable there are decent amounts of uranium in these dumps around Johannesburg and the company intends assessing any potential there may be for adding to future revenue.

Pretorius said consultants had been engaged to explore any uranium potential which might lie in the dumps. He added that "there was 1.7 billion tonnes of material capable of being put through the processing plant over the next few decades."

In the quarter to the end-December, DRDGOLD's South African cash operating cost rose to $703/oz (R153,690/kg) compared to $505/oz (119,388/kg) in the same quarter last year.

It received a gold price in the three months of $797/oz (R173,606/oz) compared to $617/oz (n R145,909/kg) in the December quarter in 2006.

Sayers said that the weaker rand may help cushion the impact of inflation on the company's costs.

"The rand will drop and that will increase the rand price of gold. We have got inflationary pressure but on balance we should maintain our margins," he said, adding that the fact the company had reached a two-year wage agreement would also help limit cost pressure.

DRDGOLD, which in the last year has sold its overseas assets to focus on its three South African operations, the Blyvoor and ERPM mines and its Crown recovery operations, reported net earnings of R84.5m in quarter, down from R964m in the previous quarter.

Earnings, though, improved year-on-year with a loss of R921.5 million recorded in the same quarter in 2006.