[miningmx.com] — DRDGOLD has removed Blyvoor mine from its balance sheet; a move which CEO Niel Pretorius said shouldn’t be interpreted as an indication that the distressed asset would soon be shut down.
Posting annual results to end-June on Monday, the company took a R547.7m non-cash knock from the resultant impairment charge, which accounted for the group suffering an annual net loss (R415.4m). Pretorius said future capital windfalls resulting from the possible sale of the asset would be an upside to the group at the given time.
Blyvoor – DRDGold owns 74% of Blyvooruitzicht Gold Mining Company – in June proposed to begin business rescue proceedings in terms of the new Companies Act, after DRDGold suspended financial assistance to its last remaining deep-level mining asset.
Since then, AngloGold Ashanti said it would sell Blyvoor some 390,000 square metres of its neighbouring Savuka mining area for R35m, increasing Blyvoor’s potential to generate significant free cash flow – an important consideration for prospective lenders and suitors.
“There is a very real concern (in the SA mining industry) about companies selling assets down to someone with no real balance sheet,’ Pretorius said, reiterating a previous position that the ideal buyer should have the capital to keep the mine going for the next 18 or so months while further development was talking place.
He originally suggested Blyvoor would be profitable should it succeed in lifting output from the current 70,000 tonnes per month to 90,000 t.
“We won’t just be ditching the asset with the hardships that goes along with it,’ he said, referring specifically to Aurora’s conduct at Pamodzi Gold’s Grootvlei and Orkney assets. The “old’ DRDGold in 2005 also left Buffelsfontein in a haste, following the liquidation of the mine in the wake of an earthquake.
Should DRD not find a buyer for Blyvoor, it would consider operating the asset as a surface-only plant; or shutting it in an orderly fashion and thereby preserving it for possible future investors.
The business rescue process has been extended from August 12 to November 1, while Blyvoor succeeded in avoiding paying winter power tariffs to Eskom. “Our objective is to have certainty on a new Blyvoor structure by the end of this calendar year,’ said Pretorius.
Year-on-year, Blyvoor’s total gold production was 121,114 oz, up 14% from 2010’s 106,452oz and accounting for 75% of total production at the mine.
Underground cash operating unit costs rose by 5% to R342,123/kg. The mine achieved an operating profit of R70m, but this was surpassed by capital expenditure of R94.4m.
ERGO LEAP
Pretorius was keen to point out the success of Ergo, which recorded a 250% leap in operating profitability to R158.5m. Ergo’s gold production was 37% higher at 48,352oz due to an 11% rise in throughput to 13,206,000t and a 22% rise in average grade at 0.11g/t. Ergo’s total cash operating unit costs dropped by 11% to R205,436/kg.
Pretorius said recent research into securing improved recoveries from the Ergo circuit has produced encouraging findings and that the intention now was to “match science with appropriate technology’.
The 50km pipeline linking the Crown surface retreatment circuit to the west of Johannesburg with Ergo in the east was expected to be completed during the December quarter. Once operational, the pipeline would substantially increase Crown’s lifespan by providing access to Ergo’s increased tailings deposition capacity while creating retreatment synergies between Crown’s two plants and the expanded Ergo plant.
ZIMBABWE
Pretorius said work at the group’s various Zimbabwean exploration sites would continue for as long as initial results remained promising.
He said the group has taken a “what if’ point of view towards Zimbabwe.
“If Zimbabwe is now as bad as it is going to be, we’re in a pretty good state,’ he said, adding that the country might hold the world’s cheapest gold sources; unexplored former agricultural land with shallow reserves. DRD would also consider exploration options in Mozambique.
DRDGold holds a 50% interest in all its Zimbabwean projects, with local partners owning the remaining stakes.
INCREASE IN DIVIDEND
DRDGold recorded a total operating profit of R477m, up 76% from the previous year. A dividend of 7.5c/share was declared. Net cash generated was up 504% at R323.9m. However, the group still posted a net loss of R415.4m, largely due to the Blyvoor impairment charge.
