Thu, 21 Apr 2005 - Official Announcement [ST]

DRDGOLD - third quarter activity report


Following a year in which the company distinguished itself with an outstanding safety performance, the quarter under review has seen a disheartening deterioration, specifically at the South African operations. The deaths of five employees were recorded in work-related incidents: four at the North West Operations and one at East Rand Proprietary Mines Ltd (`ERPM`). An enquiry into the deaths of two employees at the North West Operations in an underground transport-related incident attributed the cause to deliberate non-compliance with safety policies and procedures. Two employees died in the earthquake that struck the North West Operations on 9 March 2005, and the fatality at ERPM was similarly seismicity-related. The exposure of employees to seismicity risk was a factor in the decision to apply for the provisional liquidation of Buffelsfontein Gold Mines Ltd. A consequence of these fatalities is a renewed focus on both behaviour-based training and underground support standards. Encouragingly, investigations in the aftermath of a seismic event at Blyvooruitzicht Gold Mining Company Ltd`s (`Blyvoor`) No. 5 Shaft during February revealed that underground support was up to standard and the particular efficacy of the rapid-yielding hydraulic props that had been applied extensively.


Production

Gold production for the quarter was 16% lower at 187 651 ounces (5 836kg). This reflects a decline in gold production at both the North West Operations in South Africa and at the Australasian operations of 37% and 10% respectively. The North West Operations continued to experience a series of reversals during the quarter and the holding company, Buffelsfontein Gold Mines Ltd, was put into provisional liquidation on 22 March, 2005. Continued, successful implementation of the new mining plan at Blyvoor in South Africa, however, resulted in a 6% increase in gold production to 39 995 ounces (1 244kg), thus restoring the mine to breakeven.


Costs

Ongoing cost improvements at Blyvoor are encouraging, restoring the mine to profitability. Higher world oil prices, however, impacted negatively on cost at the Australasian operations.


Financial

Cash and cash equivalents increased to R145.8m from R143.1m in the previous quarter and the current ratio improved to 1.12 from 0.84.


Gold market review

The average gold price received for the quarter, while virtually unchanged in US dollar terms at USD431 per ounce (USD433), was 2% lower in rand terms at R83 341 per kilogram (R84 843) due to the sustained strength of the South African currency. Consequently, all of the company`s South African operations faced continued rand-driven revenue and cost pressures. Overall, volumes in the gold market have been flat globally, while lending rates available from Central Banks have reached historic lows, a clear indication that hedging as an instrument has all but lost its lustre in the current environment. These are encouraging facts and it provides further evidence in management`s continued belief in a higher gold price. Management are also encouraged by the decision last week of the South African Reserve Bank to lower interest rates by 50 basis points. The continued high interest rates environment in South Africa has had a dramatically negative effect on the local currency and thus the export sector, which has suffered under a strong rand.


Corporate developments

All efforts in the quarter under review have been directed at restoring the company as a whole - and its South African operations in particular - to stability following a dismal, preceding six months. Undoubtedly, the most far- reaching development was the provisional liquidation of Buffelsfontein Gold Mines Ltd and the consequent discontinuation of mining at the North West Operations. The effect of this was to immediately staunch the unsustainable drain on DRDGOLD`s resources, thus providing a platform for recovery and future growth. Other measures taken to reach this stage have included a 30% reduction in DRDGOLD`s corporate headcount, a 50% cut in corporate costs and the sale of the company`s Johannesburg corporate office.


During the quarter DRDGOLD focused on its funding requirements:

- R38m was received from Consolidated African Mines/JCI Ltd in respect of an outstanding legal dispute; and
- a subscription agreement was entered into with Baker Steel Capital Managers LLP (`BSCM`) on behalf of BSCM clients. In terms of this, DRDGOLD will raise, in aggregate, R93.5m through the issue of new, ordinary, no par value shares in the stated capital of DRDGOLD to BSCM clients through a specific issue of shares for cash.
- an underwriting agreement to raise R86.9m through the issue of new ordinary no par value shares in the stated capital of DRDGOLD through a claw-back offer.

DRDGold claims it will rise from mine-liquidation ashes



Marginal South African gold-miner DRDGold yesterday said that remedial actions taken during the past quarter, coupled with a continued turnaround at the South African operations' Byvooruitzicht mine, have established a sound platform for the company's recovery and future growth.

Chief executive officer Mark Wellesley-Wood noted that key among these actions was the provisional liquidation of Buffelsfontein Gold Mines and the consequent discontinuation of mining at the North West Operations.

Last month's shutdown of the Buffelsfontein and Hartebeesfontein mines came after a strong rand and low productivity eroded profits at the operations, which recorded a loss of R270-million for the last quarter of 2004 – 75% of the group's total loss for the period.

The group said yesterday that the focus on better production and the liquidation of Buffelsfontein Gold Mines meant that DRDGold reported a 16% decline in gold production, to 187 651 oz (5 836 kg) for the quarter ended March 31.

The effect of the liquidation of Buffelsfontein, Wellesley-Wood said, was to immediately staunch the unsustainable drain on the company's resources, particularly from its offshore operations, in the preceding six months.

As a result of the shutdown of the North West Operations, Wellesley-Wood pointed out that more than 50% of the group's production now comes from the Australasian region – some 319 000 oz/y, opposed to 259 000/y from its South African assets.

However, the majority of DRDGold's reserves and resources remain in South Africa, a fact that demonstrates the group's commitment to the country, Wellesley-Wood added.

Meanwhile, DRDGold will also focus on expanding its reserve base offshore, in a bid to replace mined ounces to beyond 2010.

Other remedial measures during the quarter have included a 30% reduction in DRDGold's corporate headcount, a 50% cut in corporate costs and the sale of the company's Johannesburg corporate office.

Funding for future growth has also been a major focus in the quarter under review, Wellesley-Wood said, with the key contributors being a R180-million share issue and clawback offer and R38-million recovered from JCI and Consolidated African Mines.

Although gold production from the company's Australasian operations was 10% lower, at 79 334 oz (2 467 kg), due mainly to mining and ore treatment difficulties at Porgera and to disappointing results from Emperor, production from the South African operations, excluding the discontinued North West Operations, was slightly higher, at 60 733 oz (1 889 kg).

A 6% increase in gold production at Blyvoor, to 39 995 oz (1 244 kg), reflects both continued application of the new mining plan, together with further throughput improvements achieved at the slimes dam project, the gold producer said in a statement.

Underground gold production was 7% higher, at 33 115 oz (1 030 kg) and surface gold production 4% higher, at 6 880 oz (214 kg).

Development at Blyvoor, focused on 5 and 6 shafts, increased by 76%, to 453 square metres. The mine's productivity, in terms of grams per total employee costed (g/tec), increased by 6%, to 124,75 g/tec.

Wellesley-Wood also revealed that a six-month project is under way to determine the viability of re-establishing mining operations from Blyvoor's 2 shaft sub-shaft, at an estimated capital cost of R50-million ($8-million). If viable, this project could restore the life-of-mine to 20 years.

At the slimes dam project, an investigation is in progress to determine the potential for increasing throughput by 33%, from 240 000 t a month to 320 000 t at an estimated capital cost of R7-million.

Gold production from the 40%-owned Crown Gold Recoveries (CGR) ERPM and Crown surface operations was 4% and 8% lower, respectively.

At ERPM, technical problems - now resolved - led to a 7% decline in underground gold production, to 7 433 oz (231 kg), while gold production from the Cason surface retreatment project was 6% higher, at 2 662 oz (83kg), reflecting a 17% improvement in yield to 0,42 g/t.

"The South African operations are now running at a breakeven situation, meaning the option is 'back in the money'. Our balance sheet health has been restored and this, together with our offshore cash flow, is now available to establish a new platform for growth," Wellesley-Wood concluded.