South African-based gold miner Durban Deep (DRD), which proposes to change its name to DRDGold, is well positioned for the December quarter, having succeeded in reducing costs, the company said on Thursday.
“We have done the restructuring. We have gone through the pain and now we have got the costs down. The December quarter should be a clean one for the South African operations,” the company said.
Group unit costs were slightly higher in the past quarter as a direct result of lower production in South Africa but the second quarter’s costs are expected to be in line with those of the June quarter, now that restructuring has been completed.
Chairperson Mark Wellesley-Wood said the company has come a long way to arrest the bleeding — particularly at Blyvoor and North West.
“But there is still work to be done and a lot is dependent on the rand. If we want to restore margins to the targets we would like to see, then there will have to be a further significant weakening in the rand.”
He added that during the past quarter the rand/dollar exchange rate strengthened from 6.60 to 6.38 rand per dollar.
DRD reported a slight decline in gold production to 220 524 ounces for the quarter ended September from 228 465 ounces in the June quarter, although up on the 198 493 ounces produced in the same quarter last year.
The company attributed this to lower production out of South Africa, specifically Blyvoor, which went though a 60-day review, resulting in a slowdown in production.
The percentage of the group’s production from offshore increased from 31% to 35%, due in part to the inclusion of its 45,33% attributable share in production from Fijian gold miner Emperor from August 2004.
In line with trends in the United States and Australia, DRD will henceforth report production statistics, operational performance and exploration results in quarter one and three and either interim of final financial results in quarters two and four.
Explaining the changes, Wellesley-Wood said this will bring DRD into line with other international companies, such as BHP Billiton and Rio Tinto. DRD’s takeover bid for the ASX-listed Emperor Mines closed at the end of July, resulting in DRDGold holding 45.33% of Emperor.
Emperor is in the process of completing a rights issue to raise approximately Aus$20,4-million to fund a portion of its phase two capital-expansion project at its Vatukoula mine in Fiji, as well as to fund its short-term working capital requirements.
DRDGold has agreed to participate in the rights issue and to subscribe for any shortfall under a shortfall facility offered by Emperor in connection with that rights issue (subject to limited termination rights).
In response to an application by three shareholders of Emperor, the Australian Takeovers Panel has made a declaration of unacceptable circumstances in relation to the Emperor rights issue, and DRDGold’s participation in the rights issue, and has made various orders (including an order that DRDGold sells down any shares acquired through the shortfall facility). DRDGold has applied for a review of that decision.
As the rights issue is under review with Australian authorities, Wellesley-Wood said he could not comment, but he anticipates the results of the review in the next week or so.
Wellesley-Wood said the costs of restructuring at Blyvoor have been R24-million. The restructuring ended last month and DRD is now in the process of redesigning the entire mine to a smaller-tonne, higher-grade mine in order to protect margins and a number of opportunities that will sustain Blyvoor’s future.
He said the job cuts should be finished on the assumption that the work force achieves production and the rand/gold price remains above R82 000 per kilogram.
Turning to the proposed name change, Wellesley-Wood said it has been warmly received and it will reflect the emphasis on DRD’s core product. Shareholders are due to vote on the name change at the annual general meeting later this month.
Looking ahead, Wellesley-Wood said the group is looking at consolidation opportunities in South Africa, adding that the current crisis in the local mining industry could lead to opportunities.
He added that there is still uncertainty on the exchange rate, but that the company does see the trend of consolidation in the local gold-mining industry continuing and there could be further opportunities for DRD to reposition itself in the industry.
In Australasia, DRD will continue to look at diversification and various areas were under consideration as a starting point. — I-Net Bridge