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business|energy|eskom|financial|flotation|generators|gold|installation|power|testing|underground

DRDGold lifts H1 output 6% despite 67 hours of load shedding in Dec

DRDGold CEO Niel Pretorius discusses the company's load-shedding mitigation measures

19th February 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Despite experiencing some 67 hours of load shedding in the last month of 2014, specialist tailings miner DRDGold lifted gold output for the six months ended December 31 by 6% to 73 015 oz, attributing the uptick to increased metallurgical efficiencies at the long-embattled flotation fine-grind (FFG) circuit and the installation in April 2014 of back-up power generators.

Strengthened output was helped by an increase in the average yield to 0.196 g/t, reflecting the restoration of metallurgical efficiencies and operating business improvements following the temporary suspension of the FFG circuit in April.

Heavy summer rainfall and load shedding did, however, cause throughput for the six months under review to retreat by 3% to 11.59-million tons.

ENERGY DERISKING
While acknowledging concerns over power supply and electricity tariffs over the winter months, CEO Niël Pretorius told shareholders on Thursday that the threat of power cuts and load shedding was not as serious for the tailings specialist as it was for for underground gold producers.

“The current power scenario is entirely manageable for a company like us, but for those that have shift-based underground work, it's a far more serious situation.

“The installation of back-up generators have significantly de-risked [our] operation and will allow us to keep the thickeners [in the circuit] alive,” he outlined.

Further counteracting the power supply risk, DRDGold outlined that Eskom would give the company a two-hour warning prior to load shedding being implemented in any of the four load shedding zones in which it operated.  

“We have [also] since managed to agree with Eskom a consumption curtailment agreement, in terms of which we reduce, on request, total consumption by an agreed percentage during load shedding hours.

“This means that, on the whole, we are able to maintain uninterrupted tonnage throughput but recoveries may reduce owing to certain parts of the operating line going down during the load reduction periods,” he commented.

With load shedding having become far more frequent in late January and early February, DRDGold was currently testing different scenarios to meet the requirement of reducing its demand.

Typically, in Stage 1 and Stage 2 load shedding scenarios, the miner was required to reduce power consumption by up to 10% of base load, while Stage 3 would require a 20% decrease.

“This [agreement] is working for us at this stage,” Pretorius noted.

FFG EFFICIENCIES
DRDGold outlined further in its report to shareholders that planned testwork on the FFG circuit had dominated the work programme at Ergo’s Brakpan plant in the last quarter of the year.

The return of operating circuits to steady-state in the preceding five months provided both a base case from which the company could track the performance of the FFG circuit, and allowed it to do the required work in a “measured” way.

The JSE- and NYSE-listed company reported that the float circuit had performed “well”, while the mills – although not fully optimised – had managed to break down the composition of the float concentrate to a sufficiently small fraction to achieve the increase in soluble gold that it had set out to achieve.

“We were particularly pleased that the testwork had no adverse impact
on gold production, in spite of the fact that one-third of total throughput
was diverted into the FFG circuit for testwork,” read the report.

DRDGold was, meanwhile, able to restart the remaining two lines of the FFG circuit last month.

Cash operating costs, in dollar terms, were 4% lower year-on-year at $1 048/oz in the six months to December, but, in rand terms, were 5% higher year-on-year at R370 101/kg, as a result of additional costs associated with the running of one stream of the FFG circuit, the processing of sand material at the City Deep plant, and general inflationary increases averaging 8.3% year-on-year.

The same factors drove all-in sustaining costs (AISC) 4% higher to R421 497/kg, offset somewhat by a higher yield and lower capital expenditure of R48.1-million, compared with R107.8-million in the first half of the prior year.

The AISC, in dollar terms, was 5% lower year-on-year at $1 194/oz. 

FINANCIAL REVIEW
Looking to the group’s financial showing, revenue increased 9% to R1.01-billion, a consequence both of a 4% rise in gold sold to 74 301 oz and in the average gold price received to R439 418/kg.

Operating profit improved 5% to R164.1-million, while earnings before interest, taxes, depreciation and amortisation grew 59% to R117.1-million, owing mainly to higher operating profit, lower corporate costs and a profit realised on the sale of noncore land.

“While the operating margin was 3% weaker, at 16.2%, the all-in sustaining costs margin strengthened to 4.1% owing to lower capital expenditure,” stated the group.

At the end of the six months, DRDGold had an unrestricted cash balance of R228.4-million.

“We have decided though not to declare an interim dividend, but rather seek early redemption of the remaining balance of some R77-million still owing on our domestic medium-term note programme.

“This would represent the final payment of the notes that were used to finance capital expenditure,” said the company.

OUTLOOK
Pretorius outlined that DRDGold’s near-term focus would be to optimise the FFG circuit amid the new challenge of intermittent power
supply.

It would also continue to support the offer made by Heaven-Sent Capital Management Group to Village Main Reef to acquire the entire share capital of Village for R12.25 a share.

DRDGold owned 3.28-million unencumbered shares in Village and a further one-million encumbered shares were held in escrow.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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