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Unaudited operating and financial results for the six months ended 31 December 2017 and cash dividend declaration
DRDGOLD Limited
(Incorporated in the Republic of South Africa)
Registration No.1895/000926/06
JSE share code: DRD
NYSE trading symbol: DRD
ISIN: ZAE 000058723
("DRDGOLD" or the "Company" or the "Group")
UNAUDITED OPERATING
AND FINANCIAL RESULTS
for the six months ended 31 December 2017 and cash dividend declaration
KEY FEATURES
Acquisition of
West Rand Tailings
Retreatment Project
assets subject to
conditions precedent
Gold production up
11% to
2 341 kg
Operating profit
increased 27% to
R219.9 million
All-in sustaining
costs decreased
7% to
R500 125 per kg
All-in sustaining
costs margin
increased to
8.7%
Headline earnings
14.3cps
Free cash flow
R63.0 million
REVIEW OF OPERATIONS
Six months to Six months to %
31 Dec 2017 31 Dec 2016 change (1)
Gold production kg 2 341 2 100 11
oz 75 267 67 508 11
Gold sold kg 2 291 2 077 10
oz 73 663 66 768 10
Cash operating costs R per kg 451 689 489 263(2) (8)
US$ per oz 1 050 1 092(2) (4)
All-in sustaining costs R per kg 500 125 537 918(2) (7)
US$ per oz 1 187 1 219(2) (3)
Average gold price received R per kg 547 653 572 443 (4)
US$ per oz 1 272 1 273 -
Operating profit R million 219.9 172.6 27
Operating margin % 17.5 14.5 21
All-in sustaining costs margin % 8.7 6.0 45
Headline earnings/(loss) R million 60.4 (10.2) 692
SA centes per share(cps) 14.3 (2.4) 696
(1) % change is rounded to the nearest per cent and is based on the rounded amounts as presented, which is rounded to the nearest hundred
thousand Rand.
(2) Restated. Calculations in the report to shareholders for the six months ended 31 December 2016 were based on gold produced. Commencing
with this report to shareholders for the six months ended 31 December 2017 and going forward, the calculations are and will be based on
gold sold.
SHAREHOLDER INFORMATION
Issued capital
431 429 767 ordinary no par value shares (30 June 2017: 431 429 767)
9 361 071 treasury shares held within the Group (30 June 2017: 9 361 071)
5 000 000 cumulative preference shares (30 June 2017: 5 000 000)
Stock traded JSE NYSE(3)
Price
- 6 month intra-day high R5.45 $0.408
- 6 month intra-day low R3.75 $0.290
- Close R4.19 $0.326
(3) This data represents per share data and not American Depository Receipt (ADR) data -
one ADR reflects 10 ordinary shares.
Market capitalisation Rm US$m
As at 31 December 2017 1 807.7 140.6
As at 30 June 2017 1 790.4 135.9
Rounding of figures may result in computational discrepancies.
RESULTS
The condensed consolidated interim financial statements of DRDGOLD
for the six months ended 31 December 2017 are available on DRDGOLD's
website as well as at the Company's registered office.
FORWARD-LOOKING STATEMENTS
Many factors could cause the actual results, performance or achievements to be materially
different from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements, including, among others, adverse changes
or uncertainties in general economic conditions in the markets we serve, a drop in the gold
price, a sustained strengthening of the rand against the dollar, regulatory developments
adverse to DRDGOLD or difficulties in maintaining necessary licenses or other governmental
approvals, changes in DRDGOLD's competitive position, changes in business strategy, any
major disruption in production at key facilities or adverse changes in foreign exchange rates
and various other factors.
These risks include, without limitation, those described in the section entitled "Risk Factors"
included in our annual report for the fiscal year ended 30 June 2017, which we filed with
the United States Securities and Exchange Commission on 31 October 2017 on Form 20-F.
You should not place undue reliance on these forward-looking statements, which speak
only as of the date thereof. We do not undertake any obligation to publicly update or revise
these forward-looking statements to reflect events or circumstances after the date of this
report or to the occurrence of unanticipated events. Any forward-looking statements and
financial information included in this presentation have not been reviewed and reported on
by DRDGOLD's auditors.
DEAR SHAREHOLDER
SIX MONTHS ENDED 31 DECEMBER 2017 VS SIX MONTHS ENDED
31 DECEMBER 2016
Introduction
Our performance in the first six months of FY2018 ("HY2018") -
operationally and financially - is much improved. Comparisons are
drawn below with the first six months of FY2017 ("HY2017") but by way
of introduction, in broad brushstrokes, gold production was significantly
higher due to a healthy improvement in the average yield.
This is attributable to:
- improved performance at the Ergo plant, in turn attributable to
thorough, ongoing deployment and continued application of the
plant's automated monitoring system described to you in my last
letter dated 5 September 2017; and
- more stable flow of material to the plant, a consequence of two new
reclamation sites - 4L37 and 4L2 - shifting into top gear as well as
the final, total shutdown of the Crown plant and rehabilitation of its
footprint.
While total throughput was lower, we expect the shortfall to be addressed
by the commissioning of yet another new site - 4L50 - achieved within
the last week.
We have continued to effect significant savings in working costs; again,
comparisons are provided below. By way of explanation, however, the
main savings have been in respect of:
- reagents - cyanide in particular - due to the Ergo plant's improved
performance described above. Lower cyanide consumption resulted in
a 9% drop in the cost of cyanide in the six months under review; and
- water - the Central Water Treatment Facility, described previously, has
substantially reduced our usage of potable water sourced externally.
This, in turn, has resulted in a 41% saving in the cost of potable water,
a 13% tariff increase notwithstanding.
OPERATIONAL REVIEW
Gold production increased by 11% to 2 341kg, reflecting a 15%
improvement in the average yield to 0.191g/t. Total throughput was
3% lower at 12 253 000t. I elaborate on yield and throughput in my
introduction above.
Cash operating costs were 8% lower and all-in sustaining costs 7% lower,
the main reasons for which - similarly - are covered in the introduction.
FINANCIAL REVIEW
Revenue was 6% higher at R1 254.8 million due to higher gold production
and gold sold, and notwithstanding a 4% decline in the average Rand
gold price received to R547 653.
After accounting for a 4% increase in total cash operating costs to
R1 075.8 million, operating profit was 27% higher at R219.9 million.
The operating and all-in sustaining costs margins were 17.5% (HY2017: 14.5%)
and 8.7% (HY2017: 6.0%) respectively.
Headline earnings were R60.4 million compared with a headline loss of
R10.2 million (HY2017).
Free cash inflow was R63.0 million in comparison to free cash outflow of
R9.7 million (HY2017), due to the improved operational and financial results.
FINANCIAL YEAR 2018 PRODUCTION AND COST GUIDANCE
We are planning full year gold production of between 147 000 and
153 000 ounces at a cash operating cost of approximately R475 000
per kilogram.
SUSTAINABLE DEVELOPMENT
Total environmental spend was R19.4 million, most of which was
incurred on vegetation of the Brakpan/Withok Tailings Storage Facility
(10ha) and the Daggafontein Tailings Storage Facility (4ha).
While five dust exceedances were recorded in the six months to
31 December 2017 compared with four in the six months to 31 December 2016,
two of these were influenced negatively by dust emanating from a new
township development under way close to the monitoring site, and two
from a dirt road close to the monitoring site.
The Central Water Facility, as indicated above, is paying enormous
dividends in terms of both reduced potable water consumption and cost
savings. In the period under review, total potable water sourced from
external sources decreased by 51% to 1 716 Ml in the six months under
review from 3 520 Ml in the comparable period of FY2017.
UPDATE: PROPOSED WEST RAND TAILINGS RETREATMENT
PROJECT (WRTRP) TRANSACTION
We are well on track in terms of the regulatory and formal requirements
of this transaction with South Africa's Competition Authorities having
approved the WRTRP transaction as announced on 8 February 2018.
Our team is also making very good progress to finalise a comprehensive
and informative circular to shareholders, due to be distributed this month.
In assessing the attraction of this deal, we were very mindful of
execution risk and dilution. While the doubling of reserves in a resource
with a higher average gold grade is clearly value accretive, our objective
remains to avoid or limit dilution of earnings by doing our best to ensure
that the 38% dilution in equity is either offset or, ideally, altogether
avoided by earnings from this project from a very early stage.
Our phased approach, described in more detail below, is designed to
bring this goal within range. We are targeting the commissioning of
Phase 1 within 12 months from implementation of the acquisition.
Phase 1, which includes both early stage production as well as design
and planning, will include the upgrading of the existing Driefontein
2 ("DP2") and Driefontein 3 ("DP3") processing plants to process
tailings from the Driefontein 5 dump at a rate of between 400 000 and
600 000 tonnes per month, and depositing of residues on the Driefontein 4
tailings dam.
During the 24 months following commissioning of the aforementioned
plants, it is also our intention to evaluate the remainder of the resource
by way of bulk samples to determine the optimal mix for blending.
Phase 1 is expected to be cash generative with modest upfront capital
investment required. We believe that the information we will gain from
Phase 1 test work will also enable us to refine the original WRTRP process
and engineering design, as well as financial and capital models for the
second phase (Phase 2). We estimate the net present value ("NPV")
of Phase 1 to be approximately R1.3 billion, assuming an initial capital
outlay of R288 million.
Phase 2 envisages a high-volume Central Processing Plant capable
of processing at least 1 million tonnes of tailings a month and the
development of a new Regional Tailings Storage Facility with associated
pipeline infrastructure. This phase envisages the reclamation of material
from Driefontein 3, Libanon and Kloof 1 for delivery into the production
circuit (reserve of c.151 million tonnes) and, eventually, also from
Venterspost North and South (reserve of c. 67.2 million tonnes). This
phase will provide a compelling advantage insofar as future regional
consolidation is concerned.
As an alternative to Phase 2, or in the event that the construction of
Phase 2 is delayed or postponed, Phase 1 is capable of being extended
by blending in material from Driefontein 3. It envisages the treatment
of 77.7 million tonnes from Driefontein 3 and 5 and will involve a
further upgrade to the Driefontein 4 tailings dam to increase the tailings
storage capacity. We estimate the NPV of the alternative option to be
approximately R2.7 billion, assuming a capital outlay of R397 million in
addition to the initial Phase 1 capital outlay.
We estimate the NPV of the entire WRTRP at R2.1 billion, as extracted
from the draft Competent Person's Report, a summary of which will be
included in the circular.
We urge all shareholders to carefully read the circular when it is published
for more detail on these estimates.
This transaction offers shareholders an opportunity to participate in a
potentially attractive project, well within our capacity to execute, and
capable of delivering both short-term value and compelling long-term
optionality.
EKURHULENI METROPOLITAN MUNICIPALITY ELECTRICITY
TARIFF DISPUTE - URGENT APPLICATION
As described in Note 6 to the Condensed Consolidated Interim Financial
Statements and in our SENS announcement on 12 February 2018, on
31 January 2018, the Constitutional Court dismissed Ergo's application
for leave to appeal against the judgment of the Full bench of the South
Gauteng High Court, on the basis that it will not pass constitutional
muster and there are no prospects of success.
Ergo now has to pay to the Municipality the amount held in trust in order
to prevent the termination of electricity supply at its Central Substation.
At the date of this report, the amount paid in protest plus interest into
Ergo's attorneys' trust account and which represents the difference
between the Megaflex tariff levied by Eskom and the Municipality's
surcharges was approximately R126 million ("Protested Surcharges").
The Main Application which deals with the question of whether, inter alia,
the Municipality is empowered to supply electricity and levy a surcharge
is set down for hearing on 5 December 2018. If the Main Application is
successful, Ergo will seek to recover the Protested Surcharges as well
as a further approximate R42 million in overpayments made prior to
December 2015.
DIVIDEND
The DRDGOLD board has declared an interim cash dividend of five SA
cents per ordinary share for the six months ended 31 December 2017 in
recognition of its robust performance during the period, while remaining
cognisant of anticipated capital outlays to develop the WRTRP assets if
this transaction is approved by shareholders. The details of the dividend
are as follows:
- the dividend has been declared out of income reserves;
- the local dividends tax rate is 20% (twenty per cent);
- the gross local dividend amount is 5 SA cents per ordinary share for
shareholders exempt from the Dividends Tax;
- the net local dividend amount is 4 SA cents per ordinary share for
shareholders liable to pay the Dividends Tax;
- DRDGOLD currently has 431 429 767 ordinary shares in issue (which
includes 9 361 071 treasury shares); and
- DRDGOLD's income tax reference number is 9160/013/60/4.
In compliance with the requirements of Strate, given the company's
primary listing on the JSE Limited, the salient dates for payment of the
dividend are as follows:
- last date to trade ordinary shares cum dividend: Tuesday, 13 March 2018
- ordinary shares trade ex-dividend: Wednesday, 14 March 2018
- record date: Friday, 16 March 2018
- payment date: Monday, 19 March 2018
On payment date, dividends due to holders of certificated securities
on the SA share register will either be electronically transferred to the
shareholders' bank accounts or, in the absence of suitable mandates,
dividend cheques will be posted to such shareholders.
Dividends in respect of dematerialised shareholdings will be credited to
shareholders' accounts with the relevant CSDP or broker.
To comply with the further requirements of Strate, between Wednesday,
14 March 2018 and Friday, 16 March 2018, both days inclusive, no
transfers between SA and any other share register will be permitted
and no ordinary shares pertaining to the SA share register may be
dematerialised or rematerialised.
The currency conversion date for the Australian and United Kingdom
registers will be approximately Monday, 19 March 2018.
To holders of American Depositary Receipts ("ADR"):
- each ADR represents 10 ordinary shares
- ADRs trade ex-dividend on NYSE: Thursday, 15 March 2018
- record date: Friday, 16 March 2018
- approximate date of currency conversion: Monday, 19 March 2018
- approximate payment date of dividend: Thursday, 29 March 2018
Assuming an exchange rate of R12/$1, the dividend payable on an ADR
is equivalent to 4.16667 US cents for shareholders liable to pay the
dividend tax. However, the actual rate of payment will depend on the
exchange rate on the date for currency conversion.
LOOKING AHEAD
The measures we took in FY2017 to reduce costs and to improve
business performance and risk are showing in our numbers.
Over the next few months we plan to put our new zinc precipitation
circuit into operation, to commission two new ball mills at the Ergo
plant and to start reclamation of the 4L50 dump.
The zinc precipitation will improve the elution circuit efficiency, while
the mills will allow higher grade sand to be added to our blend. We aim
to achieve all of this with as little disruption as possible.
We are also firing on all cylinders to get the circular relating to the
WRTRP transaction out, and intend to follow that up with information
sessions to put colour to the key features. We are very excited about
this project and believe the market will share in our excitement once
the details are clear.
Niël Pretorius
Chief Executive Officer
15 February 2018
CONDENSED CONSOLIDATED INTERIM
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Six months Six months
to 31 Dec to 31 Dec
2017 2016
Rm Rm
Notes Unaudited Unaudited
Revenue 1 254.8 1 188.8
Cost of sales (1 139.6) (1 153.9)
Gross profit from operating activities 115.2 34.9
Other income 0.2 12.9
Administration expenses and general costs (31.9) (45.5)
Results from operating activities 2 83.5 2.3
Finance income 18.7 19.9
Finance expenses (25.0) (22.5)
Profit/(loss) before tax 77.2 (0.3)
Income tax (16.6) 3.0
Profit for the period 60.6 2.7
Other comprehensive income
Items that are or may be reclassified to
profit or loss, net of tax
Net fair value adjustment on available-
for-sale investments 2.5 3.0
Total other comprehensive income 2.5 3.0
Total comprehensive income for the period 63.1 5.7
Basic earnings per share (1) 3 14.4 0.6
Diluted earnings per share (1) 3 14.4 0.6
(1) All per share financial information is presented in South African cps and is rounded to
the nearest one decimal point based on the results as presented, which is rounded to the
nearest hundred thousand Rand.
CONDENSED CONSOLIDATED INTERIM
STATEMENT OF FINANCIAL POSITION
As at As at As at
31 Dec 2017 30 Jun 2017 31 Dec 2016
Rm Rm Rm
Notes Unaudited Audited Unaudited
Assets
Non-current assets 1 753.9 1 739.1 1 786.3
Property, plant and equipment 1 502.0 1 497.6 1 560.2
Investments in rehabilitation
obligation funds 235.6 227.7 209.4
Investments in other entities 11.3 8.8 12.0
Deferred tax assets 5.0 5.0 4.7
Current assets 625.7 548.3 579.7
Inventories 242.7 180.3 186.7
Trade and other receivables 88.4 114.3 92.4
Cash and cash equivalents 4, 6 294.6 253.7 290.3
Assets held for sale - - 10.3
Total assets 2 379.6 2 287.4 2 366.0
Equity and liabilities
Equity 1 344.4 1 302.4 1 294.7
Non-current liabilities 742.6 728.1 779.4
Provision for environmental
rehabilitation 546.5 531.8 527.7
Deferred tax liability 154.2 140.5 188.8
Employee benefits 26.4 39.0 44.8
Finance lease obligation 15.5 16.8 18.1
Current liabilities 292.6 256.9 291.9
Trade and other payables 275.8 251.7 270.5
Current tax liability 6.6 5.2 5.2
Employee benefits 10.2 - -
Liabilities held for sale - - 16.2
Total liabilities 1 035.2 985.0 1 071.3
Total equity and liabilities 2 379.6 2 287.4 2 366.0
CONDENSED CONSOLIDATED INTERIM
STATEMENT OF CHANGES IN EQUITY
Six months Six months
to 31 Dec to 31 Dec
2017 2016
Rm Rm
Unaudited Unaudited
Balance at the beginning of the period 1 302.4 1 339.6
Total comprehensive income
Profit for the period 60.6 2.7
Other comprehensive income 2.5 3.0
Transactions with the owners of the parent
Dividends paid (21.1) (50.6)
Balance as at the end of the period 1 344.4 1 294.7
The accompanying notes are an integral part of the condensed
consolidated interim financial statements.
These condensed consolidated interim financial statements for the
six months ended 31 December 2017 have been prepared under
the supervision of DRDGOLD's Chief Financial Officer, Mr AJ Davel
CA(SA). The condensed consolidated interim financial statements were
authorised for issue by the directors on 9 February 2018.
CONDENSED CONSOLIDATED INTERIM
STATEMENT OF CASH FLOWS
Six months Six months
to 31 Dec to 31 Dec
2017 2016
Rm Rm
Unaudited Unaudited
Net cash inflow from operating activities 155.8 39.2
Cash generated by operations 147.5 17.7
Interest received 11.3 12.3
Interest paid (1.5) (1.8)
Tax (paid)/received (1.5) 11.0
Net cash outflow from investing activities (92.8) (48.9)
Acquisition of property, plant and
equipment (86.6) (61.6)
Proceeds on disposal of property, plant
and equipment 1.5 17.9
Environmental rehabilitation payments (7.7) (10.2)
Other - 5.0
Net cash outflow from financing activities (22.1) (51.8)
Repayment of finance lease obligation (1.3) (1.2)
Dividends paid on ordinary share capital (20.8) (50.6)
Increase/(decrease) in cash and cash
equivalents 4 40.9 (61.5)
Opening cash and cash equivalents 253.7 351.8
Closing cash and cash equivalents 294.6 290.3
Reconciliation of cash generated by
operations
Profit/(loss) before tax 77.2 (0.3)
Adjusted for:
Depreciation 2 82.3 101.9
Movement in gold in process (40.9) (13.9)
Environmental rehabilitation payments (0.6) (5.0)
Profit on disposal of property, plant and
equipment included in other income (0.2) (12.9)
Share-based payment expense 2 0.2 16.1
Finance income (18.7) (19.9)
Finance expenses 25.0 22.5
Other non-cash items (1.0) (0.3)
Working capital changes 24.2 (70.5)
Change in trade and other receivables 25.0 (33.5)
Change in inventories (21.5) (12.1)
Change in trade and other payables 20.7 (24.9)
Cash generated by operations 147.5 17.7
The accompanying notes are an integral part of the condensed consolidated
interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed consolidated interim financial statement are prepared
in accordance with the JSE Limited Listings Requirements ("Listings
Requirements") and the requirements of the Companies Act No. 71 of 2008
of South Africa. The Listings Requirements require that interim reports be
prepared in accordance with and containing the information required by
IAS 34: Interim Financial Reporting, as well as the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial
Reporting Pronouncements as issued by the Financial Reporting Standards
Council. The accounting policies applied in the preparation of the condensed
consolidated interim financial statements are in terms of International
Financial Reporting Standards ("IFRS") and are consistent with those applied
in the previous consolidated annual financial statements.
These condensed consolidated interim financial statements of DRDGOLD for
the six months ended 31 December 2017 have not been reviewed by an
independent auditor.
2. RESULTS FROM OPERATING ACTIVITIES
Results from operating activities includes the following:
Six months Six months
to 31 Dec to 31 Dec
2017 2016
Rm Rm
Unaudited Unaudited
A. DEPRECIATION INCLUDED IN COST OF
SALES
Depreciation decreased mainly due to the current 82.3 101.9
period not including any depreciation related to
the final clean up and closure of various sites that
previously formed part of the Crown operations
compared to the comparative period that
included the accelerated depreciation related to
these sites amounting to R20 million
B. INCREASE IN LONG-TERM INCENTIVE SCHEME
("LTI") LIABILITY
The liability for employee benefits consists
mainly of the LTI liability. The decrease in the
share-based payment expense for the current
reporting period is due mainly to the decrease in
the 7 day volume weighted average price (VWAP)
of DRDGOLD during the current reporting
period from R4.22 at 30 June 2017 to R3.82 at
reporting date 0.2 16.1
3. EARNINGS PER SHARE
Reconciliation of headline earnings/(loss)
Profit for the period 60.6 2.7
Adjusted for:
Profit on disposal of property, plant and
equipment included in other income (0.2) (12.9)
Income tax thereon - -
Headline earnings/(loss) 60.4 (10.2)
Weighted average number of ordinary shares in
issue adjusted for treasury shares 422 068 696 422 068 696
Diluted weighted average number of ordinary
shares adjusted for treasury shares 422 068 696 422 068 696
Earnings per share (1) 14.4 0.6
Diluted earnings per share (1) 14.4 0.6
Headline earnings/(loss) per share (1) 14.3 (2.4)
Diluted headline earnings/(loss) per share (1) 14.3 (2.4)
(1) All per share financial information is presented in South African cps and is rounded to
the nearest one decimal point based on the results as presented which is rounded to the
nearest hundred thousand Rand.
4. CASH AND CASH EQUIVALENTS
Six months Six months
to 31 Dec to 31 Dec
2017 2016
Rm Rm
Unaudited Unaudited
Included in cash and cash equivalents is restricted
cash of:
Cash held in escrow (including interest) relating
to the electricity dispute with Ekurhuleni
Metropolitan Municipality (refer note 6) 121.2 71.0
Guarantees 16.6 15.6
5. CONTINGENT LIABILITY: SILICOSIS
In January 2013, DRDGOLD, ERPM ("the DRDGOLD Respondents")
and 23 other mining companies ("the Other Mining Companies") were
served with a court application for a class action by alleged former
mineworkers and dependants of deceased mineworkers. In the pending
application the applicants allege that the Other Mining Companies and
the DRDGOLD Respondents conducted underground mining operations
in a negligent manner that caused occupational lung diseases.
On 17 January 2017, the DRDGOLD Respondents and the Other Mining
Companies filed an appeal against the judgement handed down by the
South Gauteng High Court, Johannesburg ("Court") on 13 May 2016,
in which the Court ordered the certification of a single class action
comprising two separate and distinct classes - a silicosis class and a
tuberculosis class. On 9 January 2018 the Supreme Court of Appeal
("SCA") granted approval of the postponement of the appeal, that was
set down for hearing from 19 to 23 March 2018, sine die.
The DRDGOLD Respondents and the Other Mining Companies formed
a Working Group consisting of representatives from each company to
consider and discuss issues pertaining to the action.
DRDGOLD withdrew from the Working Group in January 2016. The
remaining members of the Working Group have since indicated that
they would be seeking a possible settlement of the class action and have
all raised an accounting provision at 30 June 2017 due to progress made
by the Working Group towards settlement of the claims.
DRDGOLD took the view that it is too early to consider settlement of
the matter, mainly for the following reasons:
- the Applicants have as yet not issued and served a summons (claim)
in the matter;
- there is no indication of the number of potential claimants that may
join the class action against the DRDGOLD respondents; and
- many principles upon which legal responsibility is founded, are
required to be substantially developed by the trial court (and possibly
subsequent courts of appeal) to establish liability on the bases alleged
by the applicants.
In light of the above there is inadequate information to determine if
a sufficient legal and factual basis exists to establish liability, and to
quantify such potential liability.
6. CONTINGENT LIABILITY: EKURHULENI METROPOLITAN
MUNICIPALITY ELECTRICITY DISPUTE
Ekurhuleni Metropolitan Municipality Electricity Tariff Dispute -
Main Application
In December 2014, an application (in the Court) was filed and served on
inter alia the Ekurhuleni Metropolitan Municipality ("Municipality") and
Eskom Holdings SOC Limited ("Eskom") in terms of which Ergo contends,
among other things, that the Municipality does not "supply" electricity to
Ergo from a "supply main" as contemplated in the Municipality's Electricity
By-Laws of 2002 ("Main Application"), for the following reasons:
- The Municipality is not licensed to supply electricity to Ergo in terms of
the Municipality's Temporary Distribution Licence.
- The Municipality is not entitled to render tax invoices to Ergo for supply
and consumption of electricity from the substation.
- The Municipality is furthermore not competent to add a surcharge or
premium of approximately 40% (forty percent) of the rate at which
Eskom ordinarily charges Ergo on its Megaflex rate.
- Ergo is not indebted to the Municipality for the supply and
consumption of electricity and is not obliged to tender payment for
any amounts claimed in the invoices rendered by the Municipality in
excess of its actual consumption, therefore, as determined by Eskom
on a monthly basis.
- The Municipality is indebted to Ergo in the amount of approximately
R43 million in respect of the surcharges and premiums that were
erroneously paid to the Municipality in the bona fide and reasonable
belief that the Municipality was competent to supply electricity to it.
The hearing in respect of the Main Application has been set down for
5 December 2018.
Subsequent to December 2014 up to 31 December 2017, the
Municipality has invoiced Ergo for approximately R114.8 million in
surcharges of which R111.1 million has been paid into an attorney's
trust account at 31 December 2017 pending the final determination of
the dispute.
Ekurhuleni Metropolitan Municipality Electricity Tariff Dispute -
Urgent Application
As a result of Ergo electing to pay the surcharges levied under protest
into its attorneys' trust account, the Municipality, on 25 May 2015
threatened to terminate the electricity supply at the Substation. The
Municipality argued that Ergo was allegedly in arrears of its account and
was seeking to employ its debt collection and credit control measures in
relation thereto.
As a result of this threat of termination of electricity supply, Ergo
applied to interdict the Municipality from terminating the electricity
supply at the Substation. On 3 May 2016, the Court found in favour
of Ergo and prohibited the Municipality from terminating or interfering
with the electricity supply at the substation. The Municipality appealed
against the judgment. The Full Bench of the Court found in favour of the
Municipality in August 2017.
Ergo appealed to the SCA against the decision of the Full Bench of the
Court in September 2017. This appeal was dismissed by the SCA in
November 2017. In December 2017, Ergo filed its application for leave
to appeal to the Constitutional Court ("CC"). On 31 January 2018, the
CC dismissed the appeal on the grounds that the appeal would not
withstand legal challenge on constitutional grounds and there were no
prospects of success. Ergo is now obligated to pay the aggregate amount
("Trust Monies"), inclusive of interest, in the attorneys' trust account.
At the date of this report, the Trust Monies is approximately R126 million.
7. FINANCIAL RISK MANAGEMENT FRAMEWORK
Commodity price sensitivity
The Group's profitability and cash flows are primarily affected by
changes in the market price of gold which is sold in US Dollar and then
converted to Rand.
Gold is sold at spot prices and forward sales of gold production, as well
as derivatives or other hedging arrangements to establish a price in
advance for the sale of future gold production are not entered into.
8. FAIR VALUES
The Group's assets that are measured at fair value at reporting date consist
of available for sale financial instruments and are included in Investments
in other entities on the statement of financial position. Of this line item,
R11.1 million (30 June 2017: R8.6 million) relate to fair value hierarchy
Level 1 instruments and R0.2 million (30 June 2017: R0.2 million) relate to
fair value hierarchy Level 3 instruments.
9. SUBSEQUENT EVENTS
Other than disclosed in Note 6 Ekurhuleni Metropolitan Municipality
Electricity Tariff Dispute - Urgent Application, there were no subsequent
events between the reporting date of 31 December 2017 and the date
of issue of these condensed consolidated interim financial statements.
10. OPERATING SEGMENTS
The following summary describes the operations in the Group's reportable operating segment:
- Ergo is a surface retreatment operation and treats old slime and sand dumps to the south of Johannesburg's central business district as well as the
East and Central Rand goldfields. The operation comprises four plants. The Ergo and Knights plants continue to operate as metallurgical plants. The
City Deep plant continues to operate as a pump/milling station feeding the metallurgical plants. The Crown plant operated as a pump/milling station
feeding the metallurgical plants until March 2017 when it ceased all operations.
Corporate office and other reconciling items (collectively "other reconciling items") are taken into consideration in the strategic decision-making
process of the chief operating decision maker and are therefore included in the disclosure here, even though they do not earn revenue. They do not
represent a separate segment.
Six months to 31 Dec 2017 Six months to 31 Dec 2016
Unaudited Unaudited
Corporate Corporate
office and other office and other
reconciling reconciling
Ergo items Total Ergo items Total
Rm Rm Rm Rm Rm Rm
Revenue 1 254.8 - 1 254.8 1 188.8 - 1 188.8
Cash operating costs (1 075.8) - (1 075.8) (1 030.1) - (1 030.1)
Movement in gold in process 40.9 - 40.9 13.9 - 13.9
Operating profit 219.9 - 219.9 172.6 - 172.6
Administration expenses and general costs (1.8) (31.7) (33.5) (14.7) (32.5) (47.2)
Interest income 4.7 6.1 10.8 2.9 9.3 12.2
Interest expense (1.5) (0.3) (1.8) (1.5) (0.4) (1.9)
Retrenchment costs - - - (18.3) - (18.3)
Income tax (1) (1.5) (1.4) (2.9) (0.8) - (0.8)
Working profit before capital expenditure 219.8 (27.3) 192.5 140.2 (23.6) 116.6
Additions to property, plant and equipment (86.7) (0.1) (86.8) (61.4) (0.2) (61.6)
Working profit after capital expenditure and additions 133.1 (27.4) 105.7 78.8 (23.8) 55.0
(1) Income tax excludes deferred tax.
Reconciliation of profit for the period
Working profit before capital expenditure 219.8 (27.3) 192.5 140.2 (23.6) 116.6
Depreciation (82.2) (0.1) (82.3) (101.8) (0.1) (101.9)
Growth in environmental rehabilitation trust funds and
reimbursive right 5.2 2.7 7.9 5.2 2.5 7.7
Profit on disposal of property, plant and equipment 0.2 - 0.2 0.1 12.8 12.9
Unwinding of provision for environmental rehabilitation (22.6) (0.6) (23.2) (20.1) (0.6) (20.7)
Ongoing rehabilitation expenditure (11.0) - (11.0) (10.8) - (10.8)
Other operating (costs)/income including care and
maintenance costs (21.7) 11.8 (9.9) (6.6) 1.7 (4.9)
Deferred tax (13.7) 0.1 (13.6) 5.9 (2.1) 3.8
Profit for the period 74.0 (13.4) 60.6 12.1 (9.4) 2.7
Six months to 31 Dec 2017 Six months to 31 Dec 2016
OPERATIONAL PERFORMANCE (unaudited) Unaudited Unaudited
Ore milled
Metric (000't) 12 253 12 632
Imperial (000't) 13 505 13 924
Yield
Metric (g/t) 0.191 0.166
Imperial (oz/t) 0.006 0.005
Cash operating costs
(R/t) 87 82
(US$/t) 6 5
Reconciliation of All-in sustaining costs (unaudited)
(All amounts presented in R million unless otherwise
indicated)
Cash operating costs (1 075.8) (1 030.1)
Movement in gold in process 40.9 13.9
Administration expenses and general costs (33.5) (47.2)
Other operating (costs)/income excluding care and
maintenance costs (5.9) (1.4)
Unwinding of provision for environmental
rehabilitation (23.2) (20.7)
Capital expenditure (sustaining) (48.4) (31.6)
All-in sustaining costs (1 145.9) (1 117.1)
Care and maintenance costs (4.0) (18.3)
Retrenchment costs - (3.5)
Ongoing rehabilitation expenditure (11.0) (10.8)
Capital expenditure (non-sustaining) (38.4) (30.0)
Capital recoupment 0.7 5.0
All-in costs (1 198.6) (1 174.7)
Cash operating costs R per kg 451 689 489 263#
Cash operating costs US$ per oz 1 050 1 092#
All-in sustaining costs* R per kg 500 125 537 918#
All-in sustaining costs* US$ per oz 1 187 1 219#
All-in cost* R per kg 523 127 565 583#
All-in cost* US$ per oz 1 213 1 281#
# Restated. Calculations in the report to shareholders for the six months ended 31 December 2016 were based on gold produced. Commencing
with this report to shareholders for the six months ended 31 December 2017 and going forward, the calculations are and will be based on
gold sold.
* All-in cost definitions based on the guidance note on non-GAAP Metrics issued by the World Gold Council on 27 June 2013.
There has been no material change to the technical information relating to, inter alia, the Group's Reserves and Resources, legal title to
its mining and prospecting rights and legal proceedings relating to its mining and exploration activities as disclosed in DRDGOLD's annual
reports for the year ended 30 June 2017. The technical information referred to in this report has been reviewed by Messrs Mpfariseni Mudau (SACNASP)
and Gary Viljoen (SACG), both are independent contractors of DRDGOLD. They approved this information in writing before the publication of the report.
DIRECTORS (*British)(**American)
Executives:
DJ Pretorius (Chief Executive Officer)
AJ Davel (Chief Financial Officer)
Independent non-executives:
GC Campbell*
(Non-Executive Chairman)
EA Jeneker
J Turk **
JA Holtzhausen
TVBN Mnyango
Company Secretary:
R Masemene
Sponsor:
One Capital
FOR FURTHER INFORMATION
CONTACT NIËL PRETORIUS:
Tel: (+27) (0) 11 470 2600
Fax: (+27) (0) 11 470 2618
Website: www.drdgold.com
1 Sixty Jan Smuts Building
2nd Floor - North Tower
160 Jan Smuts Avenue
Rosebank, 2196
South Africa
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