[Mineweb] -- Niël Pretorius, DRDGOLD's CEO says the group has turned its focus to sweating assets and creating stability in a bid to avoid margin squeeze.
Niël Pretorius, DRDGOLD’s CEO says the group has turned its focus to sweating assets and creating stability in a bid to avoid margin squeeze.
In an effort to avoid the margin squeeze that has been seen in the conventional gold and platinum producers, Niël Pretorius, CEO of DRDGOLD, is taking proactive steps to ensure that the company hunkers down and focuses on sweating its new assets.
With DRDGOLD investing over R1bn over the last four years in consolidating its operations and building a new plant, Pretorius wants to see a slow-down in capital expenditure and should the gold price play along then surplus cash could well see its way to shareholders’ pockets.
"Once the big capital expenditure is something of the past, it is another quarter of a billion rand that we will be spending this year to get our fine grind flotation circuit up and running, more of what we make I think will become available especially if we can moderate capital expenditure" said Pretorius.
This, Pretorius explains, changes the company’s focus from investing in new assets to one where the reduction of costs and capital expenditure along with improving volumes and recoveries would play a major role going forward.
The CEO is hoping to see the fine grind flotation circuit improve recoveries by between 15 and 20%.
"On the other side of that project personally I would like to see that we slowdown on capital re-investment and that portion of takings we share with shareholders by way of dividends and so forth. And we shared about 5% of market cap this year with shareholders by way of a buy back and dividends. But I would like to see that portion being based on reduced capex and very strict discipline around costs" said Pretorius.
The cash operating cost per ounce for the surface operations was reported as US$1 096 per ounce for the year.
This change in focus is prompted by Pretorius’s concern that the sharp increases seen in the gold price over recent years will either run out of steam, or at best stabilise.
The pure play gold dump and tailings recycler has had a busy year behind it with the completion of a pipeline linking up its operations, the disposal of its only underground mine (Blyvoor) to Village Main Reef, as well as a streamlining and restructuring of the statutory structure of the business.
The company produced 135 708 ounces of gold for the year ended 30 June 2012 which was a 22% reduction as the high grade Top Star dump was depleted and the recycling moved into lower grade slimes. This trend of declining grades is planned to be offset with increased volumes which is the company’s core vulnerability said Pretorius.
An increase of 259% in headline earnings to 61 cents per share was reported compared to 17 cents per share the year before. This result excludes Blyvoor’s numbers and does include a once off deferred tax gain from the absorption of deferred tax losses into the group’s statutory restructuring of approximately 16 cents per share its CFO, Craig Barnes said.
A dividend of 10 cents per share was declared which is an increase of 33% and just shy of a 2% dividend yield. The balance sheet also shows that the company is sitting on approximately R230m in unrestricted cash with little leverage. New notes to the value of R111m were issued in July with two and three year maturities hence.
The company generated R620m in cash from operations for the year which is just over 30% of its market capitalisation. Unlike traditional gold miners that have high levels of sustaining capital by way of on-going development DRDGOLD has incurred most of its capex up front which is more in line with an industrial or factory type operation.
Emulating recent comments made by Gold Fields, Pretorius said that he would rather produce 140 000 profitable ounces than a million loss making ones.
With the importance of all-in profitable ounces becoming more fashionable, shareholders sharply critical of resource companies not returning enough to them and the rolling of heads mostly in the global gold context, Mineweb asked Pretorius how much of an influence this was having on his own philosophy.
"I must say that I have always considered the likes of Nick Holland, Mark Bristow and Mark Cutifani as good examples of what one should be aspiring to achieve because they run complicated, vast businesses and they do it very successfully so what they do, their trends and analyses are things that I personally pay close attention to" said Pretorius.