Media releases

DRD reports turn for the better

Details

Published: Tuesday, 24 July 2001 02:00

Durban Roodepoort Deep, Limited (DRD) today (24.07.01) reported a positive turnaround in operating and financial performance for the quarter ended 30 June 2001 and unveiled more about growth at both its Blyvoor (South Africa) and Tolukuma (Papua New Guinea) operations. 039/01-jmd

Growth in SA and Papua New Guinea

Highlights

• Positive headline earnings position
• Gold production up 4%
• Cash operating profit up 45%
• Cash operating costs down 2%
• Blyvoor performance continues to improve
• Tolukuma exploration reveals two high-grade veins

Durban Roodepoort Deep, Limited (DRD) today (24.07.01) reported a positive turnaround in operating and financial performance for the quarter ended 30 June 2001 and unveiled more about growth at both its Blyvoor (South Africa) and Tolukuma (Papua New Guinea) operations.

“In the June quarter we managed to break even before non-cash items but after capex, and report a small, positive headline earnings position of R5.4 million (US$0.7 million) for the first time in our recent history,” said Chairman and CEO Mark Wellesley-Wood. The Blyvoor Expansion programme had been approved by the DRD Board and would now include the mining of Main Reef from the Doornfontein Section, Wellesley-Wood said.

At the company’s Tolukuma operation, exploration results had been encouraging, revealing two further high-grade veins in the Saki exploration area. At the Joe Kunda exploration area, mining technique would be low-cost and a potential estimate of grade was expected within weeks.

Gold revenue increased by 6%, reflecting a 4% increase in gold production to 8 102 kilograms (260 483 ounces), a better exchange rate and an improvement in the average spot gold price received from R66 644 per kilogram (US$265 per ounce) to R69 746 per kilogram (US$270 per ounce). Cash operating profit rose to R63.0 million (US$7.8 million), contributing to an increase in the company’s cash operating profit margin from 8% to 12%. Its operating margin, on an earnings basis, rose 36% to US$30 per ounce.

Cash operating costs in unit terms dropped 2% to R58 913 per kilogram (US$228 per ounce). This, said Wellesley-Wood, puts DRD amongst the global gold mining industry’s lowest cost gold producers on a total cost basis, including capital expenditure.

A task force at work for just three months on the company’s purchasing and procurements policy and practice had already achieved a R2.6 million cash saving, Wellesley-Wood said. The number of vendors had been reduced from more than 6 000 to around 1 000 and inventories by 10%.

This had been achieved, he said, through centralisation and standardisation of purchases, the use of electronic ordering and the use of greater price transparency through tendering. Looking ahead, Wellesley-Wood said, management would focus on further reductions to the company’s hedge book.

“The cost of our hedge book is totally unacceptable. If DRD had received the spot price for its gold last year, its cash operating profit would have been R175.6 million (US$23.1 million) higher than reported.”

Cost management initiatives would continue to be a priority and the company’s executive directors had contributed to this personally by accepting a 10% salary cut, said Wellesley-Wood.

The company’s budget for the forthcoming year is set to deliver an 18% return on invested capital. Management has identified several areas of organic growth within the business, which will lengthen the lives of its mines.

North West Operations

Referring to the March quarter’s operational problems at the company’s North West operations (Harties and Buffelsfontein), Wellesley-Wood said that a review by senior management had indicated an over-declaration of gold production since October 2000 of 400 kilograms (12 860 ounces) and consequently, of gold revenue of R26 million (US$4 million).

While gold production at the North West operations was now on an improving trend, he said, the lower revenue had exposed the mine’s cost base and it was thus necessary to institute a job reduction process.

Gold production for the quarter rose by 3% to 4 489 kilograms (144 324 ounces) and once the job reduction process had been completed, the mine’s cost base would be reduced by about R3.5 million (US$0.4 million) per month.

Blyvooruitzicht

The performance of Blyvooruitzicht continued to improve for the second successive quarter with gold production increasing by 13%. Underground grades improved 26% to 9.38 grams per ton. Cash unit costs were 11% lower at R57 007 per kilogram (US$221 per ounce).

Crown

The Crown re-processing operations managed to maintain production levels and the ball mill at West Wits had been renovated to treat rock dump material, thus doubling gold production.

Tolukuma

Tolukuma experienced milling constraints due to damage to a drive motor. Bad weather and increased logistical costs caused by civil unrest in Port Moresby led to higher overall costs. Exploration results were encouraging, with 176 assays from trenching on surface averaging 7.1g/t gold and 19.6 g/t silver.

Queries:

Charmane Russell
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