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South Africa: Erpm's Future to Be Decided in December
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Business Day (Johannesburg)
12 May 2008
Posted to the web 12 May 2008
Charlotte Mathews
Johannesburg
DRDGOLD would decide on the future of East Rand Proprietary Mines' (ERPM's) underground operations by December, when a study would be completed on the feasibility of re-engineering the mine, DRDGold SA MD Niel Pretorius said on Friday.
Last month, the group started formal negotiations with the trade unions over retrenching up to 400 workers at ERPM and to close unprofitable areas. CEO John Sayers said the pattern of declining production and rising costs over several quarters could not continue. In the March quarter ERPM produced 21% less gold at 17 362oz at a cost of $792/oz compared with $765/oz in the December quarter.
Pretorius said ERPM needed to produce higher volumes or higher grades and the layout of the mine made it difficult to achieve this.
But the mine was a significant asset for DRDGold ( DRD) because of its surface resources and its location in relation to DRDGold's other East Rand operations. It also pumps about 70 megalitres of water a day, which will be needed for the Ergo tailings reprocessing operations.
In the March quarter, DRDGold produced 9% less gold at 70 378oz at a cash operating cost of $667/oz, down from $730/oz previously. It realised an average gold price of $943/oz. The main reason for the drop in production was Eskom power cuts, as well as lower grades at ERPM.
The higher gold price and weaker rand almost trebled cash operating profit to R142,2m. Sayers said a distribution to shareholders was likely at the end of this financial year.
DRDGold's share price rose 11,3% on Friday to R6,58, far outstripping the 3% increase in heavyweight AngloGold Ashanti's share price, as well as the 1% firming in the rand gold price to R216311/kg. It was the fifth best performing share on the JSE.
Pretorius said the Blyvoor gold mine performed well, despite the power shortages, and had a particularly good month in March. The Crown surface operations continued to be consistent performers, but Crown's infrastructure was coming under strain, and it needed to secure the Top Star dump.
DRDGold, which encountered resistance from heritage organisations to its plans to process the Top Star dump, south of Johannesburg, said it believed it had met all requirements for a licence. It was still waiting for the minerals and energy department to approve its application.
On the West Rand, DRDGold, Harmony and Mintails had formed a nonprofit company, Water Utilities Company, to treat the underground water from their mines in the area.
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This would address environmental liabilities and, although they could not make a profit from selling the water, they could use it themselves at less than it would cost to buy water from the Rand Water Board.
Sayers said making acquisitions at prevailing gold prices was too expensive, but DRDGold had a number of growth plans around its existing assets.
These included about R40m of expansion projects at Blyvoor, the R34,4m cost of Top Star and the R192,2m phase one Ergo project, a joint venture with Mintails to treat tailings dams on the East Rand. In the medium term, DRDGold was looking at reengineering ERPM. Another feasibility study was due to be completed by 2010 on extending the mine.
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