Rand puts DRDGOLD`s SA mines at risk`
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Resources Editor
DRDGOLD may have to close its South African operations unless it can cut costs, Merrill Lynch warned yesterday.
The warning highlights the crisis facing SA`s marginal gold mines as the rand remains strong.
The financial management and advisory firm`s warning was contained in a note to investors by mining analyst David Hall, sent out last month but released to the media yesterday.
Hall said DRDGOLD had `underperformed the sector for the past six months` as the strong rand cut margins.
Hall said DRDGOLD was ` a company in two parts`. It had profitable Australasian assets, while 60% of its gold was being produced in SA, at a loss.
`Remedial action on the South African assets involves drastically cutting costs,` he said.
Hall said it would not be sustainable for the company just to mine its high-grade local ore bodies while awaiting a rebound in the rand-gold price.
He said the outcome of DRDGOLD`s cost-cutting efforts should be clear by next month.
`The cost-cutting programme has yet to bring them into the black at the operating level.`
Hall noted that DRDGOLD ceased producing quarterly results after June last year, and the latest available results showed the company had cash costs of R92814/kg with a gold price of R85811/kg a loss of R7003/kg.
`Clearly, losses cannot continue indefinitely, and if the mines are not returned to profitability, closure may be the only option.`
Closure of the South African mines would involve `significant retrenchment and other costs`.
DRDGOLD spokesman Ilja Graulich said yesterday: `We are currently in a closed period so we cannot comment on the company`s financial position.
`Our most recent results are being reviewed by our auditors in the normal course of events and will be released on February 24.
`However, we are not aware of any causes for concern.`
In November, DRDGOLD CE Ian Murray said the company had restructured its local operations and the `cash burn` was over.
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