DRDGold`s plan to `staunch bleeding`
February 25, 2005
By Nicky Smith
Johannesburg - Marginal gold producer DRDGold said yesterday that it was ready to make the `tough decisions` it needed to staunch the bleeding at its operations as the company`s auditors warned that the rand`s continued strength threatened its going concern status.
`We do have to stop the bleeding at the North West operations,` said DRDGold chief executive Mark Wellesley-Wood.
`There will be less production, less shafts and less people,` he said, without giving detail.
He estimated the restructuring of North West operations would cost between R30 million and R100 million.
The company has written down the value of these operations to zero, a write-down of R214 million.
Wellesley-Wood said R200 million had been spent on operations over the past 18 months, but `we don`t have a mandate from the board to continue to pour money into black holes`.
The company`s auditors, KPMG, said that on December 31 `the group`s current liabilities exceeded its current assets`.
The company said its going concern status might be affected by a stronger rand, a weaker gold price, failure to secure funds for restructuring, restructuring delays and poor performances from its offshore operations.
Wellesley-Wood said the restructuring had to be done in consultation with the unions and other associations.
He pointed out that 58 percent of the costs at the North West operations were labour, compared with 48 percent at Blyvooruitzicht and 38 percent at East Rand Proprietary Mines.
The cash costs for the six months to December at North West were R95 104 for each kilogram of gold, at a time when the gold price was R83 941 a kilogram.
The North West operations accounted for 34 percent of the 443 821 ounces of gold the company produced during the six-month period.
`We are aware that we are going to have to fund the future and that will either be through debt or equity,` Wellesley-Wood said.
He said he had received expressions of interest from investors who were looking for rand-gold optionality. They might be willing to help fund the care and maintenance programme the company would be launching on its North West operations.
He said about 5 600 jobs were affected, but could not say how many would be cut.
The group`s Australasian operations performed well, with a blip in grades at Fijian mine Tolukuma, which Wellesley-Wood said was temporary.
A trading statement issued earlier this month alerted the markets that DRDGold would again report earnings losses.
An analyst who spoke anonymously said the results were `a shocker`, but nevertheless expected.
But DRDGold`s commitment to turning its operations showed that it had `taken the road less travelled by not turning their back on South Africa`.
`They`re an aggressive bunch; they certainly have the appetite for the job. The question is whether the unions will let them,` he said.
DRDGold fell 38c to close at R7.85 on the JSE Securities Exchange, while the gold sector firmed 0.94 percent.
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