Niël Pretorius – CEO

Adrian Hammond – BNP Cadiz Brendan Ryan – Business Day Niël Pretorius: Good morning, everybody. Thank you very much again for taking the time to come and listen to our interim quarterly report for the last six and three months respectively. It’s the first one that Francois will be attending with me. I’m hoping that you’ve written down a whole set of complicated financial questions that you could poster him off to it, he’s burning to get stuck into the thick of things. Our disclaimer is the normal disclaimer we do have a number of assumptions based upon which we’ll be talking. So if you’ll just take regard of those. So, we’ll lead with the key features for the two quarters, the two successive quarters, the reason being that we are in the process of commissioning our new fine-grind and floatation circuits. And I think the things at this stage tell the story of how we’ve been doing and getting this put in place. So we’re leading with the gold production quarter-on-quarter, the floatation fine-grind gold production, that’s in fact the gold that was smelted. And it’s a fairly decent one, just over 20 kilos of the three days of production exclusively coming out of the fine-grind. And we’re also using the fine-grind elusion circuits that we now have a very definite high-grade and low-grade section in our plant. And we’ll also see what’s been happening with the operating cost quarter-on-quarter and also the operating profit. As we get deeper into the presentation, you will see that these numbers are pretty much lagging than the numbers of the previous financial year. So, these numbers are of a low-base, it’s really our recovery from the previous quarter hopefully encouraging retaining in the right direction. But still a long way away from where we are targeting production and especially profit. We’re only easing into the commissioning phase of this plant now. And I think there is still a lot of work to be done, notwithstanding the effect that we are encouraged with the results that we’ve been seeing. So, just looking at the trends itself and this is obviously over the last, it was, one, two, three, four, five, six quarters. You could see that the volume trend is more or less back to where it was – and the volume trend is more or less where it was prior to the previous quarter. And this seems to be well within reach now. We’ve been hitting the 60,000 ton odd per day regularly now which is our target. We’ve exceeded it a few times. So we do have a bit of search capacity for maintenance and so forth in between. But you could also – the numbers especially on the last quarter – for the last five, six days of the financial year, the quarter – the last six days of the calendar year, just after Christmas and before New Year, we had several interruptions as a consequence of electricity cut. There was a full trip-out at one stage at the plant. So, these volume numbers over here are actually quite pleasing because they manage to absorb fairly significant impact from volume towards the end of the calendar year, towards the end of December. Yield you could see is up quite nicely. There was a little bit of high-grade materials coming into the plant. But we’ve also had on and off, up until the commissioning, full commissioning of the floatation circuit, the three banks of the floatation circuit. We’ve had on and off some access into the floatation banks, if it wasn’t a third, then it was two thirds. And obviously that was the benefit of some of the floatation material coming through, some of the concentrate coming through and going through the moulds and impacting on grade. Production you could see is more or less where it was the fourth quarter and the quarter just before that and so fairly flat indexes. But not where it was in the first and the second quarter of the previous financial year. And the reason why we built this new plant, the reason why we built these new mills is so that we can consistently start teaming numbers roundabout there, just under the – between 1,150 and the 1,200 per quarter. That was what this thing was designed to do. And while we’re seeing a slight increase while retaining back to where it was, prior to the first quarter of commissioning, we do believe that we’re still some ways off. All right, so looking at the financial indicators, now here you could see really the impact of the delay in our commissioning and also the slightly lower gold price. On the whole, and that’s what I was talking about earlier when I said that this quarter’s numbers are off a fairly low base. On the whole, you could see that this is really the second worst quarter now that we’ve had measured against the last six quarters. And this was very much a recovery quarter, one where the trends needed to go back in the right direction and not the one where we were going to have the full benefit or see the full benefit of our new technology. So we’re hoping and we are looking forward to increasingly start seeing the benefit of the higher recovery efficiency of the plant and getting ourselves back to a more decent operating margin. Obviously, the gold price is also quite a bit higher, lower rather in the last two quarters than what we saw over the previous financial year. I think on average we only got about 413 or thereabout gram per kilo of gold significantly higher today. And that obviously should also have an impact on margin other than the raw gold. All-in sustaining cost margin, margins back to about 9% but still lagging behind where we were. Last thing what we saw that you come to expect out of these operations is that we can maintain an all-in sustaining margin that’s in double-digits, that’s certainly what we are aiming to achieve going forward. The 520 improvement from the previous quarter is really non-centric if you look at the bigger picture. EBITDA trended up nicely again. But once again only sort of half way up where it needs to be looked at against the previous quarters. Free cash flow, I think we’re reaching the stage now where this plant could be reversed. We’ve come to the end of the expensive part of this business. The cost that have been capitalized have been capitalized, the big capital expenditure and infrastructure that’s being spent. So going forward, it’s no reason why we shouldn’t see a reversal of this trend. Headline earning per share rather expressed in cent, we moved back from a headline loss back to I think total headline earnings were about R900,000 just under R1 million so you divide that by R200 million and it ends up – that equals nothing. So, headline earnings is 0 cents. And we need to get it back to I think more or less those levels there. So, we could deliver on the expectation that we create in the market of being a dividend paying company. All right. So I think here we could see our stock the difference was between the two half years. We certainly had and this situation the production numbers in particular plays a significant role. The combination of higher production almost 200 kilos, were just over 200 kilos more over the half year. And also the gold price, see the difference there, about R42,000 per kilo, on a ton that’s R40 million of gold and that’s the production for the quarter over two quarters. That’s some R80 million just on average gold price proceed. So you take your 200 kilos drop and you take that R80 million swing based on production over the last six months. And I think that gives you an indication to why the cash position at the end of this half year. Certainly not in line with what we saw in the previous financial year. So, one of these numbers, compared to the previous half year are significantly down. Operating profit, operating margin, all-in sustaining cost, margin, EBITDA and here we had a handsome earnings, headline earnings of R170 million as opposed to a headline loss of just under R12 million. 45 cents compared to minus 3 cents half year on half year. So, I think we’ve got our work cut out for ourselves. I think the market has been patient. We have been giving guidance as to when and how. We thought that these various sections would kick into effect. It’s not all gold price, a lot of that is production. And it’s a simple matter of making sure that if we get the production numbers where they need to be, the fixed cost component of this business is such that by just expecting more gold without seeing much of a variation in costs, you could swing these around pretty quickly and pretty handsomely. So it’s a matter of getting the technology to work making sure that we establish equilibrium and consistency in the plant. And then you’ll see hopefully a restoration or a partial restoration to some of those previous levels. Okay, comparing, the revenue rather the two quarters. Previous was the six months, around six months, these are the two quarters. And then you can also see just on the revenue line, R180 million rand swing compared to 2012 compared to the 2013. And that is all gold price. Where you add the R25 million odd additional costs, you could see how the swing quarter-on-quarter is about R150 million just based on slightly higher costs. But still manageable, manageable I think within the circumstances considering that we are putting far more tons through, through different sections of the plant. So I think that is still acceptable. But there you could see the really big impact it’s on the revenue line. And that is as a consequence extent of slightly higher gold price previous quarter. About half of that is gold price R40 million but then the other R90 million is pretty much the impact of lower gold production. That’s 100 kilos less. We still have an operating profit, so we’re thankful for that. It trended nicely back towards that. But we ended up with a loss after tax compared to the previous year’s quarter, December quarter, I mean, earnings per share that we can reflect. The balance sheet, I think the number that everybody is always closely tuned to is the cash and cash equivalents. This is now first quarter 2014 through second quarter 2014, that you could see that the cash number that come down further R130 million. Part of that obviously was the dividend that we paid, that was about R50 million from our perspective. And then just over R20 million on loan notes. So the cash burn there was the difference between R130 million and R70 million is about – I think R55 million is what the drop showed earlier to proceed the net cash burn quarter on quarter. And I think we’ve positioned ourselves now that we can start reversing that trend. Certainly the gold price is helping quite a lot. And I think production itself needs to start trending in the right direction. And we’re seeing signs of that. Now, talk about some of the positive signs, we’re certainly seeing an encouraging changing trend or emergence of new trends. And also some of the things that we’re still working that we still need to get sorted out. All right. So the current ratio I think is slightly weaker then as a consequence of that slight drop in the current asset scenario. So, looking ahead, stabilize the floatation fine-grind and stabilize the covenant lead. So, what we’re seeing is that high-grade section, the floatation fine grind section is certainly working to spec, it is performing to specifications. The assumptions that we had made when we started off with this project and the numbers that we are achieving there I think those assumptions are being proven accurate. Certain instance maybe slightly conservative. We are getting the mass pool, we are getting the extraction efficiency of pyrites, it’s ending up in the mass pool, in the concentrate. We are seeing the percentage of gold that we thought was going to end up in the concentrate, ending up in the concentrate. It’s roughly 40% of all the gold entering the plant ends up in that concentrate. We’re seeing at this stage, not quite the grinding efficiency, we want to get size of the material coming through the most. We want to see that down to about 21-22 micron and I think we’re achieving about 25 at this stage. But the size, the fraction of the material entering the mills is quite a bit bigger than what we initially anticipated. Our assumptions suggest that 31 micron and I think it’s about 37, I feel about D80, which means 80% of the material entering the circuit has a size of 37-odd micron. Some tell the delta, the difference between material entering the mill and the material exiting the mill the delta is consistent with what the initial assumptions were. We’ll give an inspection efficiency, common loading and inspection efficiency within the pump cells, that is consistent with initial assumptions of the streaks a little bit and dealt with issues like plain rubber, as a consequence they introduce oxygen and they introduce carbon earlier on in the treatment phase, etcetera, etcetera. So we are starting to see that those extraction efficiencies are consistent with what the project assumptions were. So, the high-grade circuit is – has trended and is performing to specification. But now needs to be traced obviously is the older part of the plant, the initial – we feel that is the low grade section of the plant but it’s just a normal CIL that’s 11 tanks into which all of the slurry goes with cyanides introduced, carbons introduced, the gold dissolves and settles or loads on to the carbon and from there it goes on to the elusion circuit. What we’re seeing there is that because of the significant amount of gold that gets captured earlier on, maybe some of that gold that previously had presented in the lower section that the carbon loading values, or the loaded carbon values rather if they’re right around, the loaded carbon values that we’re seeing there are not consistent with where they were prior to the interjection of the high-grade circuit. And I think they’re playing around at this stage with a number of elusions, they’re playing around with how long it’s phased in the tanks whether the resign times to long, whether it’s short and so forth. But that is one part of the circuit where some work still needs to be done so that we can achieve the target that we had set at the outset of the embarking on this project. We want to see 60% of the gold coming out of the high-grade circuit. And we want to see 40% of the gold that we produce coming out of the low-grade circuit. And at this stage, the low-grade circuit is still lagging a bit. And lagging is the consequence of the fact that we only fully commission the high-grade circuit around about the 25 January. So there is a bit of a lag that we’re working towards. And hopefully they’ll have that sorted out over the next two or three weeks. The technology, in which we invested and in which we will capital and as it went, namely the floatation, fine-grind, pump cell, elusion etcetera, that’s all working well. The technology that we refurbished in order for the densities to be adjusted and readjusted so that in every components of our circuit and material flow is properly flipped or the process that it has to go through namely the thickeners, those have been stabilized as well. They’re working well. That was the reason for the late commissioning of the high-grade circuit of the floatation cells. We told the market that we want this thing to be steady and commissioned by the end of December. Construction work has been finalized by early December, just getting these thickeners to run properly that turn to be a bigger challenge than what we had anticipated. We had liners that stood up with red-chip, we’ll rupture router, we had a took-out of the one of the thickeners over thought etcetera, etcetera. So, this is the process that you go through when you commission these monstrosities. Various divisional layers of complexity and each one dealt with sequentially and hopefully adequately surveyed in future. We learned from each one and we do it a little bit better. But that’s basically where we stand so a slight recovery, of a low base, certainly enough for us to become increasingly encouraged about particularly with recurrence to the performance of the high-grade section of the plant. But still some work to do in so far as the lower grade section is concerned until we get full and final stability and equilibrium between those two. We’ll keep the market up to date as we go along. All right, Francois and I will take your questions. Niël Pretorius: Adrian, sorry you put your hand up. Yes, please go ahead. Adrian Hammond – BNP Cadiz: Hi, it’s Adrian Hammond, BNP Cadiz. Niël, just three questions if I may. Firstly, are you where the rand is today are you concerned about cyanide costs? Niël Pretorius: Yes, we are. Every time that there is – our cyanide cost we can put it differently and I need to make sure that I don’t step on anybody’s toes here. But as cyanide price gets adjusted every time that there is a change in the exchange rate, rand-dollar exchange rate. So this is those input parity price. So whenever the rand weakens, we see an increase in the cyanide price. So yes, it is a concern. Adrian Hammond – BNP Cadiz: Do you have any contract implies that you hope is protection to that or? Niël Pretorius: No, we have a supply contract but the supplier obviously hands down I don’t know if it’s cost with the hand down because it’s a local supply following local technologies and ingredients due to produce. But every time that there is a change in the exchange rate then obviously there is no adjustment. Obviously the rand improved, then the reverse side of the coins also too then we get an adjustment, a favorable adjustment. But yes, Adrian, I’ve always been a supporter rather of a high-dollar gold price and a strong local currency. Because a lot of the cost dynamics in the gold space are determined by dollar based so to speak. Your steel prices, your energy prices, your fuel prices these things borrowed dollars to their capital expansion. A lot of stuff gets delivered to our operations with diesel trucks. So that gets handed down to the consumer. This input parity pricing it would seem amongst some of our biggest suppliers, those who captured most or a significant portion of the market. So, what I saw in 2002, I think when we first saw a rally in the gold price based on the weaker exchange rate or a weaker rand, I think it went from R70,000 to R60,000 a kilo to 120,000 a kilo. And it was the very good time for the mines, for the gold mines. But then costs very quickly started increasing, there was a very steep industry inflation that was a lot steeper than inflation generally. So, in our space and our industry, a weak rand is a very good leading indicator for a steep increase in the price of energy. Our energy costs for steel and for chemicals, for reagents more often than not. And that lags about nine months some of them catch around earlier. Obviously they have quarterly adjustment. But I think the lag is about nine months. Adrian Hammond – BNP Cadiz: Thanks. And just on talking to the ultra-fine-grind project, assuming everything goes according to plan, what do you think the impact on your reserves could be assuming that you’re now achieving reduce in the pay limit so to speak? Niël Pretorius: Well, I think it’s a current gold price, and I’m assuming that we achieve the production profile that we had set out to achieve. We’ll deliver into our life at mine. What we may find is that some of the lower grade gold in fact also becomes profitable. And we could bring those in if not to make significant profit but to just to extend the life of mine. So that if there is a change from the gold price to favorable change in the gold price, but you’ve got your infrastructure and you can take advantage of that. So, yes, I think if we do achieve the assumptions, we could certainly maintain the yield that we’ve promised the expectation that we get with gold’s yield and return on investment for the entire life of mine. In order for it to go beyond that we will have to see an increase in gold price. But we are more than likely to be able to extend the life of mine at a much more marginal rate. Adrian Hammond – BNP Cadiz: Thank you. Niël Pretorius: All right, is that all? Sorry, Brendan. Brendan Ryan – Business Day: Niël, can you make any estimate or give us some guidance as to when you think this company might become dividend paying again? Niël Pretorius: Brendan, to build the board is that we should distribute as third of – okay, sorry. So, apparently I’m not talking in the mic, my apologies. Whenever there is free cash flow, we want to have a buffer equal to about one month’s working capital. We know the clearing of dividend this time around because we need to maintain our buffer. And we’ve got loan notes to pay in June so, if were to pay dividends now. And we paid the loan note then we’ll drop to be lower buffer. So, you can – if we can maintain our buffer and we generate free cash flows, at least the third of that is what we usually apply towards dividends. It depends on how much gold we produce and what the gold price is. It’s R130 million to R150 million thereabouts, about a month’s working capital. Adrian? Adrian Hammond – BNP Cadiz: Just on that meadow with the Village shares, have you decided what you’re going to do there? Niël Pretorius: My board gave me some guidance on one or two avenues that I should pursue at the last board meeting. And I intend to do that. One of them obviously is to look at an orderly disposal. What we’re not going to be doing is just dumping the shares. If not, the board expects that management actually manages that investment proactively. So maybe get involved a little bit. But that will have to take up with the village people. Adrian Hammond – BNP Cadiz: So, as you’re getting involved with the Village assets? Niël Pretorius: No, no, not the assets, not the assets but maybe be a little bit more proactive as a shareholder, show up at the Annual General Meeting, voice and opinion to some of the strategic decision making process and so forth and so forth. Adrian Hammond – BNP Cadiz: Thanks. Niël Pretorius: That’s probably about as vague answers I’ve ever given. As nobody coming out now, thank you very much everybody for taking to time to come and listen to us.