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DRDGOLD Limited (DRD) Q2 2020 Earnings Call Transcript

By Motley Fool Transcribers - Feb 12, 2020 at 7:30PM

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DRD earnings call for the period ending December 31, 2019.

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DRDGOLD Limited (DRD 0.31%)
Q2 2020 Earnings Call
Feb 12, 2020, 3:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Niel Pretorius -- Chief Executive Officer

Good morning, everybody, and welcome to our Results Presentation. Is the sound and picture are currently inside? Yeah. Good, if you can just nod or put up your hand like this?

Riaan Davel -- Chief Financial Officer

Yes. We've got you. Thank you.

Niel Pretorius -- Chief Executive Officer

Okay. Excellent. Thanks very much. Then, you'll be forwarding the slides as we go along, right?

Riaan Davel -- Chief Financial Officer

Yes, we will.

Niel Pretorius -- Chief Executive Officer

Okay. So let's move on to the -- Riaan, you're going to be moving the slides forward as we go along, is that correct?

Riaan Davel -- Chief Financial Officer

Yes, that's correct.

Niel Pretorius -- Chief Executive Officer

Okay. Lovely. All right. So, thank you very much and -- for joining us this morning. I'm going to move straight into the presentation. And while we look at the disclaimer, where we have a picture, not coincidentally of a lady. She is one of several others representing 23% of our labor force. Maybe just one or two words on what the focus of this presentation is going to be. This is the first year -- well, the first period, we will be reporting was first West -- Far West operations rather in a full volume production. So, obviously, this was almost the benchmark for numbers going forward. It's the first establishing the standard or the major for the next reporting periods. So that the comparatives are slightly skewed as a consequence of that, but they do make for good reading nonetheless, and I think they demonstrate just the impact of this combined circuit that we now have.

So moving on to the next slide straight into the Group highlights. Moving on to the highlights. Slide -- we can move on to number three there. Thank you. I think the -- we've always been talking about production within the context of tons. So 1 ton per quarter gives us 4 tons per year. And what you see there now is that, with a 33% rise, both as a consequence of over-performing really well over the six months considering the number of issues that we had to deal with and I'll talk a little bit more about that later on, but we actually achieved production of 3 times for the six months. And that resonated in the numbers, you can see that there is an operating profit that's increased by 604% to just under the ZAR750 million. And all-in sustaining margin up from less than 1% to 26.7%. This translated into the healthy headline earnings just under a ZAR333 million, and Riaan will obviously spend a little bit more on those numbers.

And as a consequence, we are also in a position now to after six months declared a dividend of ZAR0.25 per share and this will be the 13th consecutive year where our Company has been in a position to distribute free cash and payout a dividend. We will reflect a little bit just on how we arrived at this dividend, you'll see that we mentioned in our letter to shareholders, and the back on our thinking in this regard. Obviously, our philosophy has always been there. We don't sit on free cash. We distribute free cash, and typically what we would is look at near-term capital commitments, but also like to retain a buffer. And then the balance goes out to shareholders. And then, for good reason, very large percentage of our shareholders are here in the United States. And us being an emerging economy, obviously, we have a somewhat vulnerable or at least volatile currency, maybe not as vulnerable as we before it was, but certainly volatile. And we don't want to be sitting on an asset that's diminishing in value, we grow that and give the cash to shareholders and they can apply in whichever way they deem fit and we'll look after the business. However, a big chunk of the free cash that came into the business this year came from the Far West operations and you'll know that we've been talking about the first phase and the second phase of the Far West operations' now right from its inception. And the second phase would involve a slightly different blend compared to what we've got now. At the moment, we are mining a fairly high grade resource. It needs to be applied within the context of the larger ore body and it's not happening at the moment. It's very much in accordance with plan. We are in the first phase, we are establishing project track record at this stage. And looking at the parameters of what this thing is going to look like as and when we implement. But you do have to apply the proceeds also within the context of the entire resource.

And to take all of the, let's call it, almost the windfall portion of the operating profits, that's been -- that are being generated by this circuit now and distribute all of that and not applied back into the bigger project, I think would be maybe to not use it 100% in accordance with our approach, with our policy or our value system if you want to call it that. So some of that money is being retained, and Riaan could perhaps elaborate more, a little bit on how we arrived at that. It's really the difference in the assumed gold price and what we actually seen, and that's going to go back into the project.

So it's maybe not as bigger chunk of free cash, as we did in the past. Although, we did reduce the buffer somewhat, the cash buffer somewhat, but it's for very good reason, there was some thinking that actually went into that. And this was the first full six-month period where we had full production from the Far West Gold operations.

Of course, it was also very important highlight this in the subsequent events. This is something that you would have seen in the news following the end of the year this period, this reporting period was about exercising its option. And we'll talk a little bit more about that as well. But that's also a big sum of money that's coming to the business, and I'll reflect on that when we talk about looking forward and also on the sustainability slide.

So then moving on to Page four, the next slide. Just some of the operating trends that we saw coming through this year on a Group basis. You can see that the -- for the two comparison periods or period-on-period, there was -- there has been a steady increase in volume throughput over the 12 months but comparing the first half of financial 2020 to the latter half of 2019, you could see roughly 700,000 increase in volume throughput. So just under 14 million tons went through our plants during the period. We recovered 0.217 gram of gold per ton processed and that gave us the 3 tons of gold production, which for us, I think is a good number. It's very much consistent, maybe slightly better than what we had anticipated or what we had planned. So the operations are in a good space in terms of operating efficiency.

On the Ergo operating results, the next slide. Thank you, Riaan, I see we are already there. There you could see that there has been a decline in volume throughput and it's a combination of a number of things. Ergo is a complex footprint, we are mining from several sites and they need to be mined in a particular sequence. If the one is running at lower volume then you can't necessarily supplement the volume throughput from another site because you do have to run them -- it's almost like face advance, you can't race ahead because you'll be teaming up certain sites at a time when they still need to be part of a broader throughput mix and production combination, or else you're going to be running out of volume, running out of material at a time when you still have material left that needs to come part of a bigger blend. And then the net result of that could then be that you end up with a site that still has lots of material that needs to be moved, but running at less than optimal volumes, which translates into rehabilitation or cleanup costs. So we need to run these sites in a coordinated fashion and we don't always overcompensate for reduction in volume from certain sites by increasing volume throughput from other sites. The circuitry just doesn't lend itself to that.

So from a combination of things, obviously, there is some impact in terms of Eskom. It's not as profound, I saw some other results coming through this year or during this reporting period on the impact that Eskom has. Obviously, our arrangement with Eskom is that, we use a little bit less power. So we reduce it other by 10% or 20% of total pull when there is load shedding. And that has an impact on how we coordinate, for example, the movement, the pumping of water and maintaining our water balance. So for long uninterrupted periods of load shedding, we don't like the risk that results from that and the impact that it has on our water balance. But it's not the most important aspect or the most profound aspect in terms of volume throughput. We can actually manage -- to a large extent, we can manage volume throughput, notwithstanding the fact that there are occasional incidents of load shedding. But as I said, this is a complicated site that we're mining, some of those sites we're in the final stages and we're lifting material from the floor of that site, and that has been challenging to maintain volume throughput in a manner, which is consistent with our budgets and with our plans. Hence, the slight reduction over the 12-month period.

I think what the team has done, though, and this is part of, I think that the highlight here the philosophy of creating embedded resilience to the realities of our operating environment is -- the model has slightly changed, and you could see that, although, volume has gone down, yield has gone slightly up. And this is as a consequence of the molds that we had moved among other things, the molds that have been moved from Crown crust to Ergo and slightly higher-grade material coming into the Ergo site. And translating into that slightly higher yield over that same period of time. It will changing into some point or another. In a few years from now, you will see much higher volumes when the mining footprint looks different in the combination of sites that are being mined. When that looks different and there are more higher volume sites and less complexity.

Also, early stages of mining, I mean, some of the early dumps that we're mining. The 4L50, it's the one right next to the highway on the way of Boksburg on the right-hand side. This thing is really going really well, simply because it's in mid-life sort of complex footprint that needs to be lifted. We're not finding our way through several decades of Johannesburg history and coming up with little surprises, like the little bit of a rock that had been deposited in the middle of the tailings dam or uncovering old foundations from a plant and stuff like that. So these are the little secrets there that lie beneath these dams as you get closer to ground level. Few years from now, that volume throughput profile is going to look one of the different, but then the grades are going to be slightly lower because your slime grades become slightly lower than the sand grade.

So the other production on a whole, as a consequence of the way that I think this business has consistently been reimagined and evolving in order to be more resilient to the realities of our operating environment. You can see that the production was actually pretty good at Ergo with 2.2 times coming out of Ergo.

Far West Gold Recoveries. New kid on the block. I think they have the blocks pretty well and we are very happy with what we've seen at Far West, maybe raising a little bit on the volume throughput. I get nervous when I see this, but I'm told that it's entirely consistent with the plan. But they managed to get their own target in terms of volume throughput. They need to do 500,000 tons a month and that is what you're seeing in terms of volume for the half year.

In terms of yield, not much I can say about that. It's consistent with the ore body, with what we anticipate and also it's recoveries. And it managed to produce 0.75 ton of gold over that period and when Riaan takes you through some of the finances later on, we'll just see the difference between -- the difference that grade makes and also the difference that are more compact, concise operating footprint -- less complicated operating footprint difference that it makes. But these are -- I think it's a good combination of assets, you've got the high volume throughput on the one end, the lower volume throughput at the other, and a very nice combination in terms of the -- in terms of resilience in business [Phonetic].

I'm going to head over to Riaan now to take you through the financial review, and then he'll hand me back later on during the presentation.

Riaan Davel -- Chief Financial Officer

Thank you very much, Niel. Good morning, ladies and gentlemen from my side. Niel always provides perfect context to what I'm going to do on the financial review. And it's always my privilege to take the audience through the financial results and the reason for that is, I believe in the purpose of the Company. It's not only to make money. But as Niel puts it in his letter to shareholders to roll back the environmental legacy of mining, starting in the Witwatersrand, but I feel we can take that further as well.

But maybe this morning is extra special, the results, because from my point of view, I believe the results are pretty good. Niel's provided that context and also in his letter to shareholders he might mentioned and he mentioned this earlier of the resilience of the operational and support teams throughout the Group, but specifically at Ergo and Far West. Because someone can say that your results are good because you had a healthy increase in the gold price. And yes, that is true. But the business must be setup over many years and it has been to be able to benefit from this increase in the gold price that we've seen over the last six months.

Yeah. So from my point of view, most of the created I believe must go through the operational teams at Ergo and Far West and as Niel has described Ergo, our mother ship training center where we've learned to do high-volume, low-grade complex business but making a huge impact on the social environmental value. Far West, as Niel mentioned, new kid on the block, completely different than Ergo, but also the same, small footprint, one side, high yield, high margin, and you'll see that and perfectly setting that business up for further growth. So just from my point of view, the context of the results that I wanted to start off with. Hitting some of the details there. Ergo revenue, healthy increase, as a result of a 2% increase in gold sold. And as I've mentioned, the 26% increase in the average gold price received, leaving it of revenue of just below ZAR1.6 billion. Cash operating costs, yes, there has been a slight increase period-on-period, even though the volumes are down, that Niel alluded to. And the main reason for that is the introduction of higher-grade sand into the circuit. But as you can see in the yield improvement, and in the operating profit at very much paid off. So the cost for me very much under control at Ergo and then an increasing revenue model, obviously, contribution to operating profit is significant at over ZAR360 million for the six-month period.

Looking at Far West. Niel alluded to the fact that really just very small toll treatment that we did in the December 2018 period, but from a comparison point of view, doesn't make any sense. Then, as you know, the first period of commercial production, our first of three months, in the last quarter of the financial year 2019, April to June, started generating revenue. And then as Niel mentioned, hitting planned throughput in the last six months, the most kicking in, in September as well. And that operation really doing well, as we planned, it's delivered. And as I said, from a timing point of view, we -- from a gold price timing point of view, we almost couldn't have planned it, even if we try it. So it picked up on all of that. Obviously, the cost increase that effectively three months of costs that six months, including milling, but as planned, and doing extremely well. And, yes, small operation, but because of its higher margin, almost yielding a similar operating profit thing than Ergo. But as Niel said, yes, it's because we know we are mining that higher-grade resource three, four times faster.

Hitting some of the Group financial trends, with that background, obviously, it has a huge impact on operating margin. Ergo contributing -- if you do Ergo's operating margin on its own, very healthy 23%, Far West much healthier 68%. But, yes, we understand why the operations are much different but all of that helps to get us to 34% operating margin. Niel mentioned, the 26.7% all-in sustaining cost, which is very good.

From a free cash flow point of view, more than ZAR400 million generated in the six months, with also a big chunk locked up in working capital, more than ZAR100 million impacting that number, but we're very happy with that ZAR400 million free cash flow. And then all of this and we'll go through the income statement now, obviously, resulting in a headline earnings increase and a very healthy ZAR333 million or ZAR0.484 per share.

Looking at the detail in the income statement. So with all that background, what happened with revenue, so we had a 34% increase in gold sold, 26% increase in the average rand gold prices received, that results in a 69% increase on the top line. It's very, very healthy for this period.

Cost of sales, the biggest impact there is around Far West, its six months cost coming into the picture. And as I mentioned, some cost for Ergo, higher yielding sand material, but yes, it comes at a cost but we believe it was very much worth and you could see it in the high yield at Ergo for the six months.

Administration expenses and other costs, just to mention, there is a ZAR43 million increase in the cash-settled phantom scheme liability as a result of measuring it from 30 June, I think at ZAR4.37 to just below ZAR7 with period and net increase all goes through the income statement in this period. But the healthy results from operating activities of just under ZAR500 million.

Finance income, ZAR20 million of that sits in growth in our rehabilitation assets. Finance expense, as you know, the majority of that non-cash you'll see it on the cash flow majority unwinding of the rehabilitation liability as a result of time, value of money.

And then, yes, a number that has creeped into our income statement that we must take cognizant of. And I do see it as a result of generating lots of profit, and also taxable profit at the same time. We see it on the cash flow as well, that's a combination of current and deferred tax, it goes through the gate. We could make the first provisional tax payment and I'll allude to that on the cash flow statement. And that's the profit for the period of ZAR333 million.

Statement of financial position or balance sheet. I mentioned in September during a presentation looking at the June 2019 balance sheet that it very much looks like a launchpad. Now, I'm happy to say, based on our six months number, yes, it's definitely started to launch, you could see decrease there, depreciation on those assets as assets being used and it's showing you really good results from both operations. Healthy investments in rehabilitation obligation funds over ZAR600 million.

Cash and cash equivalents, I'll elaborate on, on the next slide and also provide some further context that Niel alluded to from how we thought about it from a dividend and near-term capital projects, as well.

Other current assets, slight increase, obviously, Far West will have its debtors and inventories also sitting on that -- in that line item.

Equity, obviously, it show simplistically the profit for the period. And then a healthy dividend that we declared as a final dividend of ZAR0.20 per share for -- relating to the 2019 financial year.

Rehab liabilities, just under ZAR700 million. Obviously, deferred tax I mentioned on the income statement that will flow through to the deferred tax liability on the balance sheet, saying that this tax expense down the line that will happen. And then other non-current liabilities and before I get there, just stating that it's still a zero borrowing balance sheet. So we was like that at 30 June 2019, still no borrowings on our balance sheet. Included in that number is ZAR43 million lease liability applying the new IFRS 16 standard on leases. And some employee benefits and then also some employee benefits sitting in current liabilities. But overall, leaving us with an extremely healthy current ratio of more than 2.1.

And then statement of cash flows. Cash generated by operations of ZAR500 million. As I've mentioned included in that number is working capital lock-up of over ZAR100 million, which -- in our working capital cycle flows quickly through to cash just following year end. So very, very healthy cash from operations. There you can see the smaller cash number, specifically on interest paid coming through as a majority is non-cash. And then there is the provisional tax that we made at the end of the December just under ZAR60 million that we made to Receiver of Revenue.

Property, plant and equipment, obviously, quite a decrease that mostly related to the construction of Phase 1 of Far West Gold Recoveries. And you can see that, even as a sustaining capex number for six months is fairly low. And that's why, in our planning, in the next six months and going forward, we are looking to up that quite a bit to do some spending also around keeping the business resilient what Niel referred to. And we'll keep on seeking our environmental liabilities and that's where our model is different. I believe any other mining company that we settle those liabilities as we mine, as we continue each period.

Dividend that I alluded to, our final dividend that was paid in the six months period, just under ZAR137 million. So, even with that, leaving us a very healthy increase in net cash and cash equivalents leading us to with ZAR543 million in cash. So, as Niel said, yeah, what we're going to -- our philosophy is, yes, to still reward shareholders out of free cash.

I don't want to say, we plan the Far West project. As you know, the competent person quoted ZAR564,000 per kilogram. So averaging them just under ZAR700,000 per kilogram. And we said, we know that is a high-grade resource, but some of that difference or upside purely from gold price, we want to keep aside and say, yes, there is a much larger project there. There is more blending that will come in the future. We don't want to declare that as a dividend. Maybe Ergo, as it is. We looked at each short-term and medium-term projects from a cash point of view. But fully declared the majority of its free cash flow out as a dividend. So with all of that into account, we believe it's a good match between still rewarding shareholders with a dividend but making sure that we have enough cash to delivering our short- and medium-term growth prospects. So really, really exciting times for us.

Niel, that's it from my side. I'm going to hand over Niel in New York.

Niel Pretorius -- Chief Executive Officer

Thank you. Thanks, Riaan. So just on the sustainable development side. These are slides that six, seven years ago, almost when I noticed, I think to the large extent but with the introduction of ESG or the emphasis on ESG, which is I think a development from sustainable development and/or the new theme around sustainable development and the emphasis on that in the investor market, I think, we do have -- we have some history that we can talk to, and the work that we've done in this regard stand us in good stead in terms of developing our ESG narrative.

So maybe I'll start spending a little bit more time on this. Again, as I did several years ago, now that the market actually takes the step seriously, and it's being used as a qualifier in many funds before investment in a company is allowed. Now, we do set very specific targets in terms of both the containment of our operations on the environment, our installations on the environment and also what needs to be left after we've mined. And looking at the impact of our mining operations and it's -- and the broader scheme of things, I think there are four -- one could argue maybe five distinct parallel initiatives in this regard. The one is the containment of environmental impact. And this is really what we knew about dust. Our mines are in the middle of Johannesburg. And remember the mine didn't go to the city. The city came to the mine. And as a consequence, you would find that there are lots of communities that it sprung up around our installations and typically around the tailings dams as well. And their lives can be an absolute misery if the potential impact, environmental impact of those installations aren't looked after.

So, a small fortune has been spent, not a small fortunate, in fact, a big fortunate has been spent over the last 10, maybe 12 years on containing the impact of, particularly the permanent storage facilities, the tailings dams that we have. So ongoing vegetation as a measure to contain dust and ensure that we don't cover those surrounding communities and the cloud of dust, that was both the nuisance and the environmental -- the health impacts that it potentially have. There has been a very important part, there has been a big priority for our Company. And obviously if you're dealing with a legacy that is more than 100 years old, you don't do it all at once. But I think what we are seeing now is 10 years of dedicated work in that regard of consistently making sure that the area that's covered by vegetation every year increases, improves that we reversed the impact of maybe some unthinking behavior in burning down some of the vegetation that we established. You can see the little picture there in the left-hand corner, with the irrigation -- it needs irrigation for sometimes up to three years before it's independently established. So fires on these tailings dams do costs us a lot of money and that I can't imagine why people would think it's a good idea to burn them done but be that as it be.

But we're winning that battle. And then we're seeing that the dust emissions and this 0.71% dust emissions exceedances, what this basically means is that, of all the measurements that we take and there are several thousand measurements that are taken every year and dust buckets in and around all of these areas, I think they are in excess of 219 -- correction they're about 90 sites where we do measure dust in different areas surrounding the mines. Less than 1% of those measurements have been taken through the entire year, exceeded the statutory limit on airborne particles. So it's a race that we are winning. It's not over yet. We'll probably only finish in about 2022, 2023 with the vegetation of all of these tailings dams. But it's well worth doing because I think it's profound the impact, the quality of life, people living in and around those areas. So that's the first thing that we do. The first dynamic in terms of environmental containment.

The second one, obviously, is the rehabilitation of sites that were previously sterilized. When mining started in Johannesburg, it was open field. So mine dumps were established and that the deposition sites were established in areas that were convenient, low-lying areas. So what we find is that, lots and lots of areas are effective low-lying areas, or wetlands, flay areas and so forth by unthinking deposition techniques and policies voting back 80, 90 years ago. This is now slowly but surely been reversed, it's being restored around the Crown plant, for example, you see that the huge area that, where the river bed, it's been cleaned up. It's going -- it's resuming its natural flow path. And we envisage more of those going forward. There is one area in particular, not far from the [Indecipherable] community, which is one of our future priorities when it comes to quality of life and so forth and everybody in our operations know that this is an important priority for both the Board and for the executive that this is addressed. It's a flay area there, too, where whatever the financial upside turns out to be, it's may be of lesser importance, not of no importance but of lesser importance in deciding whether or not we're going to be doing it because this too is catchment area where sediments have been accumulating for several decades. We are the only company in South Africa, in Johannesburg with infrastructure capacity and the will to actually want to lift this, clean it up and do it in such a way that is not costing the shareholders' money. We can, at the very least, do it in a cost-neutral fashion and we might actually even turn a small profit. But it will be in the cleanup of an area that ultimately in five, six, seven, eight years from now when it's been cleaned up, will be restored to a pristine condition that it was in before. Contamination started taking place before sediment sort of accumulating there. So this is a -- this is the reversal of the environmental legacy aspect. Cleaning up sensitive sites.

The third one, obviously, is the fact that a lot of the sites that are being cleaned and we're talking about several hundred hectares. I think last year alone was 135 hectares of land that have been restored. Not all the mine dams are thankfully have been volting wetlands in place. Some of them have been bolt-on areas that are perfectly suitable for development, industrial and even residential development. So, more and more of that is taking place as well. The landscape, Johannesburg is changing. These dams are being moved. Their position after recycling takes place on a modern dam that has managed to modern standards. Increasingly transparent, sharing of information and so forth and so forth, that's being required of mining companies increasingly, that's on the governance side and we're perfectly comfortable with that. We have those structures in place and we're developing those, but that's the third thing is the development of these sites for purposes of the residential or for industrial site. And that is how I think the activities of our Company, which has a commercial focus as we added benefit of reversing something that happened over many, many years in terms of environmental cleanup. So there you can see 31 hectares of additional deposition area that's been vegetated and the difference between -- but that's coming off these dams now compared to what they looked like 10 years ago is chalk and cheese and hopefully that was looking at this objectively. We'd actually see that and acknowledge that. And our purpose really, our objective and Riaan alludes to purpose, is the word that he uses often. I think actually the modern approach people nowadays want to be assured that what they're doing is purpose. And the purpose really ultimately is to have reversed the impact of the environment.

In and around the Johannesburg area now also in Carletonville area, where is the issue of aquifers and tailings dams that have been built over dolomitic aquifers. It's going to play a big role. And 20 years, 30 years from now when we reflect back on the career, then these other things, obviously, that will remember, and that will set us in good stead. So that 31 hectares of additional deposition facility is vegetated.

There has been an increase in the amount of water that we're using in terms of potable water, but that is -- because of the addition of the new plant and the water usage there, that's now being consolidated into our numbers. But we continue to look at reducing usage of externally sourced potable water. We don't want to compete with the communities and with other users of potable water. So recycled water is a big theme in our Company and we will continue to develop that theme. We're getting both treated AMD from TCTA and we also have an arrangement for sewage, retreated sewage. We've got a lovely plant that feed sewage water and we take most of the water that they treat. I think the big issue now, unfortunately, in Johannesburg is that, not all the sewage reaches the sewage plant. So hopefully, our partner there can lift its game, make sure that infrastructure actually delivers the sewage to the sewage plant and then most of that water will find its way into us circuiting to the Ergo circuit. And that to I think resonates both in terms of health and also the right sort of usage of the environment. Yeah. And that was the fourth point that I was going to make in terms of how we impact the environment is a slightly softer footprint using less power through technologies that can be used to their setting up the plant, ultimately, in terms of our management systems to make sure that we don't overdraw power and also, in terms of water usage, making sure that our footprint is slight as it potentially could be.

Environmental spend in our business is -- thank you, Riaan. This is not a generic summary of -- or the generic story. We can show you the actuals here. There is some real money that's going into environmental containment and rehabilitation on an ongoing prices. This is of the highest quality. We used to do this in-house and at a very good rate. Vegetation is now also taken on a development side, a small economic development side, small enterprise development side. So we've involved members of the community that also do some of this vegetation. I think what we're also finding others that community is a simple word, it's not hard to spell, but -- and it's not difficult to pronounce, but it is a very, very interesting concept. There are several communities within each community, and everybody wants to be part of something, not everybody is happy when somebody else has brought up something and they're not. So managing these community relations are turning out to be complicated, but we are persevering and we are determined to make sure that we add some value in this regard to us, at the same time, achieving an outcome. Ultimately these tailings need to be vegetated and if we pay for something then we expect a result. And this is how we drive it. That's the underlying value and we stick to it.

Saying to my colleagues the other day, we remind, we're not the Department of Education, standards will stay the same and may be become higher on as we go along, but we will never -- it's just our standards only because there's some sort of a social dynamic that's introduced into an initiative. A lease contract is a contract and people need to deliver into that and we intend to stick to that. The owe to our shareholders to look at their funds responsibly.

So, moving onto the guidance aspect. You will have seen in the results. Thank you, Riaan. You will have seen that in the summary that we are sort of bumping against the higher end of the production side because of both Ergo and for the Far West Gold Recovery circuits performing really well. It's a good space to be in. Riaan made the comment that, yes, the gold price has been exceptional and it has been unbelievably exceptional. You need to be able to take advantage of that [Indecipherable] and we've got a big bucket and even bigger spoon. So we can take advantage of these conditions and I think it's the team, the operations team and everybody supporting them is preserving of our plays and we're very proud of what they achieved over the last few years to put themselves in this position.

Of course, now we want to move full steam ahead. Sibanye and exercise the option to acquire the additional 12% and our own 50.1% of the equity in our Company and the focus there is also very much one of -- it was very unique combination of mining -- rehabilitation through mining. The emphasis in Sibanye, when it comes to ESG, when it comes to responsible mining, green economy, green energy, maintaining -- achieving and maintaining the high standards in terms of environmental practice, of social relevance and also of governance, these are things that are being run at big company scale and big company standards. And we sloped nicely into that.

I think the fact that Sibanye has invested ZAR1 billion into a company that is developing environmental cleanup and dealing with mining legacy issues as part of an emerging brand identity is testimony to the model and its relevance in mining in this contemporary environment that -- the environment that we find ourselves and the focus from investors and also from those who on a professional basis run other people's money and there is a nice alignment, I think there is very good alignment in terms of what we're capable of doing and what Sibanye as major shareholders expecting from us.

And obviously this investment will assist us to accelerate these initiatives to expand our footprint. Firstly, in terms of the Far West Gold operations and hopefully increasingly also in terms of other metals and metals and products, where they have an existing presence. We intend to leverage that for the benefit of all of our shareholders. But as I say, I think it's a very good combination, it's a very elegant combination of environmental and social responsibility coupled with high standards of governance, while at the same time delivering value to shareholders. And this investment has certainly accelerated our ability to develop into that. We want to become a Company that is associated, not just with cash flows, dividends, profit, something that we've now done for 13 years, so 13-year dividend run, but we also want to be associated with the environmental aspect, the cleanup and the rehabilitation aspect and then earn the trust of those communities where we're active by keeping our word and improving the quality of their lives through environmental remediation.

So that's really where we are after six months. It's sort of just tunneling down the initial few meters of that launch pad. We've got a clear runway ahead of us. Full tanks and I think the plane's been serviced. It's ready for takeoff and now we just need to stay on course and stay disciplined to a fair value system and hopefully, we'll be able to continue to do this. And also, once the gold price does go down, because undoubtedly it will at some point or another be much lower than what it is now, have systems in place to ensure that we can come through that cycle and again take advantage of the next bull cycle as and when it takes place.

So, that's the wrap for now. I think, Riaan will take a few questions. I'll chip in to the extent that I'm required, but thank you very much for attending this presentation and for listening to.

Questions and Answers:

Brendan Ryan -- Miningmx -- Analyst

Hi, Niel. Brendan Ryan here, Miningmx. You touched -- now that's Sibanye is your major shareholder, you touched very briefly on what may be coming. Can you elaborate it on that please? Are you going to expand, diversify into platinum tailings recoveries and what is the potential for enlarged more gold treatment per plant, given the scale of Sibanye's assets? Thank you.

Niel Pretorius -- Chief Executive Officer

Good morning, Brendan. Thank you for the question. We have to be able to do that. Obviously, the immediate one, the near term one is to develop the Far West Gold project to its full potential and take it to 1 million ton a month project. Once that is up and running, then we would have established very good infrastructure on either side of the [Indecipherable] from Carletonville, all the way through to Ergo to Boksburg and Springs and Brakpan. And I think that there is a lot of opportunity that we could then leverage. We can leverage basically this infrastructure, our presence on both ends and develop that opportunity. So that is certainly something which -- that we're looking at to basically expand into that. And yes, we -- I mean, Sibanye has hundreds of millions of tons of other tailings material at all of their other operations. And I think the model works really well. If you consider what's happened here now with a Far West Gold operations and how it actually came together quite nicely, when -- before we did the transaction, I think, if you broke up the Sibanye share price in terms of different components of the business contributing to the aggregate of its share price, let's say, platinum was 20% or whatever or 40% and gold was whatever number you pick, I don't think that in the share price, these tailings was really recognized or contributed much. If it was 1% or 2%, I'd be very surprised. So I think what's happened with this transaction is something that was invisible and not receiving any recognition from the market in terms of the share price was rendered into a company that is a bespoke company and that's associated with this sort of thing. And following that transaction and considering our share price this morning, following that transaction, something which was worth zero from a market perspective, not zero per se, but from a market perspective received zero value this morning has a value of ZAR4 billion, now that's a compelling commercial consideration for wanting to do more of this.

I think some of the other tailings our there are also not receiving any sort of recognition in terms of value. And while this is a unique transaction and maybe there won't be some of that value uplift, maybe restrict the market a little bit by surprise, because I think there was skepticism expressed initially when we did the transactions to what the impact would be in terms of project ability and capacity and funding and so forth and so forth. Maybe this time the market will be less critical about or less skeptical about the ability of all automotive, how this thing will pan out in terms of value add.

I do think that they are still loads and loads of other assets within Sibanye that are not gold and that's not receiving any kind of value recognition that may receive recognition as and when it comes into DRDGOLD. So, there's that commercial consideration and we definitely wanting to be part of that conversation, we want to start the conversation and move it forward now that the option has been exercised and share price sensitivities and so forth are out of the way. And in terms of governance, there is a requirement for the flow of information.

So that's the one component and then of course I mentioned of that, it is a -- it's very high up on the strategic agenda of Sibanye. So, green mining and green economy and cleanup and so forth. And to have within the Group as one of its subsidiaries, a visible company with an independent personality and independent brand to be actively involved in this and having just to the tune of ZAR1.1 billion to continue to do that, I'd be very surprised if we don't receive a very clear message from Sibanye that this is the route that they would prefer for us to go. So it's a very good combination, Brendan. I mean, you've been following our story for many, many years. We always wanted to create this value overlap. We've always pursued sustainable development that's been very important in our strategic thinking and we've always pursued some sort of a value overlap. We want to be profitable, but we also want to do stuff in terms of social value and environmental value that impacts on the bottom line. And this I think is a very good example, where there's been a value unlock just from a Sibanye perspective of ZAR4 billion. Obviously, the rest of the DRDGOLD shareholders are also experiencing that with a market cap that's gone from where was it in -- what's that ZAR1.7 billion to ZAR8 billion and the additional cash flows where there is that aspect, while at the same time also having a very soft impact on the environment and also rolling back some of those environmental issues. The story just works in the -- in this day and age.

Savvis -- Analyst

Thank you. My name is Savvis [Phonetic], I'm the shareholder. The first question relates to the last question that was asked in terms of that Sibanye transaction. And I see that one also on the media release toward the -- on the last paragraph, it talks about moving to PGMs. Now, one would be interested that does this mean that the strategy is changing toward diversification [Phonetic] into other resources earlier?

And also what has been sort of influence of this Sibanye transaction in this statement? I'm not sure if I can just ask all three of them.

Niel Pretorius -- Chief Executive Officer

Yes, definitely. The strategy is to develop into other metals as well, precious metals that was associated with PGMs. I think Sibanye demonstrated and how the market responded to their movement into the hard rock aspect of both gold and PGMs that it's something that the market finds attractive. Their share price has been -- I think their share has been one of the best performing shares in the JSE in the last 12 months. So, to the extent that the -- there might be concerns that the market doesn't appreciate this combination, I think those concerns have been addressed by the market itself. The market speaks unequivocally. We don't have to think for the market, it thinks for itself, and then I think it's message is clear. And yes, I think the reason why DRDGOLD and Sibanye moved closer together is because there is synergy in thinking. We have a shared vision of what this combination of mining tailings profitably, and in such a fashion that it rolls back environmental legacies and environmental impact. That's a vision that is shared, and it's a relationship that I think works and one that we would want to obviously develop going forward.

Savvis -- Analyst

Okay. And then the second one is around the low dependence on Eskom. I think that -- looking at your results, I mean, that has to be commended. You did very well in that regard. But my question is around the -- your contribution of that toward the sustainable development. What's the contribution of that and maybe if you can quantify?

Niel Pretorius -- Chief Executive Officer

Yes. On Eskom, it's really a matter of carbon footprint. It's how many units of electricity you use. So by using low friction liners in pipelines, it means that the amount of energy that you required to push all of this material through those pipelines, that the amount of energy is less and as a consequence, carbon footprint is also lower. So that's how we really approach that in terms of Eskom to use as little energy as possible and to be as efficient in terms of energy use as we possibly can.

Obviously, over time, there will be an acceleration nationally, I think, in the whole of South African too as alternative energy sources and so forth. We're looking at more from the perspective of managing costs and storage part of [Indecipherable] as an alternative. I don't think that the industry can be entirely independent of Eskom. The South African economy and Eskom are just the -- this relationship that you cannot break. The one cannot exist without the other. So we need to work with Eskom for finding solutions for its problems and so forth, but that doesn't mean that we cannot look at ways and means of reducing risk and also managing our costs and that's the direction that we're moving in, but more to your question is really about carbon footprint and efficient energy usage at this stage.

Savvis -- Analyst

Okay, thank you. And then the last one. There was a comment on the DRD website that despite the improvements in technology, the Ergo still contains minute particulars of gold. Has there have been maybe a further improvement and maybe what's your general comment in that regard? Thank you.

Niel Pretorius -- Chief Executive Officer

Thank you. Now look, there is a lot of R&D taking place on an ongoing basis to see if there are other technologies that could be employed. But at this stage, it's really a matter of setting up your plant infrastructure and circuit in such a way and your mentality in such a way that you optimally run the plant. So staying ahead of the curve. It's not new technologies, it's just managing those technologies as well as we possibly can from an efficiency standpoint and that's basically based on our management system, which assumes a free exchange of information and running the plant toward very specific parameters and keeping them within those parameters and doing monitoring on a 24/7 basis. I think [Indecipherable] will be able to leverage on that where we have 40,000 data points [Phonetic] collecting order book, reporting into a central data and information management system that enables us to keep this plant within range -- our operations within -- well, the key dynamics within range.

Martin Creamer -- Mining Weekly Online -- Analyst

Martin Creamer from Mining Weekly Online. I just wanted to get some sort of insight into the technologies involved when you recover platinum. Is there much difference in technology? In the recovery of platinum, will you have to do a lot of research and development to that? And when you say other metals and minerals, are you talking silver? What are you talking about?

Niel Pretorius -- Chief Executive Officer

No, I think at this stage it's limited to the opportunities arising from our relationship with Sibanye. So, it's stuck that Sibanye is involved and we'll continue with the gold and to the extent that we -- that there is an opportunity for us to moving through the PGMs and that's where we want to go. So our skill set is logistics. We move large quantities of material -- volumes of material and deliver at the right rate and in the right condition to a plant and then the management systems around that plant to monitor the key drivers, the key dynamics within that plant.

In terms of the metallurgical responses, I think operationally we do have -- we do understand how it works, but there is some skill set we have to -- that we would have to bring into the Company in that regard and they are out there. We don't have to go and develop those skills from fresh and we certainly don't want to make mistakes that other people have made as part of a learning curve.

So, we will do sort of a mini Sibanye thing can't we. When it came to tailings, Sibanye thought that DRDGOLD's got idea. When it comes to PGMs, there are individuals out there and we would want to bring them into the organization on the metallurgical aspect.

Martin Creamer -- Mining Weekly Online -- Analyst

Niel, coming back to Eskom. I mean, you've indicated that you can cope with what they've thrown at you so far. But given the scope of what you're looking at in terms of new projects, are you considering setting up your own power IPP to give you some security on the power situation? Thank you.

Niel Pretorius -- Chief Executive Officer

We're not looking at building a plant at this stage that will independently of Eskom's ability to deliver electricity to that plant. So, and your question is in the next phase, are you going to build both the plant and also set up power generating capacity adequate to -- feeding to that plant? The answer is no. I don't think so. The economics just don't work. So it's kind is key also for our future plans. We are looking at alternative power generation more as a cost risk management exercise and interruption of supply risk management exercise. So yes, they're various models and I mean, they start with storage and charging batteries during off-peak periods when electricity is a lot cheaper and then growing far from those batteries from the storage facilities during peak hours. That is a cost thing, but also a risk of interruption thing because while you have these batteries, everything flows through that. Your current flows through that, so you won't have -- it's like a large UPS.

Ultimately, might be by combining that with solar. But Brendan, we live in [Indecipherable]. So, I think I need to be reassured that the technology is capable of withstanding large hailstorms and other weather and so forth. Not sure if we quite there yet. The work has been done and you can have a chat with Jaco, he'll tell you how extensively he's researched this already and what sort of models are out there that one could look into, but we're moving toward that cautiously.

And as I said, not as -- the philosophy, the thinking, and I think most of the executives in our company shape our thinking. The thinking is not so much one of becoming independent with Eskom but rather managing the risks associated with Eskom both in terms of cost and supply.

Riaan Davel -- Chief Financial Officer

Niel, we have some questions from the webcast. [Indecipherable]. He just mentioned that you present in [Indecipherable] in New York. And then he had a comment around technology that we can use to assist underground mines. I don't know if that's a robotic angle and that's probably not something that we do focus on with all surface as our strategy is, but I thank you for the comment and thanks for listening to the webcast.

Niel Pretorius -- Chief Executive Officer

[Indecipherable] very good to see you dialing. [Foreign Speech]

Riaan Davel -- Chief Financial Officer

Then question from [Indecipherable] and I'm very impressed someone reading much deeper in our 20-F, which is great. He mentioned that in your 20-F, you're evaluating the cost effectiveness of Ergo's fine-grind circuit. Could you please provide us with an update on this evaluation. Niel, I don't know, if you want to just kick-off and we can maybe add, Jaco and myself.

Niel Pretorius -- Chief Executive Officer

Yeah, systematic cost efficiency thing is, it's really a matter of the extent to which is capable of contributing meaningfully to the production profile. What we found is that the materials that we processing at this stage contains lower percentage of sulfate and as a consequence, the mass pool has not been as sufficient as it was in the past when we just started up. I think initially, we saw a change close to 60 kilos in production per month as we started up when we were mining the sort of deep into the valley of Elsburg circuit. As we move further east, we saw a reduction in that and following care and maintenance, an interruption in maintenance rather, when was it, Jaco? It was I think June of last year or July of last year, I see you nod, we haven't switched back on again. It's now been substituted basically by the centermost, the higher fraction nodes.

And in terms of cost efficiency, we did not see -- toward the end, we did not see any significant change in the residue values of the -- of material leaving the Ergo plant. So, there is a nice big saving in cost, about ZAR12 million saving in cost, but without sacrificing production and without seeing a change in efficiency.

So, in terms of the current material that we're mining, the current resource has run its course. It's being perfectly preserved, obviously, because we might want to use it once we open up something else that has similar characteristics as the material that initially justified its construction, but at the moment it's standing.

Jaco Schoeman -- Operations Director: Ergo Mining Operations Proprietary Limited

Hi, Niel. Just a little bit to that. So, currently, it's also the review for different resources going forward. So it might be put back in a different sequence, in a different configuration for a different resource going forward. So it's -- we're not just -- it's currently just multiple with the idea of recommissioning maybe at a later stage.

Riaan Davel -- Chief Financial Officer

Thanks, Jaco.

Niel Pretorius -- Chief Executive Officer

Thank you.

Riaan Davel -- Chief Financial Officer

Niel, a last question on the website from Ralph Milton. Hi, Ralph. The comment is great results, any idea on timing on West Rand expansion. Also two options were floated on Phase II. Any comment also on your marketing for this sovereign funds that place great emphasis on environmental issues? Thank you.

Niel Pretorius -- Chief Executive Officer

Yes. There is a lot of focus going into the environmental issues at this stage and I think the market is, let's say, expectation. The -- this is something that, as I said in the past was by and large sort of an afterthought when it came to putting together these presentations or delivering them at least from the markets perspective that now lot of funds are actually leading with us, they're willing to see a specific standard being adhered to.

In terms of the [Indecipherable], obviously, the situation that we find ourselves in now is that we could be a little bit more aggressive and maybe bring forward some of the capital projects that set us up to accelerate this and that's indeed being done. We approached our Board at the last board meeting and we asked for some money. Jaco asked for some capital money that was I think going to come in in the next financial year. We brought that forward. Not in considerable sum to just start moving in that direction. So it's on the current horizon.

Riaan Davel -- Chief Financial Officer

Yes. Thanks. Obviously, we're looking at all the options still and yeah, the two options probably to increase the capacity of DP2 as it is now to a million tons and also to [Indecipherable]. So we're looking at all the options as we indicated to the market.

Niel, so nothing further on the webcast questions, and I don't know if there's any final questions from floor. Yeah. Nothing. Thank you, Niel, that were -- that's all the questions. Thank you.

Niel Pretorius -- Chief Executive Officer

Okay. Thanks very much everyone. Thanks for dialing in and also for attending.

Duration: 66 minutes

Call participants:

Niel Pretorius -- Chief Executive Officer

Riaan Davel -- Chief Financial Officer

Jaco Schoeman -- Operations Director: Ergo Mining Operations Proprietary Limited

Brendan Ryan -- Miningmx -- Analyst

Savvis -- Analyst

Martin Creamer -- Mining Weekly Online -- Analyst

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