Drastic cost cuts may not stem losses at DRD mines
October 24, 2003
By Sherilee Bridge
Johannesburg - A reduction in wages to 44 percent of total working costs, thanks to radical job cuts, may not be enough to prevent Durban Roodepoort Deep (DRD) from sliding further into the red after it almost quadrupled its losses in the September quarter.
The marginal gold mining company said yesterday that losses had widened from R11.8 million, or 6.4c a share, in the June quarter to R45.8 million, or 24.4c, in the quarter to September.
Revenue remained fairly flat at R467.5 million against June's R497.7 million, with virtually no change in the gold price received quarter on quarter, but the company was hit by R39.5 million in retrenchment costs.
The R21 million cash operating loss tripled from R7.6 million on the loss of R41.8 million incurred at the North West operations, where DRD retrenched 3 000 mineworkers earlier this month.
The exercise would "return the mine to profit and restore a meaningful margin to shareholders", said Mark Wellesley-Wood, the chairman and chief executive.
While the company said monthly working costs were down 26 percent at R78 million in October, the remaining mines appear to be in survival mode. Production dipped to 6 174kg in September from 6 461kg in June.
Cash operating costs, still burdened by the high-cost North West operations, were R90 520 a kilogram - more than R3 000 higher than June's R87 368 a kilogram.
And while operational scale-backs were expected to cut only 5 percent from its production profile, a shadow in the form of its Eskom hedge looms large, with the differed financial liability costing DRD R250.8 million in the quarter.
This agreement is pegged to the rise and fall of the gold price, so that any increase in the dollar gold price would mean DRD must pay more for its electricity.
Annual wage increases also pushed up cash operating unit costs by 3.6 percent in rand terms. Effective as of July, the company agreed to pay workers an average increase of 9.2 percent for the current year.
DRD said it had taken steps to ensure that more of its earnings were derived from outside South Africa from the next quarter.
It acquired Oil Search's 20 percent interest in the Porgera joint venture in Papua New Guinea at a cost of $ 73.8 million.
This deal is expected to almost triple DRD's attributable annual gold production from the Australasian region from 90 000 ounces to 260 000 ounces, which is 140 000 ounces shy of the company's stated objective to increase its production from the region to 400 000 ounces a year.
DRD lost 35c to R20.30.
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