Earnings Call: H2 2019

Sep 3, 2019

Good morning, everybody, and thank you very much for taking the time to attend our results presentation for the year ended the 06/30/2019. Certainly been an eventful year, And it looks as though there's going to be more eventful months and quarters and years going forward. While you have a look at the disclaimer, focus obviously in this presentation will be to give you some insight into the production patterns at our established operations at Ergo, some of the considerations which we took into account at the time when we did the Far West transaction with Sibanye Gold, Sibanye Stillwater, also what's happened there and where we want to be going over the foreseeable future. Just looking at our key features for the quarter, see that for the year rather, my apologies, see that it has in fact been a very, very good year for us. And if you look at the letter to shareholders, what we try to do there is just point out to some of the challenges, some of the headwinds that the industry experienced this year. It was a year that was probably more challenging than any of the previous years. There were some very significant disruptive labor action in the mining industry. Eskom took us completely by surprise late last year and early this year when it became apparent that they were lost, that they had allowed things to get away from them and they had to put in some recovery plans. What we started seeing increasingly was not just social activism, which is a constant, but also community unrest and more and more challenges in that regard, especially here in the city areas. These are trends that have been emerging over time and they become very apparent in the last year. And as a consequence, I think these results are just all that more pleasing, the fact that our business has been positioned in such a way that it can take these challenges head on, that it can absorb them and that it can come up with a set of results which is not consistent with what we've been seeing in the industry. Remember, this cutoff here is June. That's before we saw this very significant rally in the gold price. So much of what we're seeing here really is the events, things, circumstances and the maladies of a twenty eighteen, twenty nineteen year. So the revenue line, the $2,700,000,000 an 11% increase, that obviously is encouraging. And we saw a very significant contribution from Ergo. And then I'll talk a little bit about Ergo later on, and also the Far West operations certainly, but surely coming in. Very nice increase there in operating profit. Production just under five tonnes, 23 kilos shy of five tonnes. And I think we need to maybe also right at the end, we'll reflect a little bit on just the significant and why talk about production in five tons. And when you take a gold price now, which is R15,000, R160,000 per kilo up on where it was on average for this year and you multiply that by the number of tonnes, just to see what sort of impact that could have on revenue. And maybe we don't all take that into consideration. And maybe it's just because of the very sudden rise in gold price, we are thinking still has to catch up with that. Headline earnings were positive and there are a number of both long term events, long term outcomes that found its way into these earnings, but also the operational and financial results of the last year that you found in that. We really thought at the beginning of last year that what we're having to fund and develop the Far West operations, $330,000,000 odd of capital that needed to go into that. And we don't really want to pay dividends if we have debt. We really thought that maybe this twelfth consecutive year of dividend payment was under threat and maybe this year's dividend was just going to be a token dividend just to not have an interruption in that dividend trend. And I think we're very pleased that we saw a threefold increase in dividend this year, notwithstanding the fact that there are $265,000,000 shares more shares out there following the transaction of Sibanye. See our all in sustaining margin, we're bumping against double digits. The capital expenditure into Far West operations. We talk about the loan funding, the drawdown of 192,000,000 in that regard, all of which has been repaid. So we're not borrowing money to pay dividend. We've got quite a bit of money in the bank as it is. And then some of the highlights also in terms of the sustainable development aspect and the social capital aspect and transformational aspects, which we take very seriously and which is very much at the core of our thinking in deciding how to deploy our resources and capital. So looking at the operating trends, I'm just going to go through that quite quickly. This is on a consolidated basis. Let's see how volume for the last six months is up by more than 1,000,000 tonnes to 13,000,000 tonnes. The yield, the combined yield now north of 0.2 gram a tonne and also production for the three months two point six nine tonnes of gold for the six months. You add to that the 2,280, the previous six months, and that takes you to your just under five tonnes of gold. And then looking at the two operating units, so the Ergo operating results now here's a business, Ergo is a business where we're talking ultra volume and almost nano extraction. So you throw as much tons as you possibly can into this plant and then you take out between one hundred and eighty and one hundred and ninety parts per billion. It's like putting the entire African population, the entire population of Africa through a process and selecting only 190 people out of this entire population. That gives you an indication of the sensitivity of this process. And I think the fact that it could show these results up on kilos, up on yield, notwithstanding the fact that there was a drop in volume. Volume being one of the most profound impacts on the output of this plant is nothing short of remarkable. And testimony to systems that have been put in, very careful management of throughput, making sure that we get the mix right. And then something that I think we don't often we don't talk about often enough is the fact that notwithstanding the fact that we could supplement volume from different sites because Ergo has very significant optionality. It's mining from five, sometimes six different sites. So understanding the fact that we can supplement volume from different sites, we don't. We very carefully manage our mix, our throughput mix. So if one site's off because of whatever, it could be cable theft, it could be anything, then we're very careful not to oversupplement from other sites and then in the long term bring about a distortion in volume throughput where you've over mined certain sites that might be slightly less challenging and undermine certain other sites. It's a situation that we had several years ago when we were cleaning up sites in the Far West Rand and we saw the impact in direct costs of that, ZAR77 million in one year and that's not counting the impact that it had just on the rest of the of our throughput and our production profile. So this is something that we work on to make sure that we don't create similar legacies going forward. And we have better optionality than I think some of the optionalities many, many years ago. This set of numbers, considering the situation that we had in the Johannesburg area with Eskom, with weather and with disruption in the form of infrastructure interferences and so forth due to crime is a very, very pleasing set of results from Ergo. Bodes well for the future. Then in terms of Far West gold operations, now this is the new one in the business. And there you could see firstly the 140 kilos in the previous six months that was from the Drifonta Three plant that was remnant cleanup and material that was being fracing. That's come to an end and this is now a business focused solely on the reprocessing of slime. You could see just under 2,000,000 tonnes coming through there and yields stabilizing at two twenty eight and production for the second half of the year at R440 per kilo. Rian will take you through the financial results and you'll see what the costs are of producing those now that the circuit is increasingly finding its way into a finding its way into a stable state. And that could give you a good indication or platform for basing your further assumptions on. So Rian, I'd like to hand over to you now for the financial review. Thank you very much, Neil. Good morning, ladies and gentlemen, from my side. And thank you, Neil, for always providing the context through the operational update of what the financial review looks like. And yes, it is extremely pleasing results that it is my privilege to present this morning. I'm just taking what Benil ended off with, with Ergo and Far West and taking those production numbers, volume yield, gold into financial results. So year on year, you would see that the revenue increased by 3%. In the last six months, that increase was closer to 9%. We have assisted by the gold price increase of about 8% and production of 1%. So very, very pleasing revenue results. And as I want to emphasize a couple of times what Niela said just about the resilience of Ergo as a business. Cash operating costs, up 7% year on year in the last six months to six months, up 4% and very much focused on looking at higher grade material for the sand mills at Ergo and also at Knights, so which resulted in the increase in yield for that six months period of 6%. Then on the operating profit side, year on year, yes, there was a 20% decrease, but up 50% in the last six months. And just actually amazing what Ergo has done, the resilience the business has shown. And I believe a very big part of the success early success that we've seen at Far West is having Ergo as a mothership, the knowledge and systems that you referred to that we've implemented there, we could very quickly go and implement. The number of data points, Yacou mentions to me, but it always boggles my mind that we look at on a continuous basis and trying to improve. And then for me, the substantial contribution Ergo as a business makes to the local economy. Remember, it's more than ZAR2.5 billion of revenue from material that someone has thrown away that's injected right into the Gauteng economy. And that helps us to deliver a substantial contribution both on societal and environmental benefits as part of our business model. So very pleasing results taking into account the challenges that Neil referred to. The new kid on the block, Far West gold recoveries. Yes, as Neil alluded to, the first half results was DP3 But again, we very cleverly put in place, Kevin and his team there, to reduce costs while we were building Phase one of Faraway's Gold recovery. So the intention was never as a stand alone business to make money out of it, but it reduced our cost as from a holding cost and a building perspective tremendously. And then what Neil referred to as the production results in tonnes for Far West was already from the early stage commissioning in December 2018 as a cumulative up until thirty June. We obviously had the financial results since hitting the income statement only kicked into effect on the April 1. We IFRS determined at the date of commercial production where preproduction expenditure stops being capitalized to the asset and the income statement starts. So these financial results literally only reflects Faraway's gold recoveries for the last three months of the financial year. So revenue contribution in that period of ZAR165.1 million with cash operating cost of ZAR78 million, leaving it with a very healthy operating profit of just under ZAR100 million. So again, just to give you an indication at this point what that operation can do. They will refer to the overall yield in his production. Obviously, take into account that it was a ramp up stage from the date of early commissioning. The yield for the last three months as presented in operating results at 0.261 grams per tonne. So it's really looking positive and the margins at Far West making a huge difference. Then combining both Ergo and Far West then in group financial trends. Year on year, the operating margin that decreased slightly from 14.3% to 13.5%. But again, zooming in on the last six months, the gold price up there by 8%. The resilience of the Ergo operation and Far West making contribution for three months, upping that operating margin with its higher yield production to almost 18%. All in sustaining costs. Year on year, quite a nice increase from 5.5 in the previous year to 9.1% and very healthy in the second six months. Obviously, the gold price towards the end of that six months assisted slightly. And then there was yes, a big credit to the income statement as a result of a decrease in our rehabilitation obligation and very much testimony to our environmental strategy that I believe is working, specifically a strategy to reduce the use of potable water and that an impact some of that related to our crown complex, which we don't carry an asset for in the books. So that credit sits in the income statement And the way the calculation is done also reduces the all in sustaining costs and as a result the all in sustaining cost margin. Free cash flow, again confirming a tale of two halves of our financial year, very much the first half in building mode. So up until December, we spent the majority of our growth capital that we refer to the million on Far West called Phase one. And obviously, at that point, was quite a tough first half for Ergo as well with various challenges that Neil referred to. And then, yes, the second six months of the financial year, quite an impressive number, almost ZAR250 million generated in free cash flow. And another environmental funds or payment funds received from our cell captive of ZAR55 million also included in there. And again reflecting the responsible and strategic way that we manage our environmental liabilities and which we will continue to do. Headline earnings very much follows that GBP 60,000,000 credit in the income statement and also reflecting the resilient performance of Ergo and the new kid on the block Far West for the last three months. So very, very pleasing financial trends. If I may pause on the statement of profit or loss. So overall, revenue increased by 11% year on year, Eargo contributing 3% of that increase. And obviously all the revenue from Far West is new in the 2019 financial year. Cost of sales overall increased by 9% leaving us with gross profit from operating activities at ZAR208.2 million up 45% year on year. Other income not a big number, but let me just pause there for a moment to remind you the net effect of our ceiling and floor derivative instrument that we announced this time last year to the market, 50,000 ounces over nine months. The net result of that instrument, R609,000 a kilogram was a gain for us of R2.1 million. And just to confirm, at this point, we don't have any derivatives in place, so we do benefit fully as Neil alluded to this high gold price that we are seeing at the moment. And then the other portion about million relating to the sale of ERPM rights. Administration expenses and other costs, stable year on year. It also increases includes an increase in our long term incentive liability as a result mainly of an increase in our share price. Finance income and expense always looks like big numbers. You'll see on the cash flow again only a small portion of that in cash. Finance income the majority of that comes from our investments in rehabilitation funds. Also bought million of REAP funds from the Sibanye transaction. So that's all the interest, other returns on those investments. And finance expense, the majority of that relates to the unwinding of the rehabilitation liability year on year, which which we have interest cost on those liabilities that also each the income statement. The cash impact of that quite small. Income tax, as always explained to us, the better you do, the higher that rate and possibly the more tax you pay. And that was a result of this year as well. As a result of more profitable operations that we're forecasting for Ergo, the deferred tax rate based on the Gulf formula was increased to 22%. So that will result in an increase in deferred tax. But again, a substantial increase on bottom line profit from million to million for the year. If I may pause quite a bit on the statement of financial position or if it balances, you can also refer to it as a balance sheet, which I see it does, which is good. And yes, for me, this is a really satisfying balance sheet position, which I just want to briefly talk you through and then also use this as a discussion for what I see into the future. So property, plant and equipment. So as we mentioned, ZAR1.2 billion of assets bought from Sabana Stillwater in that transaction effective on August and then also the ZAR3 50,000,000 spend on the Far West Phase one, it's included there and obviously depreciation from January on that balance. Same with Ergo, some depreciation. Ergo had very much lower capital spend this year with our focus for the Far West on the short term. There's that line that I referred to. So in a Sabania transaction, ZAR360 million worth of investment trust funds or rehabilitation funds added to our balance sheet as part of that transaction that increased it year on year quite significantly. Small deferred tax asset. Cash I will talk to on the cash flow statement in the next slides and other current assets stable year on year with obviously Far West added in their operation. On the equity side, ZAR2.7 billion. Just to remind you that our market cap at thirty June, which that net equity essentially reflects almost ZAR3 billion and where we are now just over ZAR4.5 billion. So, yes, a really, really positive equity position for us. Provision for environmental rehab also $247,000,000 of rehab liabilities bought as part of the asset and liability acquisition from Far West. And some of that reduction as I've mentioned in the Ergo liability, but also in Far West the way that we look at those liabilities and the way that we manage them. Increasing deferred tax liability, as I mentioned, mainly relates to the Ergo increase and the effective tax rate. Other non current liabilities, all employee benefits related, so our long term incentive scheme is a phantom scheme. So again, I want to at least pause and again remind you that there's no debt, no external debt. You alluded to it, no borrowings. We have the revolving credit facility in place, but it's undrawn at the moment. So SEK175 million available, but undrawn, which is a really, really happy place to be at this point in time. And then current liabilities, obviously, Far West Gold recovery comes in there. Current ratio is slightly lower, but as I said, we have access to that $175,000,000 facility. So I'm not worried at all about that position and still a healthy current ratio. So when I look at this, and I don't know if you would agree of me or not, but this very much looks like a launch pad to me, maybe even a rocket launch pad, maybe even a launch pad for the Ruhr Report rocket to fly again and even further this time. And why I say that, I believe what will enable that launch for us and with this balance sheet in mind, I just want you to think about these couple of things that I will mention. Firstly, low gearing. At the moment, actually, zero gearing, which leaves you with many, many opportunities. Second one, proven technologies. And as we've seen with Ergo, a track record of resilience. We've seen over the years, there's nothing that we can't overcome with those assets reflected in Property, Plant and Equipment. And taking those technologies and systems and going implementing that successfully at the Far West. 3, in that balance as well established pipeline infrastructure now East and West with wonderful growth prospects from that. The fourth one and a really important aspect that I've already touched on and Neil will expand on in the slides to follow, substantial contribution to environment and societal needs through rehabilitation of land integrated into the core strategy of our business. This is what we do. We take things that others have thrown away and we add multiple layers of value: environment, society, employees, shareholders, definitely and also the SA economy as a whole. Five, exciting medium and long term prospects through diversification and innovation. I mentioned data points and sets of data that we have and analyze. I think we can do and we are doing a lot more to say what does this tell us also for our future operation. And we won't stop in our relentless effort, as we call it, to crack the code, to keep on working at higher yield through lowering our revenue. So our work on that will continue. And in the last place, effective in our equity, a strong anchor shareholder with clear economies of scale. So just want to put that in context with the balance sheet. And actually, when you look at the balance sheet, that will create a different picture for you. And the way I see it of a very, very exciting future. Okay. Then always the short term focus of our business is and I think the cash flow statement again is evidence of that of our focus to generate cash and to pay dividends as Neil has alluded to the twelve consecutive financial year that we are able to do that. Strong operating cash, cash generated by operations, again resilient ergo adding some nice recent cash also from the Far West operation. As I mentioned, quite a bit smaller interest received and paid numbers if you look at the cash component of that, but very strong net cash inflow from operating activities. Then our big focus for the last year, the acquisition of Property, Plant and Equipment mainly relating to Far West Gold Recovery's Phase one. And again, evidence that we'll keep on settling what Merian companies one of the few that will do that, settling environmental liabilities as we go along. So continue to spend money there and there's the $55,000,000 that I alluded to as funds received from the sale captive, again, showing the effect of managing our liabilities responsibly. Neil alluded to that, but we are so proud of that, the fact that we could raise or borrow money and repay all in the same financial year, which leaves us with a position of only slightly decreasing our year on year cash and cash equivalents balance. And as Neil said, enabled us out of that cash position and subsequent balance sheet cash position from a liquidity point of view to declare a dividend of per share. So I'll now hand it back to Neil. Thanks, Neil. Thank you very much, Rhian. I think sustainable development is a topic which we never failed to emphasize for its strategic importance in informing our thinking, informing the deployment of capital and resources. If it doesn't deliver into our purpose, if it doesn't add broader value, then ultimately, it's not worth doing. There are certain very both in terms of the national agenda and also in terms of our own. And here you could see that on the transformation and human capital side, very significant inroads are being made and we are seeing positive trends in most, if not all of these. I think one aspect, one particular little bit of maybe anecdotal news that we can share is, you know that we've had this program in schools, seven schools in our areas of influence where we offer classes in maths and science and accountancy. And this year, we have for the first time two first year BCom students that are doing well, that are receiving bursaries from our company. And these are students that took advantage of the maths and accounting extra classes that we offer at these schools. So that's the next generation thing and just imagine how nice it would be if some of those candidates ultimately also end up finding themselves in positions of influence within our organization. A lot of these sustainable development initiatives on the societal investment initiatives and so forth are pitched as they should be at just one level above abject poverty. And that's good because you want to bring about additional security stability, an opposite momentum away from anarchy in these communities. And you do that by injecting value into that community. But also imagine if there are several layers up of empowerment and self empowerment and development that don't just address the abject poverty aspect, but that forms part of, let's call it the sophisticated economy and candidates coming through that. And that's really ultimately also the objective, the important part of that objective. On the natural capital aspect, Rian made the point and I think it's a point that we probably don't emphasize enough that what we do is treat waste. Johannesburg was a farm before we started mining here. The mine didn't come to the city, the city came to the mine. And by the time that little community started settling and townships started developing and people who moved around as part of a larger political agenda and people who were being formed accommodated in areas as part of a larger social challenge of influx of people. They started settling there where the mines had established a footprint. And not all of that is pretty footprint, 1,620,000,000 tonnes of material scattered all over the Johannesburg landscape, telling the story of the mining of gold over more than a century. So you cannot be part of the mining of gold in Johannesburg today without also becoming deeply involved in the environmental impacts of that. I think something that makes us very excited is the fact that while generating these financial results and delivering into our primary stakeholders' requirements and expectations, legitimate expectations of a yield on capital, There's also this fixing of the scar tissue in and around the Johannesburg area. And then you can see 135 hectares of land that this year was cleared and can now come back into society for developed, for habitation, for light industrial and so forth. Land that was spoiled by mining, which this company through its efforts had restored, whilst pursuing a commercial objective. Now the standards in terms of environmental containment have had to change because of the influx of people closer to mining infrastructure. And there's a big campaign out there. It's very antagonistic, very hostile towards mining, disruptive some of the initiatives that we're driving at this stage of the mines making people sick. I reemphasize the fact is people came to the mines, the mines didn't go to the people. But as a consequence of this influx of people, we can't just go say, not our problem, sit back and wash our hands of this problem. We're in a position to do something about it and do it in such a way that doesn't impact on the legitimate commercial expectation of our shareholders. So in order to make life more bearable in these areas, which invariably are also poverty stricken areas, it's important that we contain both dust emissions and water coming off our infrastructure. And this year, we vegetated fifty five point five percent fifty five point five hectares of additional vegetation on our tailings dams. And if you compare dust emissions of tailings dams to one of the Crown Complex next to Nazareth and also increasingly out towards the East towards Ergo, you'll see that the dust emissions are chalk and cheese. What was once an unbearable area has now become an area where increasingly you're hardly noticing that there's a tailings dam, but for the fact that there's a nice green patch against the horizon. And that's definitely the efforts of ten, twelve years of dedication of fixing that, of budgeting towards and working proactively towards that. And this year again, ZAR44.1 million spent on rehabilitation. Very important aspect of managing this business sustainably is improving the burden that we place on natural resources. There's this fallacy, there's this idea that water on the earth is in a closed loop, that water evaporates and that it finds its way or it flows into the ocean, it evaporates, finds its way back onto the earth. That's not the case. The number the amount of available water is reducing every year. Some of that's getting lost in this big circuit. And if we don't look after it properly, then we're going to run out of water the way that Cape Town almost did a few months ago. And for many, many years, we've been deliberately focusing on infrastructure and strategies on reducing our reliance on potable water and extending our reach into greywater. And that is certainly now paying off, not only in having water available so that we don't have an interruption and production, but also paying less for water in the sense that greywater costs us less, whilst at the same time not competing with other uses of potable water, which is used for drinking and washing and etcetera. And that's playing a big role also in terms of the bottom line. And as consequently, we're seeing a very nice flow through results in the balance sheet this year on the same, very significant saving going forward in environmental costs. These things don't happen by accident. These aren't things that happen almost randomly. They're part of a strategy that's several years in the making of trying to overlap value creation on several different levels. Now the sustainable development aspect, we cannot overemphasize. Simple fact of the matter is that not only because of socioeconomic conditions in South Africa, but globally with the emergence of the so called fourth technology revolution or industrial revolution, call it what you want. And the fact that machines are increasingly starting to take up positions previously held by people. Reality of our situation is that social grants and people will never work going forward as a global phenomenon is something that's going to be with us for many, many years. And as a consequence, it's important that we very deliberately work towards creating almost an alternative parallel informal economy, where instead of money finding its way into the pockets of mostly regrettably foreign shop holders and not staying behind in communities, money that is being invested into these communities, invested by way of social grants on a monthly basis, that money doesn't find its way into those communities. There's no stickiness to that money. It doesn't revolve. There's no buildup of capital in those communities. It's find its way into the pockets of people from the outside who have set up almost like a pet stores, but on a much smaller scale, a catch net for social grant money. It's catching that money and it's shipping it out. It's money that doesn't stay behind. And we need to very deliberately start working on creating these alternative economies of empowering people with the right sort of knowledge so that they can take that money, put it back in that society and almost start a new economy. So if every rand paid in terms of social grant money gets spent just another two times in that same community, then it means that next month, the size of that little economy is going to be the new capital coming in in terms of social grants plus the old capital that's being spent to us, so it's three times the size of the economy. And that's how ultimately people will start getting out of this loop, the cycle of abject poverty and where they can coexist in the new environment of a technologically driven society. If we don't do that, then what happened yesterday in Johannesburg is increasingly going to become part of our reality. The farm murder phenomena has found its way into the city's people and we need to step up, we need to do something about it. It's too much just for government to do it. We need to get involved, change the lives of individuals. DRD has spent ZAR16.6 million on just that in the last year. We're very serious about the future of South Africa. And we won't be spending our shareholders' capital on projects going forward if we also don't at the same time do something about instability and poverty and hopelessness. All right, so looking ahead, clearly, we want to make sure that we take full advantage of the capital that we've invested into infrastructure, take full advantage of the systems that we put in place. Every year, we understand the working of our plants a little bit better than the previous year. Every year, there are fewer operational surprises in our plants than the previous year, which enables us to be just a little bit better prepared for the ever increasing number of challenges that we face from the outside of disruptions from the outside. And this is an ongoing thing and it will never stop. It will never stop. Our objective is to take all of the gold that we put into the plant into the smelthouse and smelt it. At this stage, we're sort of halfway there. We've got a long way to go, but we are very committed to doing that. And this year, we'll be throwing some real money at that and it's become a very important performance indicator for ourselves and for our operating staff. We want to see the benefits of the first phase starting to flow through using some of that to start planning towards just exactly what the second phase is going to look like. The objective still is for us to build the second phase and there are four options that are different iterations really of the same thing. But this is something that is more than just a maybe. This is something that is actually within our grasp. But we'll approach it exactly the way that we've approached every single other project in our organization and make sure that we don't bite off more than what we can chew. We don't really like debt, but at some stage, you have to take debt just for that short period of time. We don't really like hedging. When people start complaining about the gold price going down, we're saying, well, maybe that's a buying opportunity. And there are people out here who actually take advantage of that because they know that these things work in cycles. And we don't want to start manipulating that. We run the business, the investors can run the investments. And there are certain things that we stay away from and other things that we think we're capable of dealing with. So those are certainly the things that we'll be looking at going forward. But I do have to also reflect just a little bit on our relationship with our major shareholder with Sibanye Stillwater. It was very important to us this year to make sure that we execute effectively because this was a good asset and the Sabana team is aware of the fact that this was a good asset. And I think they had certain expectations as to how this asset was going to be developed. And I'm hoping that when we hand over this dividend check to Mr. Frohnemann, that that will almost be symbolic proof that at least the first few steps that we've taken into developing this asset were good steps, Stillwater Stable that at this stage are invisible simply because of the size of what they do. As one of my colleagues commented the other day, they don't play in shallow water. They run a very large company. But we're perfectly positioned to almost as a pilot fish or flying in their slipstream to start picking these things up and identifying it because in our portfolio, in our universe, they do become visible. This year, our market cap went from less than ZAR2 billion to more than ZAR5 billion, of course helped by the gold price. First good meant helped by the gold price. But the gold price can be whatever it is. If you're not positioned to take advantage of that, it's absolutely meaningless. And this year, we are in a position to take advantage of that. So hopefully going forward, we can leverage this relationship with Sibanye Stillwater, which is a supportive healthy relationship at this stage and which we believe will stay a supportive and healthy relationship provided that we deliver. This is not an emotional relationship, it's a commercial relationship. If we do well, there will be a reward. If we don't do well, there will also be a reward, but it's not the sort of reward that you're looking forward to. It's as simple as that. Generate value and there will be opportunity. Do the opposite and you'll be held to account. But there's a big footprint out there, much bigger than what we currently have under our management and control and we're hungry, we're very keen to get there. Our businesses for the last ten, twelve years reposition. We had to retract, cut certain things off, reposition ourselves with regard to risk, etcetera, etcetera. It's the equivalent of counter punching. And we developed a mean counter punch and we overcome some really, really challenging obstacles. But now we're on the front foot. Now we're leading with a jab. Now it's time that we start dominating. And I think we've positioned ourselves to do that. And we have the right partner for that. And I think they will want to give us that opportunity provided we continue to behave responsibly and to act with due diligence. So that really is the story for the year and it's really ladies and gentlemen, it's Chapter one. Welcome to Chapter one after one hundred and twenty, thirty odd years. Is it? Yes, right about there, one hundred and thirty odd years. Welcome to paragraph 1.1. Thanks very much. We'll take questions. It's Arnulf van Kraan from Nedbank. Two questions from my side. So the first one is Ergo volume. It's gone from just over 12,000,000 tonnes to just over 11,000,000 tonnes, and there's obvious issues that you face. But is that the new normal given the challenges of Eskom and all the other challenges you talk about, criminality and these many others? Or will you be able to get back to that 12,000,000 plus run rate? So that's the first one. And the second one, sort of continuing on the Eskom angle is what is the long what is your long term solution for Eskom? And that essentially also goes into Phase II of your bigger project in the West. Is there a solution or is there a solution that Eskom needs to be fixed? Or can you bring in an alternative? And can those ore bodies sustain it? In other words, can you pay for the capital of putting in an IPP project and still make a decent return? Yes. Those are good questions. I think Eskom for the not just for the industry but the economy is still the biggest systemic risk that we face in the long term. There's no Eskom, there's no South African economy, that's our simple reality. There are other issues that we need to deal with, society issues and so forth, but for the long term, I think Eskom in South Africa, whether or not there's a future, those things are those are words that belong in the same sentence. Let me deal with your first question first, Arnold. So, this year, I think there were three key issues that informed volume throughput that were internal issues. So there was weather and there was Eskom, but there were also three key issues, which we had to address in order to restore volume throughput to where it was and it's back to where it was or certainly training to where it was. And these were simply two sites where the where gravity simply just caught up with us. So obviously everything that we mine is washed by way of these hydrojets into channels and that then flows into a sump and from the sump then it gets pumped to the plant. And there were two sites this year where the angle where we were mining and where we were pumping where that angle had simply just become a little bit too flat. And on the one side, we had to stockpile material with mechanically with dozing etcetera, etcetera. And on the other side, we simply had to open up a new channel from the reclamation area into where the sump area was. So this is a long way of explaining to you that these aren't systemic, these were two incidents, these were two events that we had to overcome and we since have. Ergo is a complex circuit at this stage. We are mining from several sites. And as I explained earlier, we don't oversupplement from sites running well to make up for lost tonnages at sites where we're running short. So I suppose we could have closed that gap instead of the 11,000,000 tonnes could have been an 11,500,000 tonnes and only a 500,000,000 shortfall on where we are targeting because we're targeting 12,000,000 per for every six months. But we didn't because if you do then at some point or another your availability just becomes distorted. We do not in our budgeting process and I'm not going to use the word budget or rather we use the word planning. We do not in our planning factor in a drop of volume based on internal circumstances. We are aware of the fact that there are external conditions that we need to be cognizant of, like interruptions in power supply, both because of Eskom and also because of disruption of power lines etcetera, etcetera especially in the city areas. And as a consequence, we take informed decisions as to how we can offset this risk. I do not believe that there is a sustainable model at this stage in terms of which you completely replace Eskom. So I'm moving on to your next question. I do not think that it's within the means of a company of our size to completely replace Eskom. But what one can do is start excuse me, taking advantage of available structures and also available technologies to start offsetting that risk and minimizing that risk. And typically how you go about doing that is to start playing around with peak hour power supply and off peak hour power supply and so forth and focusing on using more power during off peak and less power during peak, which obviously means that you need to find storage for your power. You need to not just draw power during off peak and maybe start moving your operating cycles around a little bit and your rhythm and your process around a little bit, but you also need to draw power during off peak in order to channel it into your storage capacity. So it's a combination of changing your system to an extent and also investing in power storage. And there's a model that's sustainable and that works in that regard, not all encompassing, but to a large extent it goes a very, very long way in initially paying for itself just on a purely economic basis, just on a valuation basis. What we don't take into account just yet, because the storage capacity will also act like backup power almost. So we don't take into account for purposes of deciding whether we should be pursuing that model. Let's call it the lost hours that you'll avoid because you'll have uninterrupted power supply. And then of course, you could introduce solar into that as well to also take advantage of your daylight hours, your sunshine hours to also channel powering to your battery system. But that is very much a key focus area at this stage is how to manage that risk. But I have to be very specific. We're not looking at replacing Eskom. If Eskom goes, South Africa goes. That's a simple reality. If Eskom is not fixed, we're going to be either not working and living here or not living here and working. But there's no economic future for South Africa in the event of a complete collapse of Eskom and nothing stepping in its place. And I think we're starting to hear much through the consternation of organized labor or certain parts of organized labor. We're starting to hear the right noises of where evidence based solutions are now being put forward by our government, our president and his officials on how we need to restructure this. And I think that's a good conversation that we're having. It's moving us in the right direction. And it's a conversation that we're going to have to support so that we can find a solution for Eskom. The risk associated with Eskom, most definitely, we're working on ways and means of dealing with that, both from a cost saving perspective and also from a business interruption perspective. That answer your question. And of course, these solutions are being offered as a plug in solution by external parties. We won't go and borrow money to put up battery farms. Neil, there's just two questions from the webcast from Adrian Clear. Would you give a view on the gold price exchange rate for the next twelve months? I can maybe just allude to not necessarily that we take a view on the gold price, we do various planning scenarios. And then, yes, we use forecasts economic forecasts at a point in time. So end of the year, maybe just we looked at an average median forecasted price of just below ZAR60000. Beginning of August, that price would have probably from a forecast point of view would have gone up to like ZAR650000. If you do it now, it may even be higher. But as Neil said, we don't take positions at the moment, debt free. So we, yes, move the price where it is. That's a very good position for us. If I could maybe add to that, Cyril. I think it's important that we distinguish between something that is driven by sentiment and something that's being supported by substance. And I think we can all find evidence that the gold price where it currently is, is very much supported by substance. The reasons why the gold price is where it ought to be. But that doesn't necessarily mean that it is where it's at the moment because of substance. It might be there because of sentiment. So we can find evidence that it should be here and maybe even higher. But the market might just be acting on impulse, the market might be acting on emotive reasons. And I think that there is a new generation of investors who came in after 02/2008, who are used to cheap money and where the stock exchange and investing on the stock exchange was like throwing at a dartboard with just consisted only of the bull. And it's an oversimplification, but I think that the market was very rewarding on a broad base over the last, I don't know how many years when capital was just so cheap. And maybe that the skill of really understanding and analyzing and appreciating how everything is connected and everything interacts with everything else globally, currency, energy, gold, investor fear, inflation, oversupply here, undersupply that, etcetera, etcetera. I don't know how much of that is left in the post-two thousand and eight euro. There are some of the old timers who just called it and they are coining it at the moment because they came in at the right time. If I say old timer right, people sort of my age and older. But there are some of these young geniuses who don't really understand the market. The market has been overly kind to them and I think they lost. And the market with that amount of confusion, sentiment, notwithstanding the fact that substance is supportive of where it currently is, but sentiment could be dangerous and that sentiment can change overnight, it can change very, very quickly. So I think it's important to be very cautious of planning on the basis of where the gold price is now. I think it's probably much higher than where it could be once sentiment changes. It's much lower than where it should be based on fundamentals. I'm a gold miner, so I need to believe in that. But it's probably much higher than where it could be if sentiment changes and it can change overnight. One funny tweet from Mr. Trump or and you don't know, maybe it's all the way back to 6.5, six point two and we need to be ready for that. So we will remain conservative. And hey, that's where the buying opportunity in the OD gold stock comes in. Thanks, Neil. Then second question on Paul Skoten. Far West made an operating profit of ZAR99.8 million for the quarter. Would it be reasonable to expect this kind of number each quarter at an average gold price of ZAR577000 for the quarter? In other words, before any increase to the current price approximately R750,000. Again, I will just start, Paul. Yes, so that quarter gives an indication of what Far West is capable of, definitely. Just remember that the R5 hundred and 77,000 is the price average price for the year. The quarter price was probably closer to 600, just over. So yes, you can definitely run sensitivities based on that quarter as a base. Good. All right. Thank you, everybody. Thank you once again for showing up and sharing these few minutes with us. Is there nothing else, Alan? Okay. So we're going to be hanging around for a while. The food is for free and today it really is for free. So please help yourselves and let's not go home before we've eaten all the sandwiches. And the team will be here to answer your questions. Thanks.