Good morning, everybody. Thank you very much for braving the elements, both natural and man-made, to get here this morning. You're all very special to us, and it's very good to have you here. Riaan and I will take you through this presentation and just take you some of the highlights of the past six months, and an eventful six months it were or it was. Is it it were or it was, James?
It was.
It was. Thank you. I'll take you through some of the key features. Riaan will, as usual, take you through the financial news. It's really been a period of two opposites, so to speak. On the one hand, there's the excitement of our new project in the Far West Rand that took off quite nicely. We started construction at the Far West operations with the plant in August and set ourselves the target to start commissioning towards the end of the quarter, which we managed to do. We had about two and a half, three weeks of production of the newly refurbished DP2 plant. That's working really well for us, so we're quite pleased with what we're seeing in terms of metallurgical recoveries, quality of ore body, volume throughput, et cetera. That ramping up will take place as we go along.
On the other end, we had the volume challenges associated with the Far East Rand. Although the plant is in good shape and the plant has had the benefit of all sorts of additional backup infrastructure, et cetera, we were not able to completely avoid the impact of very significant interruptions in power supply, especially towards the latter part of the quarter. These weren't just associated with the inability on the part of Eskom to generate power. A lot of this had to do with the grid, of just the state of the distribution grid, the standard of maintenance, et cetera. This is something that we brought to the attention of the market a number of years ago, that increasingly our concern was that the quality of maintenance of the distribution grid and challenges experienced in that regard were becoming more and more problematic.
We saw that. Response time following, for example, a lightning strike and knocking out a substation, whereas in the past there was already inventory of spares that could just be loaded onto a truck and taken to the substation. Now, Eskom had to shop around and go and find transformers somewhere in the Northern Cape, et cetera. Those are the sort of challenges that we see our supplier of electricity is experiencing in maintaining its grid, its distribution infrastructure. It might be a while before that's sorted. Of course, you don't have these massive thunderstorms every day. You don't have the impacts on the grid on a daily basis. These are events that take place from time to time. In order to offset those, you just need to become more resilient in the design of your own risk management infrastructure.
On the upside, Ergo had managed to launch three of its projects successfully, which we refer to in more detail. Two of those in particular, the 4L50 reclamation site's doing really well. This is a site where we are focusing on a very particular way of reclamation. In the past, when we have these rainstorms, because of the very large open areas on the reclamation sites, you have an accumulation of water, and that water had to find its way into our pumping infrastructure and into the plant. Separation of clear and dirty water was not something that the approach had taken in mind, the mining approach or the mining methodology. This is different now, and we find that even at times of very significant downpours, that we manage to separate clean and water accumulating on these sites and that the impact on dilution is not as profound.
4L50 is helping us to offset a lot of the volume challenges that we experience on some of the other sites where we don't have this sort of regime. We saw a 3% decline in gold production to just over 2.2 tons for the six months. 2.2 tons on the whole is not too bad considering where we were a few years ago, but it's still down on where we were this time last year. Obviously, considering the sort of investment that we're making on an ongoing basis, this is a trend that we prefer to avoid. It is attributable to very specific events in the organization, not indicative of a trend, but very specific events.
Obviously, the extent to which we can anticipate and avoid or minimize, reduce the impact of those events going forward will assist us in getting that production back to where it's supposed to be. Of course, as a consequence of both the reduction in production and the fact that we saw an escalation in costs, our operating profit was down to just over ZAR 100 million. All-in sustaining cost margin of 0.8%. We want it to be quite a bit higher than that. This is also a period where investment in growth capital, not just sustenance capital, but growth capital, exceeded ZAR 300 million. Obviously, the bulk of that gone into the Far West operations.
We're at the end of that investment cycle, that's one of the advantages, I think, of our model, in that we loan capital, you spend the money up front, your processing capacity is put in place, going forward, it's really a matter of top-up capital towards maintenance and odds and ends of strategic investments here and there. We've upped the environmental spend. There's some detail on that as well. That's really part of our sustainability philosophy. You cannot produce gold in Johannesburg and not be conscious of the impact of your operations on surrounding communities. Dust suppression, in particular, is a big issue. I think communities are just also far more aware of what they're entitled to. They are entitled to a clean environment, the fact that the city came to the mine, that's not really an excuse.
The fact that Johannesburg had grown around these mine dumps, that we have communities that have been settled much closer than what the recommendations from the industry were a few years ago in the 1950s suggesting that you've got to be several hundred meters away from these dumps. That wasn't heeded. It wasn't heeded before 1994, surprisingly, it wasn't heeded after 1994. We've seen many communities spring up around the mining areas within reach of mining infrastructure. As a consequence, the standards that have to be applied in order to limit the impact of the environment on the quality of life of these communities, those standards have had to be revisited. As a consequence, we're spending quite a bit of money on dust curtailment and also on effluent. It's a long way to go still.
I think the legacy of mining is going to be with us for many, many years, if not decades. At this stage, unfortunately, there is only one entity in Johannesburg involved in any kind of cleanup, that is us. The extent to which we can do this, although I'm quite happy with the rate at which we're doing it, is limited. It will be some time before the legacy is completely neutralized. Something which is also an important aspect, a component of our sustainable development story is our reliance on potable water. This is relevant for three reasons. One, we don't have an unlimited supply of potable water in South Africa. In order to de-risk the organization, the operations, you want to reduce your reliance on that and find alternative sources.
Secondly, the water that we are sourcing from alternative sources is cheaper than potable water, there's a very significant commercial imperative as well. Thirdly, our natural footprint is something that is of concern to us, we don't want to be an unnecessary heavy burden on nature, hence, this falls nicely into that vernacular. Moving on, just the operating trends, which really is the key to everything. It's how we pay for all of these other things that we're involved in. There you could see that, excuse me, the volumes are quite a bit down compared to the 2018 first half numbers, but comparable to the second half of the same period. That is as a consequence of what I referred to in the highlights, mostly to do with interruptions in power.
Yield, it's actually difficult to explain just almost how insignificant this difference in yield is, but if you multiply everything by 2 million tons, then of course, it does become fairly significant. We're 0.004 grams per ton lower than what we were in the previous period. The production-wise, consequence of both lower tons and also the slightly lower yield, you could see we came in just under 2.3 tons of gold as opposed to the just above 2.3 tons of gold in the preceding half year. I'm going to hand over to Riaan, who will give you a far more intelligent summary of the financial performance of the business over the last six months.
Thank you very much, Niël. Good morning, ladies and gentlemen. I'll take it therefore on the intelligent part. My job is made a lot easier with the context that Niël has provided, and you'll see the production flow and the core of that flowing into the numbers. Firstly, looking at the operating margin. Yes, as Niël has explained, with basically a flat gold price period on period, and we always compare to the last six months of the calendar year 2017-2018, the first six months of our financial year. Unfortunately, production down, as a result of throughput that was down, yield also slightly down. With a flat gold price, obviously that will impact on the operating margin directly. Still at 8.2%, which is not bad, but as Niël's explained, we would like that to be better.
Those same factors unfortunately, flow into all-in sustaining cost margin, sitting for this period at 0.8%. In that number, not only cash operating or cash costs taken into account, but other factors like environmental unwinding of a provision, some administration, and general costs. Maybe just to point out in these numbers, it is the first time that we've included Far West. For example, on a cost side, you do have a disconnect in that under the accounting standards, you cannot capitalize all costs as directly attributable to the capital side of the project. There's an element of that, but there's also an element of holding costs in that period that you construct. The way we look at Far West at the moment, we're actually very proud of having contained costs, and Niël has referred to using existing infrastructure that's there to do some processing.
Obviously, that's not our main project, but as a result, that reduces costs. If you then measure operating performance, for example, it posts quite a negative picture, but it actually isn't. We see it as normal in any startup of a project. Free cash flow. The story there for us is the positive story about growth. As Niël has alluded to, we have invested from a cash point of view, but from a total expenditure point of view, over ZAR 300 million in growth capital, the most of it in the Far West area relating to phase 1 of that project. It is really an amazing story. We're all set up there. We've settled in, and it's all set for great things. Not only phase I, but also all the further work that we're already doing and have started to do on phase II.
Very much a growth phase of our business, looking to the Far West, and that's an exciting part for us. All of the results, the operating results, as you know, flow into headline earnings per share. Again, we've contained some costs from Far West operating-wise. You'll see in the cash flow, actually not a great six months for Ergo. Just want to allude to that period, the second six months of our financial year, 2018. You would recall that that was a very low gold price period. Obviously that flows straight through to our bottom line as well. Looking at the income statement or statement of profit or loss for the six months. Revenue basically flat period on period. The gold price increase of 1%, gold sold down by 2%. As Niël mentioned, unfortunately, we're sat with the costs in cost of sales.
The normal increases that we expected, I think Ergo was up cash operating cost-wise by 6%. The additional costs coming through from Far West, where you don't have a matching revenue at this point in time. As you know, it's all a cut-off at 31 December. You do set of costs and not the revenue that you expect, and that unfortunately from a gross profit point of view, means not an exciting position at this point in time. Administration expenses and general costs. What also sits in there, you would remember that, at the beginning of September last year, we introduced a zero cost collar for some price protection over a very short period of time, nine months. There was unfortunately a negative impact at 31 December. You would remember that the gold price rallied just before, it was after Christmas, just before New Year.
I think it turned at just over ZAR 600,00 a kilogram. For those of you close to the fair value world and mark to market of these derivative instruments that had the impact of a liability of about ZAR 8 million. The positive side to that is that someone is telling us that the gold price is on the way up. As you know, that is very exciting for the Ergo business, but even more so for Far West, with it sitting at about ZAR 580,000 now. Again, that impacted the results for the six months negatively. The finance income line, you would recall now, but I'll allude to it on the balance sheet. Obviously, we have a lot more assets from an environmental asset point of view. We have trust funds as a result of the acquisition of the assets and liabilities from Sibanye.
Partly that is the interest charge on our environmental investment. Be it as may of about ZAR 18 million of that number. The rest of it is our own interest. On the finance expense line, although from an income statement point of view, quite a negative impact, ZAR 33 million of that number relates to the unwinding. An interest expense of the environmental liability. Obviously, that includes the number that we've now recorded from the acquisition of the Far West, which I'll allude to on the balance sheet as well. Some small deferred tax adjustments that leaves us with a loss for the period, that impacts the earnings or loss per share and headline loss per share for the period. Very exciting balance sheet, I want to emphasize that.
For the first time in a very long period, we have assets now in two major areas in the Johannesburg region. A very strong balance sheet. I will point to the fact that there is still very minimal debt on that balance sheet, but as Niël alluded to, we have basically spent the majority of the capital required for phase I in Far West, and this balance sheet reflects an 83% increase in the DRDGOLD reserve from where we just have at Ergo. Really an exciting point for us to move forward to. Strong balance sheet, much stronger than what we had before. Looking at the property, plant, and equipment line. That is obviously the acquisition of the assets from Sibanye-Stillwater, at the effective date of transaction, the end of July.
Each fair value that we have recorded, plus the approximately ZAR 300 million that we have spent on the phase 1 capital. Again, the other part of those assets sits in the Ergo business. A very significant addition is investment in rehabilitation funds. As part of the transaction, ZAR 360 million of trust fund money, cash, came over and is under the trustees control of the DRDGOLD group. Again, from a funding point of view, quite a significant step in funding most of our liabilities. A very strong position from an environmental funding point of view. It is, as Niël said, it will remain one of our key focus areas as part of our sustainable business. Slight increase in financial assets. Deferred tax didn't really move.
Cash and cash equivalents, I will elaborate on in the cash flow statement, but I believe still a very good position for a company in a growth phase. Over ZAR 200 million in cash and cash equivalents. Other current assets, slight increase in inventory, trade receivables from the comparative period end of December 2017. Equity. As you know, the corresponding increase to recording the assets and liabilities is effectively the 265 million shares that we have issued to Sibanye-Stillwater as part of the acquisition. That net number will sit as an increase in equity. As part of the transaction, we have also picked up the related liabilities of those assets. ZAR 247 million added to that line. You can already see from the funding that is available, very much fully funded, if you look at it in isolation from a Far West Gold Recoveries business.
Some of you close to accounting may say, "Where is the deferred tax on this acquisition?" There is no deferred tax recorded. It is the acquisition of assets and liabilities. Not a business and business combination, and there the accounting standards prohibits the recognition of deferred tax on that acquisition. Although there is a temporary difference between the value of the asset and what you can deduct as a tax base in the future, standard says you are not allowed to book that deferred tax liability. Literally no change on deferred tax. For the first time in a long while, I mentioned some debt, external debt, the Absa revolving credit facility on our balance sheet. I see it as very healthy debt in a growing business, not excessive at all. That is, I think, a very good position for us.
On current liabilities, you'll see quite a bit of increase there. There's a healthy chunk of capital creditors, let's call that, as part of the phase 1 creditors. Which is all good financing. We've used creditors to finance a little bit of the acquisition, which obviously has an impact on current ratio, but again, in a short term, quite a healthy position, and we're not worried about that ratio at all. The statement of cash flows. Reduced tonnages at Ergo, reduced production and gold sold with a flat gold price coupled with the Far West startup costs per se. Unfortunately, nothing exciting on the operational cash flows or from operating activities. The growth part of this or the exciting part of this cash flow is the actual spend. That's the cash spend, the ZAR 247 million I've mentioned a little bit in creditors.
The overall spend over ZAR 300 million, that's the cash portion of that. Obviously net borrowings raised coming through the cash flow statement as well. Still leaving us with a very healthy cash position of ZAR 200 million and even better than that, you would recall that previously, portion of the cash and cash equivalents were held in a trust account or an escrow account by our attorney relating to the City of Ekurhuleni Metropolitan Municipality matter. It was part of cash equivalents, but noted as restricted cash. Otherwise you would ask, why did we go and borrow if we actually had cash available? That only came available as free cash or unrestricted cash after 31 December, where the money was released from the attorney's trust account into the DRDGOLD group or the Ergo Bank account, and in its place, we issued a bank guarantee.
The positive of that is that cash is available in our business with the majority of that ZAR 200 million, which leaves us in a very comfortable net debt position and also from any ratio or governance point of view. That's a bit of exciting subsequent event news as well. Okay. I'm handing back to Niël.
Thanks, Riaan
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I think I've covered most of this in the highlights, it will remain an important focus area for us going forward. We probably also reach the stage where we have to be a little bit more aggressive on how we communicate our involvement and where we are required. The fact that we're a mine and that we're in Johannesburg doesn't mean that the entire Johannesburg footprint is our responsibility. From time to time, you would read that this organization or that individual or this journalist had stumbled upon something that is placed at the feet of DRDGOLD, and then just read in the intelligent press what the real situation is. Invariably, we do publish something just setting the record straight. We are very committed to maintaining our footprint to a good standard, to a responsible standard.
We're very committed to make sure that we clean up after our own mess. We're not cleaning the mess of other entities or corporations. The mere fact that it exists in proximity of our operations doesn't mean that we're going to be rushing to the rescue of this and throwing our shareholders' money at issues that have been caused by other entities and other individuals. It doesn't mean that we're entirely indifferent. We do make our resources and our skills and our intellectual capital available for some of these ventures. In the West Rand in particular, we are assisting out on certain areas where there's a requirement. That is without cost to our shareholders, and that is as part of our commitment to being a good corporate citizen.
We'll certainly make sure that we maintain a healthy balance between this and what we are legally entitled to disperse out of our shareholders' capital. Just on the looking ahead, I think with the events of the last few weeks, the weather issues in December, the maintenance issues in December with regards to electricity supply, et cetera. We've just come through the Mining Indaba, where I think on the whole, the mood was quite positive. We listened to a State of the Nation Address, which I think all of us find very encouraging. There seems to be a clampdown on corruption, reversal of state capture, the impact of that. I think we're also paying the dividends of a long period of neglect and tolerance of conduct that had brought many of these key state enterprises under pressure. It's likely to continue going forward.
Where does that place a gold producer in South Africa at this point in time when you consider your risk, when you consider the deployment of capital and resource, et cetera? What are the things that you need to consider? I'll share with you what my view is in our limited environment and how we are exposed to it on a day-to-day basis. Over the next six months, I believe that the two key drivers of where we are likely to be at the end of this reporting period are going to be the extent to which we can absorb and navigate our way through the electricity supply impacts in the East Rand, because there we have an extensive footprint, with direct impacts on a virtually daily basis.
How do we manage that relationship, not just between ourselves and Eskom and make sure that we don't have interruptions when in fact there should only be curtailment? We also have relationships with various of the agencies of Eskom. That is something that I think we need to start emphasizing. A municipality is not a client of Eskom. A municipality is an agent of Eskom. It's national government, provincial government, local government. The one acts on behalf of the other. To say that Eskom is under pressure because the municipalities aren't paying, that's a bad excuse. It means that the principal is not managing the agent properly. We need to deal with that agent from time to time, and they have their own challenges, et cetera.
There, the relationship is not always as clear-cut and mature and commercial as the one that we have with Eskom. On a localized basis, you would find that there's a little pocket tucked away in Germiston, for example, where the response time to a power cut or a cable theft is not quite as good as you would find with the Eskom infrastructure, where it's still at a different level. That is the one driver. That's one of the key aspects, the key elements over the next six months that will impact where we are at the end of this six-month period, is how effectively we can navigate our way through what is a clear and present risk to business and to the economy and the impact that that has on our volume throughput. Obviously, this is not something that we woke up to yesterday.
It's something that's been in the running now for many, many years. In fact, the big Eskom shock, you would recall, happened in February of 2008 when we received letters from Eskom saying that we cannot guarantee uninterrupted power supply. Since then, we've been systematically putting measures in place that make sure that we have a handle on an ever-growing risk and that we can mitigate the impacts of those risks. For example, we have virtually autonomous power supply, backup power supply at our large tailings facility in the Brakpan tailings dam. In other words, we can both pump material onto the tailings dam and take water off the tailings dam with the capacity, the power-generating capacity that we have there. That's an important aspect, not just from an operational perspective, but also from a safety perspective.
It is essential that you maintain the ability to take water off your tailings dam, even if the whole of the country is in a blackout scenario. Insofar as our plant capacity is concerned, there we've made sure that we can keep the plant in suspension, that we can keep it moving. What happens in the event of a power outage is that you obviously have a slowdown of material and a settling of slimes material with a risk of choking infrastructure. The biggest ones there are our thickeners. Those thickeners need to be kept moving and the slurry in those thickeners, that has to be kept in motion all the time or else it settles at the bottom of the thickener and the thickener can trip. That's a 10-day interruption.
To drain the thickener, to clean it up, to fill it back up again is anything from between seven and 10 days. Those are the sort of interruptions that we can't tolerate. We had one of those in the last quarter, fortunately, we have four thickeners, so we do have some capacity. To get back to the extent to which we've placed ourselves in a position to manage impacts on volume, we have the ability in our plant to make sure that the plant does not produce only for that period of time that power supply might be interrupted. That is very seldom a complete interruption, more often than not, just a reduction of load. In the event that there's a complete interruption, it's because somebody made a mistake or there's been some breakdown in the grid.
Those instances are despite the fact that we're all very unhappy with what Eskom has allowed to happen to itself. Those events are few and far between, manageable risk. Key driver on the one hand, volume throughput on the East Rand. Another key driver that will inform and define our results for the six months going forward is the rate at which we could start ramping up the Far West Rand. Of course, there, the electricity risk is somewhat different. There we don't have a 60 km footprint with 10, 15, 20 different points where we draw power from. In fact, I think it's a few more than that. I don't want to tell you how many it will scare you, not that bad. In the Far West Rand, it's a very contained footprint. It's an operation that you could cover with a proverbial blanket.
Reclamation site's right next to the plant. Everything is right there. It's concise. These are dedicated lines running towards mines. As a consequence, there's a different degree of diligence that's maybe attached in monitoring the power supply into those. I don't think Eskom wants to stand accused of allowing 11,000 people to be trapped underground because they inadvertently switched off power supply to a mine when in fact, it wasn't necessary. Being on a dedicated line, being part of the mine grid, you have a different risk associated with electricity supply in the Far West Rand. Smaller operation, higher grade, it's the rate at which we can ramp up that will be an important component of what our situation going forward is going to look like. You've seen the results in our letter to shareholders. You've seen what the costs per ton are.
You've seen what the recoveries per ton are. Obviously, that is an operation that could potentially be very robust, and that could be an interesting contributor towards where we are at the end of this six months. I tend to believe that the last six months, insofar as the volume throughput aspect of our business is concerned in the East Rand, is probably as bad as it can get. We've probably hit a low insofar as power supply and interruptions, et cetera, are concerned. I think we need to differentiate between load shedding and a complete interruption. As I said earlier, there might be a bit of gloom hanging over Johannesburg because of load shedding, but load shedding means in our environment, curtailment of power. Whereas a complete interruption is a consequence of collapses in the grid.
That is a real issue for us, and that's what we experienced in the last six months up to December. Assuming that this is as bad as it's going to get, and taking into account that we are responsive to risk as and when they happen, and that we put measures in place, and that we're always tweaking and fiddling and making things better, and taking into consideration how things are progressing in the Far West. If things don't improve in the East Rand, and we do start achieving the short-term goals that we've set for ourselves, then clearly, we find ourselves in a significantly better risk position than what most of the industry finds itself in. We have money in the bank. We're at the end of capital. We're getting metallurgical results that are consistent with our expectations.
We've weathered a very significant storm in the Far East Rand on a key issue, and we've come through without really having burnt the balance sheet in any sort of way. I think it's important that one looks at these things clinically and objectively and don't allow emotion and the general mood to overtake reality. This business is probably as well-positioned as it's ever been. I think we have solutions to most of our problems. We can offset or avoid or minimize, mitigate most of the risks that we faced. We're at the start of a very interesting and exciting new project that has the ability, the capacity to put us in a completely different state, both from a risk perspective and also a business sustainability perspective going forward.
On the whole, I'm feeling a little bit like what I felt like after having listened to the State of the Nation Address. You can only fix something if you know that it exists. I think a lot of what's happened in darkness is now being brought into the light, and it's being dealt with. Maybe not at the speed at which we wanted to, but it's being dealt with nonetheless. I think the fact that there's an acknowledgment on the part of the ruling party that Eskom is in crisis is an important thing. You can only fix it if you know that it's broken. Lots can happen over the next six months, and our company, I believe, is very well-positioned to deal with most of what I believe could conceivably happen over the next six months.
We'll continue to pump mud as quickly and as rapidly and as enthusiastically as we can, manage the metallurgy around that, and hopefully put ourselves in a very attractive position going forward and start rewarding those shareholders that have been in support of our stock for so very long. Ladies and gents, that's the wrap from us. We're happy to take questions. Thank you. You're assuming I can read this? Our discount rate, Riaan, is cost of capital.
Yes.
Yeah. Was that 15.5? What did we use?
Billy Jimmy used 11.
11. Okay.
Yeah.
Question of what was the discount rate? We used 11%, which is average cost of capital.
Yeah.
There's a second question for the Far West Project Phase 2. At what gold price NPV of construction your plant and tailings facility will exceed another option? I don't have a definitive answer for that just yet. Maybe I can talk a little bit about the phase II. Thank you. What we have in phase I is a plant capable of treating two tailings dams that contain between 0.4 g and 0.5 grams a ton of gold, roughly 80 million tons. If you were to NPV that, then the value, I think, is about twice of what we recognize. ZAR 1.3 billion is what the cost was. I think that number is in the public, that forecast, the NPV number, if I'm not mistaken. We've got about-
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Yes. It's about a ZAR 2.3 billion NPV for phase I on a standalone basis, which means that there's obviously the temptation to just not do anything else. That's not why we bought this project. We want to mine the whole thing. We're mentioning these numbers to the market, certainly to give comfort to the market that phase II is not a requisite for value add. When we talk about value add, we talk about cash earnings per share as a component of value add. It's very important for us when we consider any new project that we will increase cash earnings per share to shareholders. All you're doing is you're just producing the same cash, but just for a high number of shares. I think with that comes additional risk. Our approach to phase II basically is the following.
One, we are very determined to construct phase II because we believe that in the long term, providing exposure to gold price over a longer period of time is consistent with what many of our shareholders expect from us. The reason why they buy and sell the stocks, because of that exposure to gold price and the multiples associated with that. We're very determined to mine that, and we're talking about a 15-year life of very significant production going forward. In order to do that, though, there are two important requisites or requirements. The one is that a large tailings deposition facility is required, a new one that has to be built. The one that's on the cards now has been licensed, and it can be built in stages.
It can cost anything between ZAR 400 million and in excess of ZAR 1 billion, depending on both how ambitious we are, and secondly, what sort of nature containment measures are potentially required in order to do that. We will determine going forward where in that range can we pitch this and how can we start this construction? Because you're only gonna pay at the top end, one, if it's necessary, and two, if you can justify it, if you can sustain it. Measure it against, once again, one of our very important value parameters, namely, are we gonna be diluting cash earnings per share? The second very important component is gonna be the construction of the plant. There, the number that's been kicked around is a plant that has capacity of 1.2 million tons per month. There, we're looking at various options.
It could be a bespoke whole new plant built somewhere else, which will be informed both by the convenience of having it built somewhere else or the cost of building pipelines to existing infrastructure. There'll be a weighing up of the different layout options going forward. Something that I could maybe just mention to those of you interested in the progress of this thing going forward is that we have quite a lot of space in our existing infrastructure. It is also scalable. It's quite easy to build a second set of CIL tanks right next to the ones that we've got now and double capacity from 500,000 tons a month to 1 million tons a month. That is an option. It's an option that will be informed by various things.
As I said, amongst other things, just the cost of piping from various sites that need to be reclaimed and produced into this plant. There's the potential, maybe, potentially of future collaboration, which means that some of the lower grade, higher volume resources that could go into existing infrastructure could be closer to some of our own dumps. That could potentially also inform this. We want to look at this, and we've in fact allocated just over ZAR 7 million at the last board meeting towards feasibility studies and work around the tailings deposition facility, et cetera. We'll be working hard to just find out exactly what is the right match, what is the optimal combination of lower grade, high volume, and the existing high grade.
Once we get to, this is the model, these are the costs, and it is not ZAR 4 billion, not in a month of Sundays is it going to be ZAR 4 billion on current estimates. Once we have run all these numbers and look at the best business combinations, then we will again look at the availability of capital, just how secure our environment is. Are we going to get enough water and enough electricity? It is really electricity to pump enough water and to supply the plant to commit these sorts of funds because it is going to have to last for 15 years. What is appetite like at that point in time for an investment of this nature into this jurisdiction? And how available is capital? Where is the gold price?
We will take a long and a hard look, and typically, we would want to not take too much in the way of shareholder dilution. We would want to look at debt funding, a big chunk of that. We have an important shareholder who may want to exercise an option to acquire another 12% in our company. At some point or another, that could form a very important component of funding this, and I think that there might be some sort of synergy in timing built around that as well. We have not had these discussions, but I would be very surprised if that does not form part of the discussion topic at the time. We would see what the appetite would be for a placement of sorts. We would see what would be near-term dilution impact, dilutive impact of that placement. What would that look like?
Then we would try to hit the ground running. Remember that while all of this is happening, you would still have phase I running and producing at the rate that it is designed to produce. This is not something that is happening in isolation. You do not have a zero-cash flow period while you do this. One might want to also see to which extent you could fund some of this by way of operational cash flows. The one thing that we are very reluctant to do and which we managed to avoid as a condition to funding this time around, is to lock in gold price and forfeit the potential upside of gold price going forward. The instrument that we put in place this time around was not a condition of funding.
It is something that we took as a risk mitigator in order to ensure that we do not bump into some of the cover ratios in the loan instrument that we have with Absa. This is something that we put in place, and we would be looking for similar kinds of funding, where we limit the extent to which we have to lock in gold price. I think once we are out of this instrument, we are going to be trading freely again and taking full exposure to gold price. Really, in summary, the Far West phase II project is very important to us. We are very determined to do it. A lot of work has got to go into it, though. We will consider a variety of models.
We're trying to do as much of it with either the option that's got to be exercised and loan funding and limit the extent to which we have to dilute shareholders in the short and medium term. We will not want to lock out a gold price optionality because that's just too big a part. Hopefully, that gives a good answer. All of this will happen while the Driefontein 2 is churning out cash, hopefully.
Hi, Niël. It's Everest here. I'm just looking onto your presentation as well as the stat in South Africa in terms of gold production is about 142 tons of gold that is produced. If I calculate with you guys, it's about 2% of productions nationwide. It's quite significant in terms of gold production. I just have a little bit of concern in terms of the 49 kilogram of gold that has been lost early this year due to Eskom issue. We all know actually that Eskom will be quite a big issue. Have you thought about applying any alternative energy source such as green energy? That's my first questions.
The second one is, I was really expecting to see a little bit of a breakdown in terms of environmental rehabilitation spend, which is about ZAR 24 million, in terms of how the population is impacting and what is the real item that is really affecting the environmental rehabilitation spend. Right now, the company is in a stage whereby you have to look at which items whereby you need to work towards cutting off some of the expenditures to maximize your profit or your revenues. I would just like to see those things if it's going to be breakdown. We much appreciate that. Thank you so much.
Certainly. Look, I think your first question is a very valid one. I know a lot of companies are looking at alternative sources of energy. In fact, I believe in the Kalahari at Sishen, there's a 70 MW power station that is solar power station, which is making that area almost independent of Eskom. I think the dilemma that one needs to look at these things in a broader perspective and just consider the impact of a failing Eskom against the environment within which we do business. I'm a firm believer that in terms of crucial and important pieces of infrastructure, things that you cannot allow to go into neglect, a state of neglect, for example, the management of your tailings deposition facility, that there you need to have virtually independent capacity.
In terms of the plant itself and the various reclamation sites that we've got, we use so much power that in order to substitute that, you would have to have a forward-looking life of mine that can justify an off-take arrangement of up to 15- 20 years. I think those technologies have not really been developed to the full extent. The other concern that I do have is to rush into energy independence too early. If Eskom were to fail completely, and I have a big concern that by so many of the bulk paying consumers withdrawing from the grid or putting measures in place to reduce its consumption, that Eskom's clientele, its client base is starting to become unbalanced, where you have a whole lot of non-paying consumers that we need to continue to supply because if we don't, we face anarchy.
On the other end, you have a shrinking, diminishing group of bulk consumers that pay on time at the risk of being disconnected. If the one on the right, the bulk consuming, paying clientele, if that were to shrink below sustainable levels, then it means that Eskom is ultimately not going to be able to sell enough units at a price where the broader population can afford to pay for it, to keep its doors open. It faces a very real risk of complete financial collapse. If Eskom collapses, there's no economy. If there's no economy, I don't care if you have 100 MW of power generating capacity, but you will not survive in an otherwise. You will not be an island of economic sustainability surrounded by a sea of anarchy and unrest, et cetera. That's what we face.
If there's no Eskom, can you imagine if there's a blackout today and over the next month there's no electricity? No banks, no traffic lights, no trains, no airplanes flying in and out of South Africa, no food production, no refrigeration, et cetera. Where do you think we are in a month from now? I think being power independent is an Elastoplast. It's not in the broader context of our reality as a country and as an economy, a sustainable solution. You can soften the impact. You can put in solar panels and have arrangements with Eskom where you feed power back into the grid during off-peak hours or they draw. There's sort of a playing around with that, balancing it. The solution for our company and the solution for our country is one and the same solution.
Hopefully this wake-up call did not come too late and we can still salvage it. I believe that there's going to be a complete restructure of Eskom, its debt, its balance sheet, its ownership, its relationship with private power generators, et cetera. Solution to Eskom's problems is not by just putting up the rate. That is in fact, I think to believe that that is a solution is a folly. Insofar as your second question is concerned, there's a lot of information in our integrated report on what we do with regards, how we spend the split between where the environmental spend goes in and so forth. This month, for example, it was ZAR 14 million on vegetation and dump management. Those are essential. You cannot really separate the one from the other.
If you allow dust to be blown off the tops of your tailings dams into society, then it's going to be a matter of time before you will be curtailed in your operations. It's become core. It has become very much a core component of the business. We have, to a large extent, I think, done what needs to be done in order to no longer be a nuisance in one of our most profound areas of impact, and that is at the old Crown tailings. The vegetation program there that's been 10 years in the running, it's been very successful. I think we've reduced dust emissions thereby compared to where it was 10 years ago by probably 95%. It's very seldom that you have significant dust coming off those.
Unfortunately, our vegetation does get burned down every winter for some reason, then you have some nuisance following that. On the whole, it's well-established vegetation, and I think there we could be innovative in how we approach the remaining areas on that dam in order to strike a balance between cash flow and operating expenses and revenues. There's some other areas where work still needs to be done, and it is very much part of core business. I invite you to have a look at the integrated report. There's a very good write-up on that that sets out exactly how that's been divided up in the different components of environmental management. All right. That seems to be it. Anybody else?
Could you talk a little bit just on your operational, your recoveries and so on, cyanide? How is the effectiveness of your extraction going?
Well, we're not quite where we want to be, I don't think we'll ever be exactly where we want to be. There's always that elusive 0.01 gram per ton that we want to get from the plant. On the whole, the plant is stable and predictable. We continuously pushing the envelope and trying for it to be better. We introduced this information management system, this automated information management system a few years ago, where we took the information that's been collected across the plant, and this is automated information that's been sent to its data collection. We reduced it down to seven or eight so-called non-negotiables.
These are the key drivers of the plant that interact and interplay and that can each have the effect of the plant going out of sync or becoming unstable or unpredictable. What it's helped us to do is because you could see exactly what is getting out of range or what is pushing against the limits of range, it helps you to anticipate those and to keep them within range. It's also very much assisted us in precision dosing. Whereas in the past, cyanide, for example, was something that was done at times reactively or proactively, but hoping to see some sort of a result. We can now, because we know exactly where the other key drivers are, your dissolved oxygen levels, your pH, your et cetera.
We can apply precision dosing, which means that the range of cyanide, the concentration of cyanide or percentage of cyanide in the solution itself, that is far more stable. The first year, for example, that we started doing that, I think I saved on average about ZAR 1 million a month just on cyanide. Also, because the readings are so much more accurate, we have a much better idea of what the impact of changes in the combination, in the recipe, what the effect of those changes are. Because you now know that there's only one thing that's changed. If you see a result or consequence, then you know that you're changing it in the right direction or in the wrong direction.
We're understanding the plant quite a bit better, and I think as a consequence, it's helping us to try different things to make efficiencies better. One of the latest additions to the plant and this ongoing study, and the professor is the one sitting there right in front of you, the very tall gentleman two rows in front of you. He only looks so tall because the one sitting next to him is so tiny. One of the things that we're doing now is instead of just laboratory-based bottle roll test, because the energy dynamics in a bottle roll test in a laboratory are different from what you find in the typical operating environment is almost like a mini plant. Like a mini simulation of the conditions that we find in the plant itself. That too, will start informing some of the decisions that we're making.
We're toying around with carbon inventory at this stage. We're dropping that carbon inventory a little bit, we may want to start reducing the number of CIL tanks and introduce a different agitation regime earlier on in order to, as part of your preparatory stages, your pre-leach phase, to maybe see if we get a different dynamic there, a different solution dynamic there. It's an ongoing play. Tiny changes are making big differences on the whole. There will never not be a research component in how we go about our business. I think that's it. Once again, thank you so much, and please help us to eat all the sandwiches that they've prepared for us.