UPDATE 4-S.Africa's DRDGOLD shuts North West mines
Tue Mar 22, 2005 11:20 AM ET
(Adds conference call, closing share price)
By Rebecca Harrison
JOHANNESBURG, March 22 (Reuters) - Struggling South African mining group DRDGOLD (DRDJ.J: Quote, Profile, Research) has shut its loss-making North West mines, slashing production by a third and putting 6,500 people out of work.
But the fourth-largest South African gold producer said the move would put it on a more solid foundation after auditors had expressed worry about the firm meeting financial obligations.
Shares in cash-poor DRDGOLD fell almost 6 percent after it said on Tuesday it had the green light to provisionally liquidate its North West unit, which has been hit by a strong rand and a recent earthquake.
The shares cut their losses by the close, ending down 3.9 percent at 4.95 rand.
"We believe that this decision by the board is going to ensure that DRDGOLD will continue as a going concern. It will address some of the concerns raised by our auditors at our last financial results," Chief Executive Mark Wellesley-Wood told a conference call.
The company's auditor KPMG drew attention to the miner's weak financial position when DRDGOLD released first-half results last month, saying it might have trouble meeting obligations due to a shortage of cash.
The closure will cut cash costs in the overall company by nearly $80 per ounce to around $320 per ounce, he added.
Under provisional liquidation, a court appoints a liquidator who assesses creditor needs and decides whether the business is viable. The mines would stay shut for at least 45 days while the investigation is conducted.
"This is very significant for them ... it is not like the company is about to go bankrupt, because they have a successful offshore business, but this shows how parts of the business are under huge stress," said one mining analyst.
UNIONS BLAME MANAGEMENT
Blaming the mines' failure on management, unions said workers were turned away from locked gates at DRDGOLD's Buffelsfontein and Hartebeestfontein mines in the country's North West province on Tuesday.
"We have said time and time again that DRDGOLD is not interested in the South African operations ... Its mining licence should be taken away and given to someone else," said Moferefere Lekorotsoana, spokesman at the National Union of Mineworkers.
DRDGOLD was already struggling to offset the impact of a strong rand currency on its North West operations when an earthquake earlier this month killed two miners and forced it to close one of the shafts at the mine, causing lost revenue.
"We have reassesed the position on North West against DRDGOLD operating critera that all our operations must be both safe and profitable, and clearly at this point in time, North West is neither," Wellesley-Wood said.
The North West operations recorded losses of more than 270 million rand ($44.4 million) in the second half of 2004 and accounted for 34 percent of production.
DRDGOLD said it was losing 231,000 rand in revenue each day its earthquake-hit No.5 mine shaft was closed. Recent earth tremors also forced the company to temporarily close its No. 2 shaft at the mine.
DRDGOLD has been struggling with a buoyant rand, which cuts export income and took an extra toll on DRDGOLD since it has some of the lowest-grade mines of South Africa's major gold producers.
yahoo.reuters.com.
jhtml?duid=mtfh02483_2005-03-22_16-20-05_l22430132_newsml |
