Quarterly presentation. A special word of welcome to all of the analysts, all of the shareholders, fund managers, media, also to our Chairman, Geoff Campbell. Geoff lives in London, and this time around, we managed to convince him to stay a little bit longer after the board meeting to join us, sitting here second from the left.
He has been with DRD for many, many years now. Joined just before I did, if I am not mistaken, 2001, 2002, thereabouts and has seen many CEOs come and go. He has seen many different iterations come and go and has certainly brought a lot of strategic sensibility and governance into the way that the business is approached and managed. We are very thankful that he stayed with us during the tough times and led us into what I hope to be calmer waters.
We had a consultant many years ago who spoke to us about business efficiency and he used this mantra. He compared it to the Australian Presidents Cup team, as we operate around the world and they were building a yacht and the concept that he was selling at the time was does it make the boat go faster. That's what stuck with us. When the Australian team, when they were building the yacht, apparently they measured every little thing, every little step against the standard or the measure. It doesn't make the boat go faster.
For example, they didn't have a kettle or a coffee machine. There was a Starbucks around the corner. That's the one example that I use. Because the coffee machine wouldn't make the boat go faster. Then a few years after that, a chap working at DRD in the operations and he was in charge of the underground side of operations. He showed me a picture one day of people doing white river rafting and he said, well, that's how fast the boat is going in DRD at the moment and I remember at the time, we started thinking a little bit differently about it, does it make the boat go faster, because it was going too fast down those rapids.
We started aiming for calmer waters and maybe a boat that doesn't quite as fast and Geoff stuck with us through those days and lead that process and I think we are in much calmer waters at the moment for operation in DRDGOLD compared to what's going in the industry at the moment. He will be here afterwards for a few minutes. So if you want to meet with him and find out more about him, we will be around for a bit.
Getting into the presentation. I think you are all familiar with our disclaimer. We do explain targets, certain operational and financial targets. Those are forward in the definition of forward-looking statements. So please just be cognizance of those and read through the disclaimer.
Highlights for the year or the key features for the year and for the quarter. we are very relieved, very grateful, very pleased with how we finished the year. You will recall that the we have been very busy over the last few years. First with the integration of all of our smaller plants with the exception of one into the bigger Ergo plant. It cost us just over ZAR 300 million the year before last to build the pipelines and to do the plant upgrades, to achieve that and with every one of those reconfigurations and repositioning, operational repositionings, you do encounter volatilities, there is always a bit of an inventory buildup over time and you really only know how much gold you are going to see when you see the gold.
So you design your engineering and you design of infrastructure and your metallurgical processes and so forth towards certain targets but in this mega-volume environment and ultra concentration environment, you really only know what the results are going to be when you see them. So we were very pleased to see an increase in gold production. We have been telling the market that we are targeting between 140,000 and 150,000 ounces. I think there was a subtle adjustments of that to 135,000 to 145,000 ounces at one point or other.
But we were targeting 146,000 ounces per year, following the consolidation of our various circuits and it obviously assumes that increase in gold production from the previous year on the surface reclamation side and we are very pleased to have achieved that. That was notwithstanding the fact that towards the tail-end of the financial year, there was a bit of a lockup, there was a bit of inventory buildup in the new circuit that I will talk about a little bit later in the presentation.
We have been focused, really focused on cash flow. Our strategy really consists of three lines or three concepts, cash flow, cash flow and then some more cash flow. We are pleased to see that the cash flows have been good and the operating profit also increased to year-on-year. That's on the back of a solid cost management on the gold price year-on-year and also an increase in gold production.
Our earnings increased. Craig will take you through some of the underlying drivers of that. Then this concept of all sustaining costs or NCE. I know that is something that's been punted by, especially Gold Fields, for quite sometime. We never really had, in the last few years, at the luxury of worrying too much about non-cash items in the balance sheet and in the income statement because we only spent what we made. So all sustaining cost or real profit cash in the bank profit, it has been our parameters, it has been our measure, the yardstick now for several years. So this was something that was quite easy for us to slide into from a reporting perspective and we are very pleased to see 10% increase in the all sustaining cost.
Well, in fact, the standard that's been announced by the World Gold Council is slightly lighter than the one that we applied. We applied one that involved all-in cost including growth CapEx. Growth CapEx is stripped out in this all sustaining cost formula and we came at ZAR 365,000 per kilo.
The margin, which is the free cash flow margin, excluding strategic CapEx, maintained or stayed steady at 20%. You will also see later on in the presentation that EBITDA actually increased quite substantially to just over ZAR 0.5 billion for the year.
I will take you briefly through the Ergo trends. We have consolidated all of our surface operations, the various plants into one operating unit with two plants, one smaller one and one bigger one. We report them as a unit. So you could see what we have been doing with volumes over the various quarters.
Our target really is two million tons a month. We managed that quite handsomely in the second quarter of the financial year. So we just touched or brushed underneath that in the last two quarters, again as the volumes gain. We get the plant, if we manage to full the tanks, the gold comes up. Metallurgical processes have certainly shown a lot of consistency and improvements in consistencies over the last few reporting periods. Production that you could see. We achieved about 4,500 tons for the year. Just over a ton per quarter and that should increase marginally going forward with the fine grind and flotation circuit that is now in the final phases of being commissioned.
For the financial indicators, Craig will take you through, and I will take you through the balance of the presentation after he is done.
Thanks, Niël. Morning, ladies and gentlemen. Yes, so these are the key financial indicators, as Niël mentioned, that we really focus on within the company. The first one that I want to talk about is our operating margin. The way these graphs are set out, you are seeing gold is the previous year and in gray is the current year's performance. We have broken it up by quarter and in the last two bar charts on the right hand side, is the year-to-date numbers, in other words, the full year's numbers.
You can see that our operating margin has remained or tracked pretty much what we had in the previous year. It was just really in the last quarter when the gold price, the Rand gold price declined, then obviously that margin dropped down to 22%. But you can see, overall for the year, the margin has held at about 32%.
More importantly, in terms of margins is to look at this new measure that World Gold Council has come out with. This really looks at your cash cost or your operating costs plus your sustaining capital and your corporate costs. So there a whole lot of additional costs that have been added into this number. I think it gives you a truer reflection of, effectively, the cash that you are generating within the business.
So what we have done here, is we have recorded what we call the all-in sustained costs margin. So it's the margin after looking at your all-in sustaining costs. You can see that that has remained pretty steady, year-over-year. In the last bar chart there, you can see it's about 20%. Yes, that margin did drop down within the last quarter with the Rand gold price dropping. I think it dropped down to about 15% but with the current gold price where it is today, that number is back up at 20% again which, I think, you will agree that is healthy margin, especially when you compare it to some of our larger peers within the gold mining industry in South Africa.
EBITDA, which is something we track as well and I know that that the guys are looking at our debt and looking to give us more funding track those numbers well. You can see that has increased to ZAR 202.8 million for the year compared to the ZAR 372.6 in the previous year. That was largely driven, obviously, by the higher gold price that we received during the year, as well as the increased production, as Niël mentioned.
Free cash flow, which we also track pretty closely on a monthly basis, on a weekly basis even. You can see how what that looks like over the full year. Just to state, obviously we did see a drop in our free cash flow in this current year to ZAR 98 million from the ZAR 208 million in the previous year. That was obviously impacted by the lower gold price that we saw in the last quarter, as well as the large amount of capital that we been spending on our flotation and fine grind circuit, especially in the last quarter of this year. So that obviously impacted that number but it was still positive and that's something that we track and obviously with the lower all-in sustaining costs going forward, the lower amount of capital that we are going to be spending in next year, we expect that to track back up again.
Headline earnings per share, obviously that was up, as Niël mentioned in his slide as well, to ZAR 0.68 from the ZAR 0.61 in the previous year. That was largely driven by the higher gold price that we received during the year, the Rand gold price and the high production.
Okay, just on the financials, I will quickly take you through the income statement and balance sheet. Just some of the key numbers. You can see that our revenue was up, 18%, and again, as a result of 8% increase in production as well as the higher Rand gold price received. Costs were up 22% but you must understand this is the first full year that we are reporting these costs with the new restructured Crown operations as part of Ergo.
So remember, we built, as Niël mentioned, two years ago, we embarked on a ZAR 300 million capital project to effectively link up our Crown, City Deep and Knights plants through to out Ergo plant and deposition site. So this is the first full year of those costs that we see of that newer bigger operation and obviously higher volumes are coming through. You can see there was 28% increase in volumes. So we are pumping higher volumes through those pipelines. We are also pumping the material over longer distances, which does have and impact on cost. Then the balance of the cost increases obviously were due to labor, electricity and other costs, inflationary increases on those costs.
Our operating profit for the year was up 9% to ZAR 679.3 million and depreciation charge, obviously you would expect that to be higher with over the last two, three years we have been spending a lot of money on capital infrastructure. So the depreciation on those assets is now coming through and hitting the income statement. Under other income and costs, obviously the numbers are a lot higher because of the impairments which we recorded during the year of ZAR 238 million against various assets.
The discontinued operation number is in our income statement, in previous year obviously relate to Blyvoor, which was sold with effect from June 1, 2012. So obviously those numbers aren't in our numbers for the current year. As I have mentioned before, headline earnings per share, up 11% to ZAR 0.68 and our EBITDA up 35% to ZAR 502.8 million.
On the balance sheet, one of the reason we could pay such good dividends is obviously what helps us is having a strong balance sheet. You can see from our balance sheet that it is a fairly strong balance sheet. We have got a lot of cash still sitting on our balance sheet. Our liquidity is very strong. That's improved over the last year to 2.5 and we have a very conservative debt policy. Our debt-to-equity ratio is sitting at about 10%. I think if you look at most of our peers, their number is closer to 50%, and in some instances closer to 60%, which can be a bit tough when the gold price does drop. So I think we have been fairly conservative and prudent with our debt. We have got ZAR 165 million worth of borrowings on our balance sheet. Those are all listed bonds. So, as I said, that's all contributed our much stronger balance sheet.
I will hand it back now to Niël who will take you through some of the remaining slides. Thank you.
Thanks, Craig. We spoke a bit in the past or a lot in the past, in fact, about the technology upgrade that we are busy with at the Ergo plant. The challenge remains to drop residue grades because obviously head grade will over time continue to decline with more and more of the dumps that we are mining being modern dumps or recent dumps.
Flotation/fine grind project is aimed at capturing that portion of the gold in the runner mine that remained in earth that did not respond to our metallurgical process. Some process are floating out pyrites and then grinding it to appropriate traction and then putting it through same CIL process although this section has a dedicated CIL circuit for the higher grades that we are getting in this concentrate.
It costs us just around ZAR 300 million, maybe just a little bit less, about ZAR 280 million over the year. Clearly now with the capital spend having come to an end, we are looking at a significant saving in capital expenditure for the next year. Our ongoing capital is quite a bit lower than what you would find in a traditional underground environment because the factory has being built and not it just needs to be maintained.
In fact, over the last five or six years we, on average spent ZAR 300 million or $30 million of CapEx per year and just on the budget for the next year, you could already see a significant drop in CapEx. I think the total saving or capital avoidance in the next year is just over ZAR 300 million, ZAR 320 million odd, which is hopefully what will provide us with a bit of headroom now with the gold price having gone into a slight decline. Although it seems to be lifting its head again.
Now, back to the flotation/fine grind circuit. It's in final commissioning phase. The assumptions that supported or motivated the project upfront, those assumptions have been achieved. Mess pool is around 4%. Gold retention is about 40%. The float tail is at around 0.182 gram per ton. That float tail, obviously contains the gold that previously have not been attached to pyrites in any format and that responded to the conventional CIL process. So that will still go into the main CIL tanks and it will be interesting to see what sort of recovery we are getting out of there. We do believe that in so far as the mess pool or the concentrate is concerned that the efficiency there would be to around 75%.
The elution circuit which is a dedicated elution circuit for this line, that will be commissioned over the next few weeks and should be in full flight by the end of September and we hope to see the full benefit of this initiative by December. Clearly, at this stage, the circuit is being saturated. There is some inventory build up. So there is marginal gold lockup as well but the encouraging part here is that the residue values do not reflect any kind of increase. They do stay very consistent. So all indications are that the gold that's not presenting in the smelters is in fact being locked up in inventory build up.
That's really just like a normal polony machine or a mincer. It comes in the other way. You have got a full that tube and then it comes out the other way. We starting to see some of the (inaudible) coming out the other side. So out the other side. Some of the ground (inaudible) coming out the other side.
The focus area going into the future is very much going to be sustainable development. We brought sustainable development and all of its components onboard as a key and a major strategic decision making driver. All aspects of that. We will look at sustainable development within the context of nature capital, our technology that we employed and make sure that it is compatible with good practice, nature practice. We will make sure that we maintain healthy financial margins. I will spend a bit of time on the social side. All five components or really the three components that have been subdivided into five components of sustainable development is going to be very much part of the visible decision-making process of DRD.
It has been part of our decision-making and capital allocation processes in the past. But not on the public platform. It hasn't been something that we have been sharing with the market in too much detail. But you will see a lot about this in the presentations going forward. It does have the full support of the board that we embark on this very visible and the deliberate commitment to sustainable development.
On the financial side, we have been reporting on an ongoing basis, the parameters that the investment markets that people who manage other people's money, the things that they look at before they decide whether they are going to commit the funds or savings to our capital. These numbers, I think you have seen in the past, we have added some of those because obviously we serve a broader interest base than just shareholders. We also have our communities. We have our government and we have our employees that are impacted by what we do.
So you could see how much goes into salaries and wages as well. We didn't put in how much goes into tax, direct and indirect taxes, which is probably something that we could also add here. But government is still a very happy shareholder of DRDGOLD, in the sense that they do get a quite a lot of money out of pays you earn, debt and I think sometimes even a bit of income tax, if I am not mistaken.
Total expenditure on goods and services, just on around ZAR 1.2 billion and then dividends to shareholders is just on ZAR 100 million. There has been this notion or this idea or concept that and this has been the driving force behind a lot of the talks around greater government involvement in equity ownership or nationalization. The concept or the notion that money leaves South Africa that the mines generate wealth here but then exports that gold. That it doesn't stay inside of South Africa. I think based on these numbers you could see that most of the money, most of the revenues, in fact do stay in South Africa. Less than 3% of our revenue, in fact, leaves our shores. So from a corporate citizenship perspective, in so far as the application of our financial capital is concerned, I think there's no reason why we have drop our eyes when we are confronted about these issues. We could look all and sundry squarely in the eye.
Intellectual and manufacture capital. It is important that we match these with the other capitals. Obviously you want to build circuits that will make more money for your shareholders, and that will offer a healthy return on you capital investment. That offers real economic value add and that is certainly a number that we look at from time-to-time. But at the same time, also you want to make sure that you don't destroy nature in the first instance and that you in fact rehabilitate nature in the second instance. That you use natural resources in such a way that you don't compete with other users.
Potable water, for example, is something that is going to become increasingly scarce. We have had, and I am from the Karoo, so I know what it is like to go through a drought. But Africa is a dry country. We don't have an unlimited, I almost sound like cell phone advertisement. We don't have an unlimited supply of potable water in this country. We have to manage it very, very carefully and our technologies are geared in such a way that we can in fact move closer and closer towards that.
The same applies to our carbon footprint and power consumption. There is not an unlimited supply of power. We all know that. We know that Madupi and the rest are hopelessly behind time. We will have to see just how efficiently the commissioning takes place as well. So we have got to be very careful how we consume power. The pipelines that we use at Ergo, the new pipelines consume 18% less power or has the effect that there is an 18% power saving on pumping costs because of the agent that's used inside the pipeline to align the pipe with lower friction. We have an automate the process. It means that these pumps run at slightly less than full capacity. We have an 18% consumption on power usage, if you had to use other technologies to do that.
This we will want to do on a continuous basis. We want to make sure that the development towards extraction efficiency in particular, still a lot of gold that enters the plant that leaves the plant and our Chief Operating Officer and his team of researchers, our business growth executive and his team, it's very much a priority on their menu on their dashboard. I think it's the new fancy word which they check and which they pursue and in respect of which there are clear and very deliberate objectives to work towards better technologies so that the material that goes into the plant becomes more valuable because the product that comes out of it is more valuable and without spending more power, without using more water in order to do that. The fact that we now have a consolidated footprint, everybody driving to one place saving on transportation, not having to go into 100 different directions, to a lesser extent, also contributes towards a reduction in our carbon footprint.
Human capital is something that we take very seriously. We distinguish between human capital and social capital only based on the following social capital is more something towards external and borderline charity type initiatives to alleviate hardship. Whereas the human capital is more towards development of skills and development of human resources both internally and externally. So they might seem a bit of a lot of contradiction but an overlap between the two. But if somebody is taught how to do better math, we don't call that social capital, we call that human capital.
We have an initiative that was recently launched at our operations called Best Life. It is something that evolved from a previous initiative called Vuselela which was an employee process and employee focused process of establishing what the value systems were and the value sets were of our employees and trying to bring those value systems into the workplace so that work feels more like home, that you don't feel offended by what is happening around you.
Now the Best Life initiative takes that one step further and that's very much geared towards financial independence and financial literacy of own personal development of making sure that every employee, remember that we are increasingly moving towards a knowledge based labor force as opposed to a manual power based labor force. We want people to think more than what they move stuff around and providing the opportunity for employees to develop personally to the best of their potential and have a fulfilling professional experience.
There is also health and wellness initiatives in that regard. We have brought in a very sophisticated team to assist with that, giving personal counseling and so forth. We know that a lot of the social upheavals that we have seen in the mining industry that conflict has been because people just simply, they run out of money and they run out of money because they don't manage their finances properly. Mine workers are still paid better. Even on a broader arena. Still paid better than most teachers and nurses and young professionals like (inaudible) clerks and young audit clerks.
Yet they run out of money and they run out of money quickly. So there does seem to be a real gap in commercial or financial literacy amongst mine workers and managing their phase. We have seen how people end up having huge percentages or portions of their disposable income attached through garnishee orders and so forth and so forth. We have fought 39 or 40 garnishees in our organization out of 900 employees. We think that that is 39 too many. So we are very much focusing on that as well. Teaching people how to manage their finances properly.
You don't get out of your financial issues by just being paid a 15% increase. You get out of your financial issues by managing your finances properly. We want them to have the benefit of these programs. It has caught on quite nicely and we are confident that this program will be successful. Ultimately, what we really want to see is that people, in their professional lives, when they have go in retirement, have financial independence. At the moment, they just get a lump sum payments.
So we are also looking at restructuring some of those to see if we can have a more sustainable retirement annuity type arrangement but there is still some work to done in that regard. But ultimately the target is for them to be financially independent when they leave their employment and have a place at the state. Some security of tenure. We don't believe in these concentrated villages. We think people should be able to choose where they live and the initiatives that we are driving at this stage is, for example, an accommodation allowance, which is not a housing allowance or a living out allowance but it is an allowance which is aimed squarely at acquiring a long-term right in respect of occupancy of a security tenure.
All right, going on to focus point of our external human capital development. We do believe that the future lies with the younger people of our country. As a consequence, we set up initiatives. These have been running for about three years to assist high school pupils with their math and science. They come to EBDA and we also have satellite campuses. Over the last six months, we had 191 pupils benefiting from Math and Science. The Math and Science Centre of Excellence.
Some of these guys have managed to increase their marks by up to 40%. They go from the low 20s to the high 50s or early 60s. We have seen a marked increase also in the passing rates of some of those schools. We are not talking about St. David's, and so forth. We are talking about schools that are way tucked away in the townships and sometimes even in informal settlements. These are pupils that are at the bottom end of the hierarchy when it comes to allocation of resources. Teachers have taken advantages as well. We have had more than 60 teachers who have come to our Center of Excellence for refresher courses and so forth. So that's definitely having an impact on those schools.
We have also opened up. We have extended this now to also include accountancy and I think we just disappointed another mathematics teacher as well. They can take advantage of those initiatives. We have 63 community pupils enrolled in a three year entrepreneurship course. Entrepreneurship in these development initiatives more often than not does achieve much more than a curio shop. We want to take it to the next level. We want it to be a real entrepreneur. People who deliver actual relevant services into their communities on a sustainable basis.
These guys are doing really well. We have got some very encouraging video material. They are real conquerors. These chaps. They are going to make use of this enlightened democracy in which they live with all these systems that are available out there. 285 community learners. These are adults who want to improve their own lives and their own skills. They have gone through this too at EBDA and then we have also achieved a 46% HDSA margin in our operational environment.
Natural capital. You cannot manage the footprint that we manage without being sensitive to natural capital. We put an additional 24 million liters of water into our sewer on a daily basis. If you think that there is going to be a sustainable source of potable water from Rand Refinery to deliver into that in the medium, you are deluded. You have got to find alternative sources of water. We have done that from two places. Both from (inaudible) lake under our feet in Johannesburg where we have secured the at least 30 million liters a day but we are likely to not use more than eight.
We have also agreed with municipality to sort water from two of the sewage facilities. Of course that type of water would be very conducive to the type of initiative that you see in this picture here at the bottom. Sorry, I am pointing at my screen. This here, that's the top of a tailing stand and it needs water to grow.
Rand water can't really supply into all of our requirements, the rate at which we vegetate our tailings dams at this stage is held slightly back because of constraints from Rand and it is not supply constraints. It's pretty constraints and infrastructure constraints. But once we got these pipelines up and running and we are going to be starting with construction probably within the next six weeks, if I am not mistaken.
The capitals been allocated. We would have a healthy supply of water to also go to on to these tailing stands. The last bit tailing dam that has not yet covered around the Nasrec area would very quickly be covered in vegetation. Very little dust is still coming off these dams. The only bit of dust that you could still see are in their decommissioning phase. The only little bit of dust that you can still see are those coming off access ways and some of the roads.
But the sites have being vegetated, the tops have been vegetated and this too is sustainable vegetation. It's a mixture of, I think, mushroom and molasses, if I am not mistaken, and into that, a cocktail of local cross species is mixed and they grow. They need to be watered for a few seasons. After that, they take root and they are there for life. We have spent plenty on that. In the last five years we have, on average, spent about ZAR 80 million just on the environmental management aspects of our tailings dams.
The only way, I think, that you can gauge the real commitment of on entity towards nature capital is by what's in the cash flow book and a lot of money has gone into that. The commitment is a real one. I spoke about the pipelines earlier on.
On the social capital, EBDA is our academy. That was established four or five years ago. A lot of capital has going into that. We sourced quite a bit of skill over a lot of really solid educational skills into that. Our material is open-source material. So whomever wants to take advantage of that, the government doesn't have to go and spend millions and millions of Rands on course material. They could just come and collect it from us.
We are collaborating with them to set up something similar to that. Once again, these are programs that are aimed not teaching people how to sell little dolls and beads at the roadside. Not that those are not good initiatives. Sometimes that's all that they have with regard to availability of resources and so forth. These are real businesses. Teaching people real skills in mature economy, sophisticated economy. Our employees have taken full advantage of this. Literacy is going up and I choose to believe that the surrounding communities too have been taking advantage of that.
Just on that, maybe just one topic. I think the way we are focused on the high school and I am glad my colleagues are here because it is the first time that I am sharing this with him too. We have been spending without even flinching and the financial guys grabbing the checkbook and sitting on it. We have been spending a lot of resources and time and money on the high school children. But I do think going forward we are going to be dividing the focus in so far as younger people are concerned in three segments.
The newborns to seven-year-olds. We will be looking maybe at the nutritional needs. I am talking about the areas of impact. The seven to 14 year-olds, which would be more geared towards early phase education. Then from there on, the 14 year-olds further. So that the material that we receive into the Center of Excellence have had at least some experience with some methods and so forth. Of course, we will keep it that the right place. I promise. I won't spend all your money.
So looking ahead. Obviously we are here to make money for our shareholders and also be socially relevant and be a good corporate citizen. So we want to make sure that this flotation and fine grind circuit, that cost us a small fortune that there is a stable production by December of this year, that we see the additional 15% to 20% extraction efficiency, an increase in recovery in real terms of about between 7% and 10%, I think, is what we said by then.
We want to make sure that we achieve sustainable profits. What I didn't mention this presentation is that last year, we did save 5% on our potable water use. I think an 11% drop in the cost of water, if I am not mistaken. So we want to make sure that we see more of that. There will be real targets around potable water usage and dust emissions. We have 94 dust monitoring points in and around Johannesburg. We have built and have commissioned or in the process of commissioning a very sophisticated real-time monitoring tool with a single dust emission shown up on the screen depending on where it happens and the intensity of the breach, so to speak, of the standard. It gets fired up all the way to the executive committee to ExCo and it also has prompts to follow up and so forth.
We want to invest substantially in internal social capital. We want to make sure that our employees know how to manage their finances better. We also want to, and I think increasingly, this is something that I find very encouraging, increasingly I am sensing that the idea or the concept that certain people get paid more than other people because of their level of education and not because there is deliberate exploitation. Therefore it's good to invest in the future of my child and make sure that he gets a good education. That notion is certainly starting to the catch on and be appreciated more widely.
The younger people are hungry. They are so ready for these sorts of initiatives. We are overwhelmed by the positive response from them. Then of course the new technology. Two key operational focus areas in the near term. One is maintain volume flow. To maintain the skill sets that can deliver volume into the plant. You saw what happened in the second quarter of this year when the volume shot through six million tons as we had a phenomenal quarter. I think it's the best production quarter that we have ever had. We have got to keep those mills full. We have got to keep those tanks full. As people managing the systems that deliver that into the plant that can do that for us.
Extraction efficiency. Fine grind and flotation is not the end of the road. We want to drop that residue value even further. I think there is a lot of potential upside in that.
All right. I think that's more or less it. I am anticipating that there would be some questions about labor issues and negotiations and so forth. So if anybody wants to ask that question, then I can answer before I sit down or I could sit down and you could take the questions in its natural normal sequence.
Okay, all right. We are in labor negotiations at the time. We don't form part of the Chamber of Mines labor forum. They are four or five mines that entered into a single agreement on wages. We remember the Chamber but we don't negotiate as part of that forum. I know that the Chamber unions are going into dispute as we speak. I think we are still some way away from that.
Both parties have stated their position. They are now going into the mediation phase, if I am not mistaken. The actual outcome of the wage talks are, if history is anything to go by, this is probably a little academic. We have had a profit participation scheme in operation at our operations for quite some time now. Basically what that means, in the past two years, I think the basic increase was about 8% and then employees could earn up to 15%. In other words, an additional 7% depending on the real profits, the cash and bank profit after everything profit.
They have been earning that. It's on the sliding scale. So they have been earning over the last 24 odd months. They have been earning a double-digit increase in any event, regardless. Indicators are that, at least the business and the way the cost are being managed and the rate at which materials are coming into the business, that is not far-fetched that a similar sort of scenario could play out going into the future.
Having said that, I think it's important for the negotiating unions to remain credible in the eyes of their constituencies. I think it's important that we, as a corporate, also recognize the fact that we are able to deliver into these financial results, because our employees didn't go out on any kind of illegal labor action in the last year. They didn't do anything around the disruption of operations. They didn't cause harm to the operations, to our infrastructure. They didn't intimidate any of their colleagues. As a consequence, I think the gold came out and we can offer our shareholders something.
We have got to be cognizance of that too. Management teams also are very cognizant of the fact that 5% of a 100,000 is 5,000. 5% of 5,000 is only, how much? 50? 500, rather. So 500. So one has got to be sensitive to the fact that, or 10% rather is 500. One has got to be cognizant of the fact that, at the higher end, a slightly lower increase means that you maybe you have to manage your discretionary spending a little bit better.
The stuff that you do because you enjoy doing it, as opposed to staying alive. Whereas at the lower end, things are little different. Transportation cost go up, food inflation is fairly high. Then ultimately, labor or the wage boom as a percentage could be managed in such a way that you can give a fair and reasonable award compensation to the lower end without really impacting and maybe little bit less of the high end without really impacting on the lifestyle of your higher end employees.
In addition to that, we have very good bonus, or incentive rather, and phantom share option schemes that are directly linked to the financial performance and operational performance of the business. So the senior guys have the opportunity and the mechanism through which they can increase their discretionary, or not discretionary, their variable income, not to the same extent but the lower levels can do that.
So we are being sensitive to all of those things. We want to deliver into the Best Life objectives that we have set. Obviously, we are not going to maintain a healthy balance between the interest of our employees, our laborers, senior management and our shareholders. I think we have managed to maintain a good balance in that regard in the past. I will come up with a solution that works. But there still some time to go. Obviously, the circuit and it is not really the sort of thing that you want to repeat too often because it almost sounds like you said the labor do what you wants and that's certainly not the message.
Do what you want. We don't care. The fact is that, we are probably more resilient to strike action than most others. We have had a strike action in the past. That didn't affect operations at all because the delivery of material takes place through a different agency, not in-house. As long as the material comes into the plant, then there is enough skill left in the organization to check the valves and to wash away the overflows and so forth and to keep things going for a bit.
Obviously people get really tired because they worked 12 hour shifts in that sort of scenario in that strike contingency plan. We don't want to go into that. We don't want have that too long because that strike action will have an impact. That the social issues that have led to the incidents elsewhere in the industry, more often than not, are triggered by exactly that, where people are denied income for a period of time. Obviously, the no work, no pay principle applies very strictly in our environment.
So I don't think there's angry discussion at this stage. I don't think we are too far apart. I am not suggesting that we would be able to deliver completely into the union's wish list but then at the same time, we are not going to be difficult just for the sake of being difficult. So I think we do have some room to maneuver. Certainly, I think there is a collective willingness at the higher end to see that this thing is dealt with in a responsible way.
Okay Martin [ph]? The unions that we have at our company are UASA and NUM.
And you don't have AMCU at all.
Two obvious questions. What are you actually offering? What have you got on the table for the various grades? You said, you are in talks and whatever but when might there actually be some kind of conclusion or timeframe do you perhaps have in your mind for this to come to an end?
My own timeframe for the conclusion of talks is anything between three and six weeks. And I am not divulging what we have on offer for our employees. Allen? I am sorry, Adrian?
Adrian Hammond - BNP Paribas Cadiz
Good morning, Adrian Hammond, BNP Cadiz. Could you just give us your outlook for grades for yields in FY14?
Definitely we want to recover, what's it 20 million ton, Charles?
Unidentified Company Representative
That's in line with what we have now.
Adrian Hammond - BNP Paribas Cadiz
Thanks, and just a conclusion. What happens to the shares? Your Village Main Reef shares held in escrow? I know it was being planned for liquidation.
We have pretty much put that on the backburner before I take a specific view on that. I haven't looked at the legal implications just yet. It's not something that I want to deal with any degree of urgency just yet either. We have dealt with it in terms of the financial treatment of that and at some point or another, we are going to sit down, myself and the executives at Village and we will have a discussion about it.
Adrian Hammond - BNP Paribas Cadiz
Allan Cooke - JPMorgan
Niël, it's Allan Cooke from JPMorgan. The Village share that you currently have, not the shares in escrow, what is the status there? Is there anything preventing you from distributing or selling those shares currently? If not, why are they classified as non-current investments on your balance sheet?
There is nothing preventing us from selling them. Craig, you could maybe elaborate on the accounting treatment.
The treatment is available for sale of instruments but yes, they would be help under non-current because there is no plan really to sell them at this stage.
Allan Cooke - JPMorgan
So you are not selling them immediately but okay.
There is no restrictions on the 65 million of the 85 million.
Allan Cooke - JPMorgan
Yes, and that's the 34.1 million that you are now showing in non-current investments.
Full 85 million shares are shown there.
Allan Cooke - JPMorgan
The full 85 million. Great. Then, just the stages at play for. I know you haven't spoken with the Village price there but perhaps from the shareholders perspective, is there any risk of contingent liability through the play for liquidation process and what's the quantum there of these?
Allan, I don't think so. Without getting involved in discussion as to what lies where, I think our position has been very clearly stated in the sense announcement that we brought out a while ago and I am confident that that statement is solid but continuing liability is something that depends to a large extent on what is provided for in the Companies Act there. because remember Blyvoor is a legal entity. So even before you wonder whether, even Village at this stage, is carrying some sort of contingent liability, you have to go and look at what the Companies Act says with regards flows through responsibility and flow through liability.
The last time that I looked, I think Village, said in a statement that they advanced a ZAR 190 million into Blyvoor over the last 12, 13 months. Liability, at least, when I used to be a lawyer and that long time ago, so I have probably forgotten most of what I was taught, but in those days, and Themba you can correct me if I am wrong, there would be liability on the part of the controlling entity.
If it is shown that the independent legal personality of the subsidiary was abused to the advantage of the parent and to the detriment of other creditors and ZAR 190 million investment into this entity in order to build it, in order to stabilize it and so forth, that is not indicative of the abuse of cyclical personality. So penetrating the corporate veil in the first instance here, I think, is going to be very, very long shot. I would rather be the lawyer on the defendant side than on the plaintiff side on this one.
Allan Cooke - JPMorgan
Okay, thanks. Then, maybe just finally the guidance. I think through the presentation you gave us some indication but in terms of you volumes, I think you said, your yield 0.2 gram a ton, your CapEx expectations. Are you still that targeting 140,000 to 150,000 ounces for financial year 2014?
I think we can be a little bit more robust in our target. So there will be, but Charles says no. Yes, a 140,000 to 150,000. You caught my eye there.
Allan Cooke - JPMorgan
So should we be factoring 140,000 to 150,000, so two million tons per month, 0.2 gram a ton recovered and then CapEx, what, ZAR 220 million, I think you said?
No, we are looking at much less than that. I think its ZAR 130 million sustaining capital and then there is about ZAR 80 million of the flotation fine grind which will rollover into this year. Just carry over. It is a timing issued. Some of the capital spend will still happen into this financial year. For all intents and purposes, yes, capital is going to around ZAR 130 million, the new capital.
That includes, also the project that Niël mentioned. The gray water project that 20 million of that is going to be sourcing, I believe, cheaper water into the circuit. Then there is no reason why we can't make a sound on the gold this year than last year, at least 145,000, other than external dynamics.
Okay. There's a question from Jana Marais from Sunday Times with regards to the issue at Blyvoor. Whether we foresee legal disputes as Village for other parties?
I really can't say. There hasn't been any indication at this stage. It is really based though, I suppose it depends on the sort of pressure that supply. There will be legally issue or a legal dispute could be manufactured if there is some of a pressure point that gets pushed out enough and a lawyer who is ambitious enough to take the brief.
Employees are obviously anxious, I would imagine, because whether or not they get paid in that regard, I suppose the only comment that I can make at this stage is that the old employee trust was established by the former DRDSA that's now called Ergo Mining Operations distributed ZAR 6 million in dividends into the trust that's still being held into the trust. Some of the Blyvoor employees would be entitled to a distribution in the event that the trustees decide to do a distribution.
So I suppose, from a hardship perspective, there is an expectation, I think a legitimate expectation on the part or they could be on the part of Blyvoor employees to look towards their trustees and ask that some of the dividends that have been paid over the years are distributed. But obviously that would be an issue between the employees and the trustees.
But there is also a question about the new order mining right and permission from the Minister. I do believe that there was a base set for the conversion of the new order mining right but that there was an administrative hiccup. That has been on and off for the year for the role for the execution of mining rights since November of last year. This is something that we would want to investigate with Village Main Reef because obviously, those communications would have been with Village Main Reef.
All right then, David Pleming from Tantalum, so could we get a bit of handle on the costs below the line, i.e., C-1 costs for financial year '14 and beyond? Craig, I think this is probably the sort of thing that you would have to have a look at. I will hand the seat just now. Then, Paul asked, please give your opinion on how see this around the strike action ending and the implication this will have of the rand?
I think the strike will rather be decent in our corner of the little corner of the universe, the negotiations are certainly not as hostile as we had feared initially, on the contrary there might be in the public demand, I need to be a little bit hostile but we have experienced them to be quite civil and I don’t know if we are that far apart. I am not really in a position to comment on the rest of the mines. I know that some of the executive's have taken very firm position on where they would go and where they would not go.
But then typically they would have operations where there is competition between the unions and they need to be seen to take a very firm position and I think if I have been in a similar position, I more than likely would have taken exactly the same kind of position. If there are three or four parties around the table and they are competing, then at the very least, they know more or less, they need to know not just more or less, they need to know absolutely where they stand with regards to management and management position, so that they can get it over and done with. If at all they want to do go on strike.
But as I said, in our little corner of the universe, I am hopeful that we are not too far apart. Craig, do you want to have a look at David Pleming's question?
I just don’t know what he means by all-in below the line but I assume he is talking about all-in sustaining costs, which would be fairly in line with this but with inflation increases.
I am not surprised that it is not something that Allan has already asked.
The low C-1 costs? Yes, I am not sure what that is, but I mean, all-in sustaining costs will be pretty much in line with this year. Maybe slightly up because of inflationary increases. Then we have already mentioned that we have covered the capital guidance for next year.
All right. Well, thank you very much, everybody. We are going to be around for a bit still. So if there are any more questions, we would be happy to take them and also please make use of the opportunity to shale our Chairman's hand, and see who has being driving it from behind the scenes. Thank you very much.
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