DRDGOLD’s R295 million cash balance at 31 December 2017 will reduce significantly after its subsidiary Ergo Mining Proprietary pays approximately R126 million to the Ekurhuleni Metropolitan Municipality (EMM) to ensure continued electricity supply to the large-scale Ergo tailings retreatment operation.

Ergo has been engaged in a legal dispute with EMM since December 2014 regarding the payment of surcharges on the supply of electricity. Ergo maintains that it is supplied electricity directly by Eskom and therefore liable to pay only the Eskom rates.

In May 2016, EMM threatened to cut off Ergo’s electricity supply unless Ergo paid its “arrears”, Ergo sought and was granted an interdict by the High Court preventing the municipality from enforcing payment, pending the court’s ruling on the main dispute between Ergo and EMM.

EMM appealed the granting of the interdict and on 29 August 2017 it was set aside by the High Court.

The R126 million, which has been held in an attorneys trust account pending the resolution of the dispute, is to be paid following a ruling by the Constitutional Court in response to a petition by Ergo for it to intervene, on the basis that the issue “did not engage the jurisdiction” of the Court.

The main case between Ergo and EMM is scheduled to be heard in the High Court on 5 December 2018. Today’s announcement by DRDGOLD says that if successful with this, Ergo will seek to recover the amount of R126 million, all surcharge payments made between now and the High court ruling, and a further amount of around R42 million in overpayments made to EMM prior to December 2015.

In a separate statement DRDGOLD said that this ruling will not affect the company’s approach to the payment of dividends, since the funds were held in a trust account and was dealt with by the company as restricted cash.