JOHANNESBURG – DRDGold, which mines old gold dumps in Johannesburg, said yesterday that it would hedge its production as it announced improved production for the year to June 2018. 

The company said the hedge was necessitated by volatility almost a year after it acquired Sibanye-Stillwater’s West Tailings Retreatment Project (FWGR). 

DRDGold chief executive Niël Pretorius admitted the development of the first phase of FWGR would necessitate medium-term borrowings that would introduce some liquidity risk to the group. 

“To mitigate this risk, management traded a zero-cost collar to provide price protection against a possible decrease in the rand/gold price, while the borrowings will be in place,” said Pretorius. 

He said it would hedge 50 000 ounces of gold under a zero-cost collar with a floor of R565 000/kg and a ceiling of just under R609 000/kg, spread equally over the next nine months, and cash-settled at the end of each month. 

The first phase of the project, expected to get underway in the first quarter of 2019, involves the upgrading of the Driefontein 2 plant to process tailings from the Driefontein 5 dump at a rate of between 400 000 and 600 000 tons a month and depositing the residue in the Driefontein 4 tailings dam. DRDGold finalised the acquisition of FWGR in July. 

The project is expected to increase the company’s gold reserves by 82 percent. It announced plans to hedge as it reported that gold production for the year to June had increased by 10 percent to 4 679kg due to a 13 percent increase in the average yield to 0.193g a ton. 

The higher production resulted in a 38 percent improved operating profit to R355.2 million. Headline earnings per share were higher at 1.7 cents per share, compared with 0.2c per share in the previous year.

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