Record bullion prices create 7-fold jump in DRD’s profits

DRDGold is preparing to report a seven-fold jump in profits in the year to the end of June on the back of record gold prices that have bolstered its liquidity position Photo: Simphiwe Mbokazi/African News Agency (ANA)

DRDGold is preparing to report a seven-fold jump in profits in the year to the end of June on the back of record gold prices that have bolstered its liquidity position Photo: Simphiwe Mbokazi/African News Agency (ANA)

Published Aug 27, 2020

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JOHANNESBURG - DRDGold is preparing to report a seven-fold jump in profits in the year to the end of June on the back of record gold prices that have bolstered its liquidity position and offset the impact of production disruptions related to the Covid-19 pandemic.

DRDGold, which mines old mine dumps around Johannesburg, told investors it expected headline earnings per share to rocket to 82.4cents from 10.9c per share and earnings per share to accelerate to 82.5c from 11.8c a year earlier.

The group said revenue spiked 52percent to R4.18billion from R2.76bn last year on strong performance from the Ergo plant and Far West Gold Recoveries (FWGR).

It said FWGR’s revenue surged to R1.12bn from R184million a year earlier, and the Ergo plant generated R3.06bn from R2.57bn in 2019.

DRDGold said that record gold prices had helped to cushion the impact of production disruptions due to the national lockdown.

“At Ergo, the 33percent increase in the rand gold price received offset an 11percent decrease in gold sold, which was as a result of a 3 million ton decline in volume throughput to 20.2million tons, due mainly to the Covid-19 national lockdown in South Africa and interruptions in power supply from Eskom and the City of Ekurhuleni,” said DRDGold.

The group said FWGR enjoyed its first full financial year of Phase I production, taking full advantage of the higher gold price.

DRDGold recorded R1.715bn in cash and cash equivalents, up 514percent from R279.5m a year earlier. The group has a R175m revolving credit facility with Absa, which is available if needed. The company continued to be free of any bank debt.

“Liquidity is further enhanced by current high rand gold price levels,” it said.

DRDGold has outperformed the market and is up 206percent in the year to date on gold’s lustre as an investment hedge amid the uncertainties resulting from the Covid-19 pandemic.

The gold price has risen almost 30percent this year, helping to brighten the fortunes of the gold industry.

However, the group’s cash operating costs increased 8percent to R2.62bn from R2.42bn a year earlier, largely due to the inclusion of the additional cash operating costs of FWGR for the full financial year.

DRDGold said the increase of 8percent in cash operating costs was a reflection of the 8percent increase in the total volume throughput, with cash operating costs per unit being stable at R100 a ton.

The group’s operations were temporarily shut on March 26 on the announcement of the national lockdown and resumed in early April.

DRDGold is scheduled to publish its financial results on Tuesday.

Investment analyst at Anchor Capital Seleho Tsatsi said that DRDGold was in a great position.

“The company has no debt and has no hedges, so it is fully exposed to the currently strong gold price. Covid-19-related lockdowns unfortunately impacted production volumes and thus earnings. The sector as a whole will be looking to ramp production back up towards full capacity as soon as possible,” said Tsatsi.

DRDGold rose 3.54percent on the JSE yesterday to close at R24.25.

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