Earnings in DRDGold for the half-year period to end December 2023 are expected to spring up by between 5% and 15% after beating inflationary pressures and benefiting from higher gold prices that muzzled the impact of temporary mine delays.
DRDGold reported in a trading update yesterday that its earnings per share and headline earnings per share for the period under review are likely to amount to between 65.3 cents and 71.5c compared with 62.3c over the same period a year earlier.
Market analysts said yesterday that DRDGold’s performance for the half year was “overall positive, with double-digit earnings growth expected despite inflationary” pressures. They added: “Higher gold prices are benefiting DRDGold’s top line, cushioning the impact of temporary mine delays.”
Interim revenues quickened 12%, or by R319.9 million, to almost R3 billion. There was R234.5m more in revenue from DRDGold’s Ergo mine at R2.1bn mainly due to a 22% increase in the rand gold price received.
The higher gold price for the period beat an 8% decrease in gold volumes sold at 1 872kg as a result of decreased throughput tonnage.
The decrease has been attributed to “ongoing delays in the regulatory approval for 4L3 and community interference in respect of 5L27, and Ergo having to rely on legacy and clean-up sites” to make up tons.
“The impact of the decrease in throughput tonnage was offset by a 15% increase in yield to 0.233g/t from 0.203g/t in 2022,” the company said.
Revenue from its Far West Gold Recoveries Proprietary Limited unit increased by R85.4m to R781.2m. The 22% firming in the rand gold price during the period offset the mine’s 8% decrease in gold sold to 663kg.
DRDGold has attributed the lower gold sales volumes for the period from the operation to lower head grades from the new Driefontein 3 site than that of the depleted Driefontein 5 site. This resulted in a 12% decrease in yield from 0.245g per ton in 2022 to 0.215g per ton.
While the company overall had an increase in revenue, its impact on earnings and headline earnings was moderated by an increase in group cash operating costs of R257.5m, which are 14% above prior year period at about R2bn.
At Ergo, cash operating costs increased by R197.8m, or 12%, to R1.8bn due to double-digit increases in machine hire costs and contract reclamation costs. Increased diesel prices also had a weighing impact.
At Far West Gold Recoveries, cash operating costs increased by R59.8 million, or by about 24%, to R305.1m due mainly to increases in reagent usage, especially lime and steel balls. These had been used in response to the increased acidity and coarser material reclaimed from Driefontein.
Electricity costs also increased as a result of the reclamation of Driefontein 3 and the installation of a high shear agitator at the Driefontein 2 Plant to release more gold. Machine hire costs also crept up because of the continued clean-up of Driefontein 5 and increased diesel prices.
This meant that cash expenditure on capital projects increased by a massive 177% to R1bn during the interim period to December. DRDGold established a solar power plant at Ergo which is scheduled for completion next month.
The rising input costs, especially energy, were “weighing on cash margins” for the company, analysts said. “The solar plant investment, while weighing on free cash flow now, should boost cost savings and sustainability later,” they added.
Nonetheless, by the end of the period under review, DRDGold had R1.5bn in cash and cash equivalents compared to R2.4bn a year ago. It also operated on a free cash outflow of R370.8m after a R685.7m increase to R1.1bn in investing activities and paying cash dividends of R559.4 million.