DRDGold reinvests R1bn after operating profit windfall

Ergo’s bullion output during the half year period declined 6% to 1884 kilograms. Picture: Supplied

Ergo’s bullion output during the half year period declined 6% to 1884 kilograms. Picture: Supplied

Published Feb 15, 2024


GOLD miner DRDGold has reinvested R1 billion of cash generated in the half year period to the end of December into capital infrastructure, reducing cash and cash equivalents on its books to R1.5bn compared to R2.47bn a year earlier after growing revenue from R2.6bn to R2.9bn.

Although production of gold for the interim period under review fell 7% to 2 547 kilograms, the company benefited from an uptick in the rand price of bullion, translating to an increase in revenue generation.

DRDGold resultantly posted a 15% increase in operating profit to R909.3 million after costs after a 19% surge in all in-sustaining costs to R945 899 per kilogram. The rand gold price received by the company for the period was however 22% stronger at R1 173 245 per kilogram.

Despite the company’s interim headline earnings improving from R535 million in the 2022 December half year to R589.3m in the period under review, shares in DRDGold were nearly unchanged, inching up by 0.22% to R13.60 in afternoon trade on the JSE.

“We were in a position to make up tons from a number of legacy and cleanup sites than in the past. So while the bulk production is down 7%, the volume of throughput numbers were down by 13%.,” CEO Niel Pretorius said at a results briefing of the company yesterday.

After reinvesting about R1bn into capital infrastructure, including paying for a solar power plant at Ergo, the company will pay a 20 cents per share interim dividend for the period as it still has R1.5bn in cash and cash balances. DRDGold remained bank debt free as at the end of the review period.

Ergo’s bullion output during the half year period declined 6% to 1884 kilograms, attributable to “a decrease in tonnage throughput stemming from the continued reclamation of legacy and clean-up sites and reduced third-party material being sourced” at Knights. There were also significant delays in obtaining a water usage permit, the the license subsequently secured in January 2024.

There were also community-related disruption to the construction of a pipe-column that led to production from one of the sites at the operation being delayed until late January 2024.

However, the decrease in tonnages from Ergo was offset by yields which increased by 15% to 0.233 grams per ton. Reclamation of remnant material on the legacy and clean-up and the reclamation of high-grade material at Valley Silts contributed to the higher yields.

At the Far West Gold Recovery Proprietary Limited (FWGR), production was 10% lower at 663 kilograms. DRDGold has attributed this to “lower head grade and lower yield achieved in the reclamation” of Driefontein 3, a new major site, compared to material previously processed at Driefontein 5.

Yields from the operation were resultantly down by 12% to 0.215 grams per tone while cash operating unit costs quickened by 39% to R457 620 per kilogram.

“Electricity costs have 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 were higher due to the continued clean up of Driefontein 5 and increased diesel prices,” the company said.

With the Ergo solar power plant set to come on stream this year, DRDGold is expecting to realise cost savings in diesel previously used to power up generators in period of power outages by Eskom.

By October 2024, DRDGold hopes to have the 160MW power storage facility in place and to take full advantage of the power it generates as the excess wattage will be fed into the Eskom grid.

“We are emerging from the frustrations and disruptions of 2023 very well positioned for the near term to take advantage of a still very favourable gold price climate.”

The next big capital investment project for DRDGold will be Phase II of FWGR aimed at doubling capacity from the Driefontein 2 Plant as well as building up the 800 million ton regional tailings storage facility.

Market analysts say DRDGold’s performance for the half year was “overall positive, with double-digit earnings growth despite inflationary” pressures. They added: “Higher gold prices are benefiting DRDGold’s top line, cushioning the impact of temporary mine delays.”