DRDGold shares slumped 1.86percent on the JSE yesterday to close at R7.38.
The group said in a trading statement that the earnings per share would now be expected to be between 0.17 cents and 1.03c per share, down from 4.3c per share as compared to 2015.
It said it also expected a headline loss per share to be between 2.66 and 2.14c per share compared to headline earnings of 2.6c per share in 2015.
Jordan Weir, an equities trader at BayHill Capital, said the results pointed to factors that had also been experienced by DRD’s peers.
He said the gentle fall in the gold spot price at the end of the fourth quarter in 2016, as well as the almost 9.5percent strengthening of the rand against the US dollar, had also impacted on the company’s performance.
“This directly affects profit margins on the business when the all-in sustaining costs (cost of extracting the gold from the ground) and general operating costs are squeezed higher,” said Weir.
Weir said that DRDGold was also affected by the shutting down of various Crown sites and the relocation of numerous business.
He said that these gave rise to retrenchment costs as well as the accelerated write-downs of certain assets that were involved in the company’s Crown projects.
“These costs are expected to last until at least the third quarter of 2017,” he said.
“The stronger rand versus the dollar drives up both DRD’s operating and labour costs and then inversely drives down the profit margin as gold companies operate in dollars.
“Another reason is the nature of their business model. Profit margins tend to be smaller than those of their peers due to their business model.
“They specialise in the retreatment of surface gold tailings (dumps) from closed mine operations.
“As they are highly leveraged to the underlying gold price with smaller margins, any negative fluctuation in currency or gold price has a direct impact on the bottom line.”
Weir said the the dividend the company paid was another factor.
“After taking all the above mentioned factors into mind, DRD are famously known for paying a well-respected (nine year running) dividend, which naturally skims further earnings off whatever profit the company has left after currency and metal fluctuations as well as any other operational expenses/write offs.
“In 2016 they paid a R52million (7.02percent dividend yield), and they are globally known for their respectable treatment of shareholders within the mining world.”