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DRDGOLD reports near R1bn operating profit despite 7% production dropoff

DRDGOLD CEO Niël Pretorius

DRDGOLD CEO Niël Pretorius

14th February 2024

By: Darren Parker

Creamer Media Contributing Editor Online

     

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Despite its gold production for the six months to December 31, 2023, having decreased by 7%, owing to a 13% drop in throughput, DRDGOLD managed to return an operating profit of R909.3-million, with cash operating costs of about R2-billion.

CEO Niël Pretorius, during the company’s interim financial presentation on February 14, stated that the lower throughput resulted from delays in commissioning two high-volume sites owing to community issues and regulatory approval delays. Consequently, the company had to compensate tonnages from several legacy and clean-up sites.

DRDGOLD had fallen behind in starting up new reclamation sites to replace high-volume sites that had recently depleted. In 2022 and 2023, three major production clusters contributing 25 000 t/d reached their end-of-life. They were supposed to be replaced by four new sites scheduled to operate from October 2022 onwards to ensure a smooth overlap and steady throughput. 

However, delays in processing water-use licences on two sites, appeal proceedings lodged by a community forum on a third, and community-related interference with the construction of a pipe-column at the fourth site caused delays.

“The 2023 calendar year became a scramble to source material from legacy and clean-up sites. The higher-grade material from these legacy and clean-up sites partially offset lower throughput, and the commissioning of the high-grade Valley Silts and high-volume Rooikraal site brought some relief midway through the 2023 calendar year,” Pretorius explained.

However, with the delays resolved in the latter part of January this year, Pretorius said the remainder of the 2024 financial year looked far better from a throughput perspective.

“The rate at which we processed closure and legacy sites in 2023 means that a large portion of this work has now come to an end, which, in practice, means fewer yellow machines and trucks moving earth, less diesel and, therefore, lower total costs,” he said.

The company’s revenue increased to R2.9-billion for the period on the back of a 22% increase in the rand gold price to R1.17-million a kilogram.

“The gold price has been very good. And that, I think, has brought some welcome colouring to these results,” Pretorius commented.

For the period, about R1-billion was reinvested in capital infrastructure, with cash and cash equivalents reduced to about R1.5-billion, down from about R2.4-billion on June 30 last year, while the company remained debt-free as of the end of the year.

The bulk of the capital expenditure paid for the new 60 MW solar power plant at Ergo. Pretorius said the effect of the company’s new solar power plant on costs would become more apparent as the year progressed. The installation of the plant should be finished by the end of March, and the accompanying battery storage system by the end of October.

Pending the tie-in of the plant with the 88 kV substation at the Brakpan/Withok tailings storage facility (TSF), the company is not drawing more than the 14 MW required by its Ergo plant. 

However, once the switchover is completed, which Pretorius said was imminent, power would also be fed into the Brakpan substation and surplus power into the Eskom grid. By October, DRDGOLD hopes to have the 160 MW power storage facility in place to take full advantage of the power generated.

“We are therefore 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,” said Pretorius.

Its next big capital investment project is Phase II of Far West Gold Recoveries to double plant capacity and build the 800-million-ton regional TSF for which regulatory approvals are imminent.

“We are taking the learnings from the last two years in terms of licensing into this process, to better anticipate the requirements of the regulator, ensuring that our turnaround times improve while holding the regulator to the timelines that it is required to work to,” Pretorius said.

He noted that a big improvement compared with the situation in 2018 was the fact that very senior officials of the Department of Water and Sanitation were now making themselves available for pre-submission conversations and were prepared to share the standards and conditions they required in submissions.

“We are already seeing a big improvement in turnaround time, and these engagements seem altogether more constructive. There is also keen awareness among senior management and our project consultants in respect of the scale of what we are taking on, and its strategic significance,” Pretorius said.

DRDGOLD still expects output within its guided range of between 165 000 oz and 175 000 oz for the 2024 financial year, albeit towards the lower end of the range. The company has revised its guidance for cash operating costs up to R800 000/kg from R770 000/kg and total capital investment to R3-billion.

Headline earnings were 68.4c a share, and the company declared an interim dividend of 20c for the period, matching the interim dividend year-on-year.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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