[miningmx.com] – DRDGOLD shares jumped nearly 10% on the JSE on Tuesday morning after the announcement of a 12 cents a share interim dividend accompanied by strong indications from CEO, Niel Pretorius, that there was plenty more to come over the next two years at least.
Describing DRDGold as an “aggressive dividend payer”, Pretorius told Miningmx – after his presentation to investors at the JSE in Sandton – that: “… our margins are now more than R140,000/kg of gold produced higher at this stage than they were eight weeks ago.
“That’s an extra R150m in revenue every quarter assuming this situation holds up and we don’t have any calamities. Our philosophy has not changed which is to return surplus cash to shareholders and we don’t have any near-term projects that require significant capital.
“We are looking at a project to extend the life of mine at DRDGold beyond the current seven year estimate to 20 years, but that’s some considerable distance into the future. It’s a conceptual study at this stage. So that means we will have more money to distribute to shareholders.”
Pretorius said a feasibility study on the extended life project – which would see DRDGold maintaining gold output through the treatment of greater volumes of lower grade material – was due to be presented to the board in two years time.
Asked about the inevitable increase in costs as South African inflation caught up to the higher gold revenues Pretorius said he believed this was not likely to be as marked as in the past because of changes in the pricing of consumable materials like cyanide and steel to an ‘export parity’ pricing system as opposed to the previous ‘import parity’ arrangement.
“There are two things that could potentially hit us hard. One is pressure on wage increases because of expected inflation in food prices and the second is a jump in the dollar price of oil.
“If the dollar oil price goes up significantly South African fuel prices could jump because of the very weak rand. If that happens the entire economy would see fairly steep inflation,” he said.
Despite this, Pretorius said DRDGold with its surface retreatment operations was in a better position to control cost increases than conventional underground gold mines.
He commented: “The two things that are going to go up a lot are power and wages. Those make up 75% of the costs on a conventional mine. For us, they amount to less than 50%. We use significantly less of both in our operations.”
But Pretorius cautioned that “… despite this, we are not an island. We can be affected by industrial relations strife in the industry and that’s one of the key risk factors that we will retain cash to counter.”
