DRDGold CEO Niel Pretorius has delivered on the promise made in February that the dump retreatment company would be an “aggressive” dividend payer with DRDGold paying out R261m from its total free cash flow for the year to end-June of R308.7m.
Dividends totaling 62c a share were declared which makes an attractive 7.3% yield on the current share price of 850c but DRDGold shares have been extremely volatile over the past 12 months soaring more than 8 times from a low of 150c to a high just above R12 before pulling back to current levels.
The shares really lifted off from around 250c in January ahead of the first interim dividend declaration so, assuming an investor bought in at 250c and still holds the stock, then the yield on the shares is a mouthwatering 24.8%.
But, in his results presentation held at the JSE in Sandton today, Pretorius was at pains to caution investors dabbling in DRDGold stock warning them about unexpected trading volatility not linked to the company’s performance.
“Personally, I would like DRDGold to be the kind of stock that you can stick in a drawer and forget about but it is not that. If you are an astute investor – a professional, and this is probably the domain of the professional because I don’t think amateurs should be dabbling in this – you can make money on either side.
“We know our shares respond to a variety of things other than the performance of the business. This is something I need to get off my chest because I have been getting some emails from investors who are not professionals. They probably bought at the high end and they are hurting now.
“I don’t think they fully appreciated the volatility of the stock and the way it is connected to various things other than the performance and fundamentals of the business.”
DRDGold has performed well at the operational level over the past 12 months but major movements in the share price have been driven by what Pretorius described as “events” – in particular the collapse of the rand after the removal of former finance minister Nhlanhla Nene in December and then the unexpected outcome of the “Brexit” vote in the UK in June.
Pretorius has commented on DRDGold’s price volatility before. In February last year he pointed out the share price was being determined largely by speculative investors in New York because “value investors” had sold out of the stock in response to DRDGold’s then poor track record.
He said at the time it would take “three or four good quarters of making money and good operational performances with no surprises “ to get value investors interested in DRDGold once more. “
DRDGold has now delivered that kind of performance over the past 18 months but Pretorius noted that, while the share register showed more institutional investors were buying into DRDGold, “ they were acting like retail . “
Pretorius said it would be “tough” for DRDGold to beat its 2016 financial year performance in the current 2017 financial year. He estimated total gold production “at the lower end” of a target range of 145,000oz to 150,000oz for the year and said management’s message remained consistent in that “if there is free cash flow it will be distributed to shareholders.”
The issue is not DRD or the investors – it’s about communication of key operational facts.
Pretorius will do everybody a favour by disclosing the tonnage processed, head grade and Met Recovery Factors for each dump processed in a given time frame and the remaining production life per dump. (As East Dagga used to do).
They should also make the CPR’s of their dumps available on their website.
The CPR’s were published in 2008 at the time that Mintails was bought out of Ergo, so it won’t cost them anything.
That way investors will be able to stop guessing where the grades are headed and make a more informed call on DRD.
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