DRDGOLD announced a 25 cent per share interim dividend, but said it had retained cash generated during a stellar reporting period in order to expand the business including a push into reprocessing of platinum group metal (PGM) dumps.
It also said it was “full steam ahead” on the second phase of its Far West Gold Recoveries (FWGR), assets that it bought with shares from Sibanye-Stillwater, the latter exercising an option during the period under review to take its stake in DRDGOLD to 50.1%.
It’s highly likely, therefore, that Sibanye-Stillwater will play a role in DRDGOLD’s PGM growth strategy as it’s the world’s largest PGM producer.
Niël Pretorius, CEO of DRDGOLD, said in comments to the firm’s interim results announcement that he intended to “start the conversation on our moving into the reprocessing of PGM dumps”.
DRDGOLD reported interim headline share earnings of 48 cents which compares to a 7.2c/share loss in the comparative period last year. This was down to a 26% increase in the rand gold price and a significant 33% lift in gold production to 97,642 ounces.
The operating margin increased to 34% compared to 8.2% in the previous period suggesting the business was highly cash generative and looks set to remain so given the prognosis on the gold price and weak outlook for the rand against the dollar.
Despite this, however, DRDGOLD’s board was conservative in its payout. Commenting on the dividend, Pretorius said the company had entered “… a new phase of pursuing high growth projects which will require specific amounts of capital expenditure.
These projects include the expansion of the Brakpan/Withok Tailings Storage Facility at DRDGOLD’s Ergo plant on the East Rand, as well as FWGR.
“DRDGOLD believes that it is appropriate to retain some of the cash generated by its operations and apply this retained cash towards the capital expenditure that will be required by these potential future projects,” he said.
DRDGOLD would have on a cash pile of around R1.4bn following payment of the 25c dividend just declared, said CFO Riaan Davel in an interview with Miningmx.
DRDGold had received around R1.1bn from Sibanye-Stillwater through the purchase of shares to bring its stake in DRDGold to a controlling 50.1%. In addition, the company had R543m of its own cash as of end-December of which around R210m would be paid out in terms of the interim dividend.
Davel was unable to give a precise figure on the total cost of expanding DRDGold’s new Far West Rand Gold Recoveries (FWGR) project to its final size commenting: “It’s many billions of rands. We are presently carrying out studies firming up on items such as the central processing plant and also looking at other options”.
He defended the decision to hold back about 50% of the R406.6m generated in free cash flow during the six months to end-December saying the money was needed to help fund the second phase expansion of the FWGR project. The first phase of the FWGR was from one high-grade resource which was very profitable. “Some of that must be used to pay for development of the bigger project.”
Turning to the security situation – in the aftermath of the October raid by a heavily-armed gang on the Ergo gold plant in which security official Bart Coetzee was killed and other employees taken hostage – Davel said this had caused DRDGold to drastically overhaul its security measures.
“The attack by a gang of 30 men armed with AK-47 rifles had a negative effect on employee morale. We have responded with more visible security with, for example, guards accompanying people coming on shift and going off shift.
“We have also decided at times of high risk in the plant to keep a heavily armed tactical security team trained to handle such a situation on site. So we responded very specifically as most other gold mines have done and we are looking at other security options for the future such as the plans to build a second gold plant for Phase 2 of the FWGR.
“That’s clearly a risk and we are looking at how to design that plant so as to respond to that as best we can. This is organised crime. The whole mining industry is looking to see how can we collaborate and, hopefully, the police can come on board as well.”