DRDGOLD keeps powder dry for R3.5bn three-year spending spree from 2021

Niel Pretorius, CEO, DRDGold

DRDGOLD paid a 35 cents final dividend capping an extraordinary year of production disruption, sky-high gold pricing, and corporate developments in which Sibanye-Stillwater became the firm’s 50.1% controlling shareholder.

As flagged in a detailed trading statement, headline earnings for the year ended June 30 came in significantly higher at some R634.5m compared to R72.7m previously. Headline share earnings were 82.4 cents compared to 10.9c/share in the 2019 financial year.

Including the interim dividend, the total dividend for the year was 85c/share – a level that  CEO Niël Pretorius defended notwithstanding some R1.72bn in cash on DRDGOLD’s balance sheet as of June 30, an increase year-on-year of roughly R1.5bn.

The company had received just over R1bn from Sibanye-Stillwater in terms of its option, announced in January, to buy control of DRDGOLD. “That R1bn is capital invested for Far West Gold Recoveries (FWGR) starting next year and onwards,” said Pretorius in an interview following publication of the results.

“It’s one of the best dividends in the industry and it represents the right blend of conservatism and judgement,” he said. The risk of further disruption from the Covid-19 pandemic could also not be discounted, whilst spending on community and environment would only likely increase in the current environment.

Said Pretorius of shareholder returns: “Hopefully, shareholders have also understood the share and bought shares on the way up.” Shares in DRDGOLD have increased four-fold during the last 12 months: the company is currently capitalised at R22bn.

In return for control, DRDGOLD incorporated mined gold reserves adjacent to the Driefontein and Kloof mines of Sibanye-Stillwater which extend its life of mine and provide operational flexibility. Phase one production is already underway – FWGR contributed about 46,000 ounces of DRDGOLD’s 174,386 oz for the year (up 9% year-on-year) – whilst a second phase expansion at a cost of R2.5bn to R3bn will take monthly processing of mined ore from 500,000 tons to as much as two million tons depending on the expansion route, said Pretorius.

“We will start spending that money in about a year from now for a three-year period. We are waiting for licensing [from the South African government]. We also have a spending programme at Ergo,” he said of DRDGOLD’s other main operating asset.

DRDGOLD has budgeted production in the current financial year of 165,000 to 185,000 oz at an all-in sustaining cost (AISC) of R535,000 per kilogram. The AISC for the year under review was R541,475kg, an increase of 3% year-on-year.

Pretorius was sceptical the current clip in the gold price could be maintained. “Something that goes up so quickly can also come down very quickly,” he said, although gold’s recent bounce after falling about $150/oz to $1,900/oz was encouraging.

“I can be persuaded that the gold price has rebased. I think there is a case for that,” he said. Shares in DRDGOLD were nearly 5% higher on the Johannesburg Stock Exchange in early Tuesday trade.