ACQUIRED by Sibanye-Stillwater with a view to building a strategic, long-term presence in the gold tailings industry, DRDGold now plays the arguably more important role as the under pressure group’s most valuable gold asset.
According to a report by RMB Morgan Stanley, higher gold prices stand to make DRDGold the largest contributor from gold to Sibanye-Stillwater’s Ebitda. This is more significant when seen against actual production.
Sibanye-Stillwater produces about 700,000 ounces a year from the Kloof and Driefontein mines,west of Johannesburg and Beatrix in the Free State. But the 180,000 oz/year tailings retreatment firm stands to comprise 16.7% of Sibanye-Stillwater’s Ebitda this year, equal to a R2.8bn contribution at current spot prices. This compares to DRDGold’s R1.7bn contribution last year comprising 8.5% of Sibanye-Stillwater’s total Ebitda.
Sibanye-Stillwater exercised a bargain R1bn option to increase its stake in DRDGold from around 38% to a 50.1% controlling stake in January 2020.
DRDGold’s increased contribution to Sibanye-Stillwater demonstrates just how powerful the rise in the dollar gold price has been. The metal tested a record high of $2,300/oz today. In rand terms, DRDGold is collecting R1.37m per kilogram of gold produced or 42,670 per oz – a 13% increase year-to-date and 19% higher over the 12 months.
Despite this, DRDGold’s share price is 7% down over the past 12 months. Niël Pretorius, CEO of DRDGold says the company has been penalised for “average” production numbers last year. Permitting delays resulted in 200kg (7,000 oz) less gold during the first six months of its 2023/4 financial year.
He also thinks gold shares are generally unrepresented in investors; portfolios relative to the performance of the dollar gold price. “There’s a lot of tension in gold shares at the moment,” he says. “At current prices, I’d be buying back shares.”
DRDGold is not alone in the gold sector for share price underperformance relative to the metal’s price. Shares in US firm Newmont, which endured a difficult 2023, and Barrick Gold, a Canadian gold miner, are 27% and 11% lower respectively over the last 12 months, seemingly defying the impact of gold’s meteoric rise, up 14% over the period.
