SA gold producer DRDGold has cut its dividend by a quarter for its year to end-June, hit by lower prices and higher costs, while also flagging numerous challenges for those in the industry.
The company, which specialises in the production of gold from the retreatment of surface tailings, reported on Wednesday that headline earnings were down 22% to R1.1bn to end-June and operating profit decreased by a similar margin. The group declared a final dividend of 40c per share, bringing the total dividend for the year to 60c, down from 80c previously.
The drop in earnings was ascribed to double-digit increases in operating costs and the impact of several challenges within the operating environment.
CEO Niël Pretorius said gold production was stable compared with the previous year at 183,900 ounces despite many challenges that the gold producer had to face this year, much of which pertains to its geographical operating footprint in SA.
Group cash operating costs were 11% higher at R600,875/kg because of rises in the cost of key consumables such as diesel, steel and cyanide, Pretorius said in the results. Meanwhile the rand gold price it received decreased 3% to R894,409/kg.
He pointed to a litany of challenges associated with operating a business in SA, highlighting the theft and decay of infrastructure for power supply, labour unrest, deteriorating service delivery and the “seeming lack of concern [from] those responsible for the safety and security of lives and property in our country”.
Referring to the latest Fraser Institute report that flags SA as the fourth-worst mining jurisdiction out of 185 surveyed internationally, Pretorius said, “This does not mean that it is impossible to thrive in this jurisdiction — it simply means that the standard of political governance is not such that it enables and promotes business.”
Doing well
Speaking to Business Day, Pretorius said that while the Fraser report is probably correct in its assessment of the role of the state in creating an environment conducive to investment and doing business in the mining sector, it does not provide an accurate reflection of business potential in SA.
“There are just far too many businesses doing really well,” he said.
But, he added, “one shouldn’t be waiting for things to change; there is lots of value to be released in SA, but you have to be proactive”.
“To do well in SA requires that businesses face up to the reality of their environment, ‘make a plan’ and build internal capacity and redundancy.”
To this end, over the next year, DRDGold will be investing in its own, renewable power supply.
“For commercial and environmental reasons, we are taking the plunge and will be spending about R500m this year on implementing solar power and power storage,” said Pretorius.
This first phase will entail the installation of 20MW of solar power at its Ergo facility in Brakpan, but ultimately the company wants to grow this to about 60MW.
Gold production at Ergo, one of two subsidiaries owned by DRDGold, was 3% lower due to heavy summer rainfall that disrupted material reclamation, and power cuts caused by copper cable theft and unscheduled load-shedding by the City of Joburg that adversely affected operations at Ergo’s City Deep plant.
At its other subsidiary, Far West Gold Recoveries near Carletonville, west of Johannesburg, gold production increased 7% year on year due to an 8% increase in yield during the retreatment process.
The company expects production for 2023 to be lower than actual production for 2022, at 160,000-180,000 ounces, with cash operating costs at about R685,000/kg.
By the JSE’s close on Wednesday DRDGold’s share price was little changed at R10.45. It has fallen by about 21% so far this year.
Update: August 24 2022
This story has been updated with additional information.
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