Despite a 5% decrease in gold production, DRDGold reported a 14% rise in operating profit in the year to end-June as the group benefited from skyrocketing gold prices.
DRDGold on Wednesday reported 4% growth in headline earnings per share (HEPS) to R1.33bn, while group revenue rose 14% to R6.2bn, driven primarily by a 20% increase in average gold price over the period.
The group has benefited from the rising gold price over the past year, particularly in 2024 as many investors expect the Federal Reserve to begin cutting interest rates in September.
Furthermore, tension in the Middle East led to higher demand for safe-haven assets, while economic uncertainty led to robust central bank buying.
While the higher gold price bolstered DRDGold’s financial performance, the group underperformed operationally.
Gold production was down 5% for the year due to a 3% reduction in throughput, which led to a 2% lower average yield.
Most of the operational losses came from the Ergo subsidiary, where gold production fell 7% for the period due to the late commissioning of two mining sites, unanticipated design amendments by the water and sanitation department and community-related disruptions.
The diminished output also led to cash operating unit costs rising 20% for the period, while all-in sustaining costs were 14% higher. Additionally, a 14% rise in cash operating costs meant the group’s operating margin remained virtually unchanged at 33.4%, despite the revenue growth.
DRDGold CEO Niël Pretorius said: “Our performance this year should be seen in the context of the transition that DRDGold is currently undergoing to reposition for the future.
“In order to make this happen, we had to establish a platform to support an aggressive capital reinvestment programme to create the capacity infrastructure to realise our vision for [financial year] 2028 and beyond.”
The group has also invested in renewable energy to supplement its power supply from the national grid, commissioning a new solar plant at Ergo in the past year, which provides 60MW of additional generative capacity.
“Ergo’s near- and medium-term outlook, with its newly commissioned reclamation sites and the added benefit of 60MW of renewable power, is positive and it is well positioned to deliver on its strategy to add at a capital cost of approximately R3.1bn, funded substantially from ongoing operations, potentially another 14 years of production,” said Pretorius.
DRDGold expects capital investment of R7bn over the next five years at its other site, Far West Gold Recoveries. potentially extending the mine’s life by 25 years. Pretorius said capital investment in both sites would drive the operational transition it sought for the coming years.
“While the buoyant gold price is welcome, the construct of our cost profile is changing to offer better resilience should the cycle turn. Key drivers in this regard include decreasing the complexity of our operations by systematically reducing the Ergo operating footprint from 15 sites to five, lower energy costs from the solar plant, and a reduction in mechanised lifting and haulage of reclamation material.”
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