Bullion producer DRDGold has described market sentiment towards gold as “bearish”, saying technology stocks were “gobbling up” investments despite stronger gold fundamentals and a strong price last year.
CEO Niël Pretorius said at the company's financial results presentation for the six months ended December that the markets were not kind to gold stocks in that period.
He said that in the past when Western markets lost interest in gold because of higher interest rates and started selling, nobody bought it and it was in free fall.
“Whenever the West does that there are a whole lot of institutions and there are several governments outside that trading bloc, or alliance so to speak, that are keen to reduce their foreign currency holdings in dollars. They have been accumulating gold at a steady rate.”
Pretorius said while gold prices were influenced to a large degree by an appetite for gold outside London and New York, the price of shares was determined by market sentiment in the West. That was the reason for the significant disparity between gold companies' profits, revenue and margin, and their share prices.
“Compare that to some of the technology stocks, because that is where appetite now lies in the West, especially with the seven large companies including Amazon, Tesla and Google. They have gobbled a big chunk of investor capital and as a consequence sentiment with regards to gold is bearish.”
Pretorius said this was despite gold stocks trading at significantly better earnings multiples compared to technology stocks.
“We are not complaining, we think that it is a period for accumulation and at some point or another it is going to turn.”
We are not complaining, we think that it is a period for accumulation and at some point or another it is going to turn
— DRDGold CEO Niël Pretorius
DRDGold was the best-performing stock in the first six months of 2023, he said.
“We offer good value as the gold industry in South Africa, and depending on the risk appetite that you have and what your expectations are from your investment, you can clearly pick any one of those four stocks and they will not disappoint”.
DRDGold's revenue increased by 12% to R2.97bn, up from R2.65bn, after a 22% increase in its price for gold to R1.17m per kg, up from R961,022 per kg a year earlier.
The strong gold price resulted in group operating profit jumping by 15% to R909.3m, up from R792.4m in the same period in 2022, after accounting for cash operating costs, which increased by 14% to R2bn. As a result, the group declared a 17th consecutive dividend of 20c a share.
Production declined 7% as it fell behind in starting up new reclamation sites to replace high volume sites. The company said three of its major production clusters that contributed 25 000 tonnes a day, came to their end-of-life a year ago.
The group said it grappled with delays in the processing of water usage licences at two sites, the lodging of appeal proceedings by a community forum on a third, and community-related interferences with the construction of a pipe-column to the fourth site.
Pretorius said construction delays were due mainly to community members demanding jobs.
DRDGold’s reported revenue for the six months ended December 31.
— IN NUMBERS: R2.97bn
“They do not have services, they don't have jobs. They have poor health care, their schools are in shambles, their infrastructure is in shambles, and there are no trains. For those who are lucky enough to have a job, you will see a third of your income getting eaten by taxi fares. When they see an opportunity for economic involvement then everyone wants to be involved.”
Pan African Resources also benefited from the high gold price in the six months ended December 2023, reporting that it had generated $27.2m (about R514m) in cash, an increase of more than 130% over a year earlier, while profit increased by 46.7% to $42.4m. Gold production increased by 6,7% to 98,458 ounces.
Stats SA said this week that mining production for the December quarter increased by 0.6% year-on-year, with the largest positive contributors being platinum group metals and coal. It said total mining production was 0.4% lower in 2023 compared with a year earlier, following a decrease of 7,2% in 2022 and an increase of 12.7% in 2021.
However, mineral sales at current prices increased by 9.2% year-on-year in December, driven by gold, iron ore, and chromium ore. Total mineral sales at current prices were 10.3% lower in 2023 compared with 2022.
FNB economist Thanda Sithole said the decline in mining output in 2023 was moderate at 0.4% and a significant improvement on the steep 7.2% decline in 2022. The improvement was driven by growth in coal, platinum group metals and gold output.
“However, the domestic mining sector still faces challenges due to subdued external demand, low commodity prices and domestic infrastructure constraints. While the intensity of load-shedding has decreased, ongoing weaknesses in port and rail infrastructure continue to pose challenges,” Sithole said.
“External demand dynamics will be crucial, and we maintain a cautious outlook amid escalated geopolitical tensions. Potential disruptions in shipping could further impact domestic exports of break bulk commodities.”
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