Gold tailings retreatment company DRDGOLD, whose profits were buoyed by a strong gold price, has set its eyes on exploring gold and copper opportunities elsewhere but insists it will not overpay for mediocre assets.
CEO Niël Pretorius told Business Times after the release of the company's financial results for the six months ended December that there were opportunities to be explored outside South Africa.
“We are specifically looking at gold and copper. The stuff that you want is typically not for sale, and the stuff that is for sale is typically not really what you want. At some point, we will hopefully do another deal. The Sibanye transaction we did in 2018 was an exceptionally good transaction for us, it was a step change for us,” he said.
In 2018 DRDGOLD completed the acquisition of Sibanye's West Rand Tailings Retreatment and renamed it Far West Gold Recoveries, increasing its gold reserves by 90%.
Pretorius said they hoped to secure another asset of comparable quality, which was likely to be found on the African continent.
“The one thing we are not going to do is go and overpay for a mediocre asset in a good jurisdiction and then convince ourselves it is a good deal. We are comfortable with a little bit of geopolitical risk because typically that is where the big assets are.”
The company, along with its gold-producing peers, has benefited from a strong gold price
He said DRDGOLD would not put shareholders' money at risk.
“If you look at some of the top performing companies over the last few decades ... you look at a company like Randgold, the initial assets they had they were in good jurisdictions locally; none of them were in Australia, America, Canada and so forth. They built really good assets in countries that many other investors consider too high-risk. It is understanding that and positioning yourself to manage that risk and build an outstanding portfolio,” he said.
The company, along with its gold-producing peers, has benefited from a strong gold price as bullion underscored its reputation as a safe haven asset when there are geopolitical risks. Group operating profit rose by 74% to R1.57m and the operating margin jumped 80% compared to a year earlier.
Its rand/kg price soared 26% to R1.47m, up 26% from R 1.17m in the same period last year, cushioning the impact of rising costs and the marginal increase in production. The group reported a 65% increase in headline earnings to R970.1m, up from R589m in 2023. It declared a 30c-a-share interim cash dividend, up 50% from 20c-a-share a year earlier.
Volume throughput increased by 16% to 12.9Mt, contributing to a 1% increase in gold production from 2,547kg a year earlier to 2,564kg in the six months under review.
Anchor Capital investment analyst Stephan Erasmus said DRDGOLD's outperformance was supported by a 28% year-on-year revenue increase, primarily driven by a 26% rise in the average gold price in rand terms, which effectively offset inflationary cost pressures despite relatively flat gold production volumes.
“Operating leverage has increased margins. However, the performance is reliant on high gold prices. Furthermore, the decrease in yield at Ergo Mining suggests that processing more ore to obtain the same quantity of gold may place pressure on costs over the long term,” said Erasmus.
In line with increasing production prospects, DRDGOLD announced it had commissioned a 60MW solar plant and 160MW battery storage system to ensure a stable power supply and reduce costs at its Ergo operations. It is also constructing an 800Mt regional tailings storage facility at its Far West Gold Recoveries.
Pretorius said DRDGOLD was comfortable doing business in South Africa. “We think it is a good jurisdiction; we talk ourselves down a lot. Maybe from time to time in terms of political governance we see things that are not where they should be, but the fact is that we are a constitutional democracy and we have a strong judiciary. We have good infrastructure and good people. There is not a better on-surface ore body than the one we have managed to secure and that we intend to process over the next two decades.”
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