Higher gold price helps boost DRDGold’s profit

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JIMMY MOYAHA: As David Shapiro has just mentioned, the oldest company on the JSE that was founded in 1895 reported interim results today. I’m referring to DRDGold.

I’m joined on the line by DRDGold’s CEO, Niël Pretorius. Good evening, Mr Pretorius. Thanks so much for taking the time. Interims coming through – obviously the market had a minimal reaction towards those. But what are your reflections on the six months?

NIËL PRETORIUS: We are actually quite well set up for the near term. Our volume capacity has been restored. Some of the delays that we experienced in commissioning new sites – we’ve passed those. They’re being commissioned, and they are being ramped up as we speak.

And of course what’s really exciting from our perspective is the fact that our solar power plant is coming along nicely as well.

It’s designed to generate 60 megawatts of power and at the moment is doing 14 megawatts. By the end of March, we’ll be right up there with 60 megawatts.

And then there’s a battery storage system that’s going to come online as well in stages through to October this year.

So all of those would hopefully assist in in us ending the year a little better from a production perspective than the way that we started it. And if the gold price prevails, then we are favourably set up for the rest of the financial year.

JIMMY MOYAHA: Let’s look at that gold price for a second, Niël. We saw that with the US inflation numbers coming through the dollar just wouldn’t give back the weakness; it clawed all of that back, and it got so much stronger – and we obviously are anticipating that we might see rate cuts later in the year that could weaken the dollar a little and provide possibly some windfall for that gold price.

Do you have an outlook on the gold price from [where you would] call it now – where it’s at $1 990-odd an ounce? What’s an ideal price for you? Do we see $2 100/oz back on the cards, as we saw earlier this year or late last year, I suppose?

NIËL PRETORIUS: Anything around $2 000/oz is still a very, very good price for us.

There’s quite a bit of margin in a $2 000 gold price, and there does seem to be quite an accumulation of gold taking place outside the US market. So when the US market loses interest in gold because there’s the perception that there are going to be higher interest rates for longer, somebody else out there is picking up the gold that they sell.

It wasn’t like that five years or 10 years or 15 years ago. It has certainly changed in the recent past. So the dynamics have become a little more complex, and I think there are more forces now impacting the performance of the gold price. We still are quite exposed – in terms of share price performance – to sentiment in the US market because that’s where we are listed, both there and here.

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But in terms of the gold price there’s a new global dynamic that has definitely seemed to come in in support of the gold price at much higher levels than we experienced in the past.

So still a very, very good gold price at $2 000/oz.

JIMMY MOYAHA: Absolutely. I’m looking at the gold chart now, and if you have a look at it on a slightly wider timeframe – from 2020 to now – it kind of looks like we went through a double top or a triple top, and now we’ve broken up above that from a structural point of view.

But we know that there’s so much that influences the gold price, as you rightly mentioned. And $2 000/oz isn’t a bad price, considering in the pandemic we were as low as $1 600/oz, I think, at some point – $1 640-odd an ounce there. That couldn’t have been good for the company.

Niël, when we look at the dividend paid out of income reserves – 20 cents on the rand there, and nine cents in US dollar terms at R18, are you concerned that from a full-year perspective, there might be paying out of income reserves again? Is there a strategy behind saying, look, regardless of how the fluctuations happen from a production and a pricing point of view, we do have enough reserves to keep rewarding our shareholders to just be consistent – because that’s something else. Consistency is something important.

NIËL PRETORIUS: Yes. Look, as long as we make money, as long as we have positive operational cash flows, I think we’d be inclined to lean towards payment of a dividend. We have some large capital investment programmes happening as we speak – the solar plant being one of them, and also some project investments for the next few years – and they’re large.

But what we’ve decided to do, based on the capacity of the business to produce and provided that the gold price at the very least stays at these levels, our cash flows look good, and we should be able to fund most of those.

If we start losing money operationally, then we won’t pay a dividend. We won’t go and borrow money to pay a dividend. But we could take a bit of exposure in terms of debt exposure, in terms of project finance.

So as long as we can pay the dividend, we would. We still have R1.5 billion in the bank. That’s enough to see us through the foreseeable future in terms of our capital reinvestment programmes.

So provided we have positive operating cash flows, we’d be leaning favourably towards the dividend.

It is a fairly modest one because it’s an interim dividend, and we are naturally conservative and cautious when it comes to the interim dividend. But by the end of the year we’ve a much better idea of how things have landed.

You would see that in the last six months, in September last year, after the year-end board meeting, the final dividend for shareholders was 65 cents. That’s half a billion rand, and that’s because we were in a position to pay that, notwithstanding the fact that we had these capital commitments.

So we’ll see what things look like by the end of the year – and that’s usually when we make up our mind in terms of the final dividend.

JIMMY MOYAHA: I’m chuckling because, Niël, you’ve just said, ‘We’re very conservative about it, but if we need to, we have a billion in the account just casually just sitting there’.

We’ll leave the conversation at that, Niël. We wish you the best of luck for the second half of the year. I look forward to catching up with you when those full-year results come out. We’re definitely going to have that conversation.

We’ll leave it at that. That was Niël Pretorius, the chief executive officer at DRDGold, giving us an update on their interim results and that performance, stating that the business is well on track.