Strong gold price helps DRDGold mitigate lower production

15th February 2023 By: Darren Parker - Creamer Media Contributing Editor Online

Strong gold price helps DRDGold mitigate lower production

DRDGold CEO Niƫl Pretorius

South African gold producer DRDGold has reported a 6% revenue growth for the six months ended December 31, 2022, thanks to favourable gold prices. The company's revenue grew to about R2.65-billion, which it attributed to an 11% increase in the average rand gold price received, which reached R961 022/kg.

“We saw the gold price show remarkable resilience at relatively high levels. If this is what the gold price looks like, when most of the dynamics are against it, then I would suggest that the medium-term prognosis is fairly attractive,” DRDGold CEO Niël Pretorius said on February 15.

However, DRDGold's group operating profit decreased by 5% to R792.4-million owing to lower production and a 10% increase in cash operating costs to about R1.83-billion.

In terms of rising input costs, Pretorius told Mining Weekly that seen is a slight moderation in the rate at which prices have been increasing, with a slightly better outlook going forward.

“Diesel costs seem to have moderated somewhat, so we don't anticipate as steep a profile in costs as we did last year,” he explained.

Despite higher operating costs, DRDGold announced that its headline earnings per share (HEPS) for the period were 62.3c and that it had generated free cash flow of R215.4-million. As a result, the company declared an interim cash dividend of 20c an ordinary share, marking the sixteenth consecutive year that DRDGold has paid a dividend.

During the period, gold production decreased by 155 kg compared with the first half of the prior financial year, with total production dropping from 2 886 kg to 2 731 kg. However, this reduction was partially attributed to lower volume throughput, which fell from 14.5-million tonnes to 12.8-million tonnes, despite what DRDGold said was good recovery efficiencies, plant performance and a slightly higher recovered grade.

Efforts to mitigate the anticipated shortfall in tonnages were frustrated by what Pretorius said was an opportunistic appeal against the granting of a water-use licence on one of the new sites, as well as the Department of Water and Sanitation's introduction of a new, more onerous standard for the design of spillage dams.

The suspension caused by the appeal has since been lifted, he said, and licensing for the follow-up sites should be in place by March.

Another issue affecting production was the poor performance of Johannesburg’s City Power, which led to DRDGold subsidiary Ergo abandoning its supply lines to a set of pumps at City Deep that delivered up to one-third of its volume throughput.

Ergo had to build a new line that connected directly with an Eskom substation, but ongoing loadshedding reduced power availability, posing a risk to production. A number of unscheduled Eskom trip-outs at the Ergo plant and excessive rain decreased throughput.

To mitigate the risk of power interruptions, Pretorius said, Ergo would be reducing its reliance on Eskom and working on its own solar plant. The installation of two 22 kV lines that integrate Ergo and the Brakpan/Withok Tailings Storage Facility into a dual Eskom and solar grid was almost complete, he said, and civils on the 20 MW first phase of the solar farm, comprising about 44 000 solar panels, has begun.

The company hopes to have this solar plant up and running by the end of the current financial year.

“Our capital investment programme over the last 12 years has really paid off. Overall, I'm pleased with how resilient the business has become over time,” Pretorius said.

Ergo reported revenue growth of about R1.96-billion for the first half of the fiscal year 2023, up from about R1.8-billion in the same period last year. However, the company's gold production declined by 5% to 1 996 kg amid a 14% decrease in production throughput to 9.8-million tonnes and a 10% increase in yield to 0.203 g/t.

During the six months under review, Ergo conducted late phase clean-up at several sites that are nearing end of production and where, as the last material is lifted from the site floor, volumes are typically lower and head grades slightly higher.

Meanwhile, DRDGold subsidiary Far West Gold Recoveries reported a marginal revenue increase to R695.8-million for the first half of the fiscal year, up slightly from R693.8-million in the same period last year.

However, the gold production at Far West declined by 7% to 735 kg as a result of a 3% decrease in tonnages from 3.1-million tonnes for the same period last year to 3-million tonnes. Yield also reduced by 5% to 0.245 g/t from 0.257 g/t a year ago, owing to the material being processed from the lower-grade areas of Driefontein 5.

Pretorius attributed the decrease in production to the periodic suspension of milling, in accordance with the load curtailment arrangement with Eskom during periods of loadshedding. This arrangement requires a percentage reduction in electricity consumption, resulting in a 5% yield reduction.

During the period, DRDGold allocated R18.2-million towards environmental rehabilitation, a decrease from R34.7-million in the same period last year. The majority of the reduced expenditure was owed to Ergo's Brakpan/Withok tailings storage facility (TSF) cladding being in a less intensive phase of the cycle and the increased rainfall during November and December last year.

In the current period, only 4 ha was vegetated at the Brakpan/Withok TSF and 3.5 ha at the Driefontein 4 TSF, compared with 22 ha and 12 ha respectively in the first half of the prior financial year.

Dust sample analysis decreased from 718 in the first half to 689 in the second half of the year, with only 10 – 1.45% of the sample – exceeding the limit, a decrease from 21 in the first half. Eight exceedances were recorded at Ergo, and two were recorded at Far West, DRDGold reported.

Potable water consumption increased by 2%, with Ergo's use rising to about 1.3-billion litres from about 1.2-billion litres in the first half, while Far West’s consumption decreased to 74-million litres from 101-million litres.

DRDGold also reported that its socioeconomic development spend increased by 48% to R28.9-million during the reporting period.

This was attributed to contributions made to the Jagersfontein relief fund, an increase in other corporate donations, and an increase in community training spend.

However, Pretorious noted that the impact of poor service delivery, specifically in terms of unstable energy supply, as well as a lack of public transportation, was starting to negatively affect the workforce.

“I'm concerned that it’s starting to have an impact. We need to start thinking about the quality of life of ordinary working South Africans. I'm talking about the collapse of Transnet, the collapse of commuter services and other public services. It's a betrayal of the people of South Africa, the workers of South Africa, who rely on government to provide safe, affordable and reliable services of this kind.

"As the private sector, we pay the price because it's just becoming harder for people to go to work. We need to do something, but it's just not fair,” he said.