DRDGold sees drop in earnings; shareholders still receive dividend

‘We’d like to … diversify our risk to an extent, but that doesn’t mean reducing the size of our footprint here’: Niël Pretorius – CEO, DRDGold.

FIFI PETERS: Mining group DRDGold reported results for the six months ended December today. They produced and sold less gold in the period, while the price they got for the gold they sold was also a little lower, resulting in the drop in first-half profits.

We have DRDGold CEO Niël Pretorius on the Market Update just to take us through the numbers. Niël, thanks so much for your time. Just looking at that period of June to December, a lot was going on in this country, in the world – from the third wave driven by then Delta variant, we had the riots that happened in July, and towards the end of the year we were facing a new variant in the form of Omicron. Just describe to us the operating environment that you experienced within your mining corridors in this time.

NIËL PRETORIUS: Certainly. Thank you, Fifi. Towards the end of the year we actually started trending quite a lot better than we did in the first three months of the financial year, which started in July. So while the six-month numbers to the end of December, 2021, compared to the end of December, 2020, don’t really compare favourably for a variety of reasons; ……1:18 really had some good production numbers and the gold price is also really high.

The latter phase, trending into the latter part of the half-year, was actually very encouraging, and encouraging for the right reasons. The volume throughput was good and the plants were also operating well. They were stable and we were getting good efficiency.

So we are well set up; we’ll be trending towards our guidance –  and in fact we’re slightly ahead of guidance. So on the whole a fairly encouraging set of outcomes for us.

FIFI PETERS: From a Covid-19 perspective, I’m interested in the situation on the ground at the operations regarding your mineworkers. We saw people catching the new variant left, right and centre. Can you give us the happenings on the ground at DRDGold and the kind of challenges that you faced from a Covid-19 perspective?

NIËL PRETORIUS: Absolutely. Look, we maintained our Covid protocols right through all the different waves – the social distancing, the sanitising, the travelling arrangements with staff and so on. None of those were softened or relinquished. We maintained all of that.

And then of course our staff also responded really well to our request, our encouragement, really, to get themselves vaccinated. So we’ve got very high levels of vaccinations as well, in excess of 90% of the total labour force.

Omicron hit towards the end of the year. If you look for an impact in the numbers, you’re not going to find it. The numbers were [impacted] by a whole list of other things, but Covid wasn’t one of them.

FIFI PETERS: You talk about abiding by the Covid-19 protocols, yet we do have some business people just looking at those protocols and the restrictions that still remain on business, and asking why they haven’t been lifted, given that everything else in this economy in terms of the Covid-19 restrictions has been lifted. I think what comes to mind is the fact that staff can’t operate at full capacity presently within some businesses. I’m just wondering, some of the Covid-19 restrictions that are still in place for business – have you learned to work with them or are they causing a bit of strain?

NIËL PRETORIUS: We’ve learned to work with them. We have a mechanised process, an automated process. It’s a quiet mine, it’s not labour-intensive at all. The restrictions that we have now, the self-imposed ones and some of the protocols that we following are probably stricter than some of the expectations or the standards that are still being imposed by the authorities.

In the mining environment safety is front of mind, and I think there’s a sense of responsibility there. There was just so much hardship around us, and there were so many businesses that got hit really hard, that I think our model, and also the way in which our people responded to the pandemic, carried us through this. I also think there’s a sense that we want to preserve this. That’s maybe one of the reasons why the vaccination levels were also really high among our staff right through the organisation. We’ve got something really special here and we don’t want to let it go. So yes, as I said, if you want to look for Covid in the production numbers and the financial numbers, it’s simply not there.

FIFI PETERS: So what is there that resulted in this near-48% drop in group profit over this period?

NIËL PRETORIUS: We are comparing the six months ending December, 2021 with the six months ending December, 2020. I think in the numbers, as you see them, there’s probably more of a story of 2020 than the story of 2021. In 2020 we had exceptionally good production numbers, but a number of sites where we were coming to sort of the lower level the grades were high. We produced almost three tonnes of gold. There were three months during that half year when we produced more than half a tonne of gold. Of course the gold price was R125 000/kg on average, higher than it is now. So if you’d simply apply that factor, then it’s close to R400 million just for that period. So 2020 was an exceptional year.

Then 2021 was probably closer to a normal year, based on our volume-throughput capacity, on the quality of our resource. There were still one or two issues in terms of, let’s call it, external factors; you may want to call ‘Covid hangover’ in terms of the availability of supplies and the cost of steel, for example, some of the reagent prices – the availability of reagents and so forth. But that was South Africa and the world coming out of Covid, so probably events and not trends. On the whole it was an exceptional 2020 with a very, very high gold price and good production, compared to maybe our third or our fourth-best reporting period over that same period in the last decade. You’re comparing the world record with just a very good time, I suppose.

FIFI PETERS: I know the cost of Covid that you’re referring to. Just last week or perhaps a few days before that we were looking at the results of ArcelorMittal, and we saw the big boost that their bottom line got as a result of the highest steel price.

Notwithstanding the lower profit that you have reported this time around, you still made a profit and quite a sizeable one. What we have read about your industry is just how much wiggle room or relief you have given the government in terms of the increased revenue that they are expecting as a result of the taxes that you’ll have to pay on the profits you’re making, Niël.

Nonetheless, I’d just like to understand the further opportunities for your industry to contribute further to growing this economy, the South African economy, and dealing with the very big problem in the form of jobs.

NIËL PRETORIUS: Certainly. Look, you’ll see in our guidance that we are guiding around R600 million of capital investment this year. You’ll see that we are also guiding that we announced that the first phase of our solar plant’s been through. All of this investment is done with a 15- to 20-year horizon in mind. They’re not short term. We are really investing in the long term with the intention of optimising our resource and mining for as long as we can. We are fortunate in the sense that we don’t create new waste. Our resource is waste, so we just move it from where it’s not supposed to be.

There’s a lot of that in South Africa because we are now dipping into what’s been stockpiled over the last century, and we’ve created the technology and the volume capacity to do that sustainably.

Insofar as contributing towards the fiscus, its government’s concern; last year in the six months it was close to R700 million in taxes. This year it was closer to about R230 million in taxes for that same period. We still made R800 million in profit. We still generated R406 million in free cash. Most of that, all of that has  been spent here. We don’t have offshore assets. We’d like to have some, we’d like to diversify our risk to an extent, but that doesn’t mean reducing the size of our footprint here. On the contrary.

Everything we are doing here now is aimed at increasing volume throughput, increasing our capacity. In terms of jobs, jobs is an outcome of a solid economy, so we are investing in a process and this is in terms of our social capital over and above what we do internally for our people and for our suppliers and so on. We’re investing in a process to stimulate the informal economy, to bring knowledge and opportunity to the informal economy because artificially creating jobs is not sustainable. We’ve got to look at sustainability, and sustainability means growing the economy. That means creating a favourable investment climate.

Now we’ve made peace with this investment climate. We are spending all this money here, but there are other industries that are maybe a little more vulnerable to some of the dynamics locally and they might need a bit of encouragement. So we’ve got to grow the economy – that’s the bottom line.

FIFI PETERS: You made an interesting comment in terms of diversifying the business in the foreseeable future. Are you looking anywhere presently? If so, where?

NIËL PRETORIUS: We are looking all the time. Remember, we have a very close relationship with Sibanye-Stillwater. They own 50.1% of our company. They’re an international company with an international footprint. They go into battery metals, and we’ve decided that we want to follow them where they go. If there’s an opportunity to reprocess tailings on any of the projects that they might get involved in, we want to be there, standing by their side and then sort of picking up that part of the business. We think that that’s the role that we can play within the larger group.

FIFI PETERS: All right. I suppose an announcement on that front will be forthcoming once you’ve really taken decisive action.

NIËL PRETORIUS: Absolutely. We’re looking all the time. We haven’t found anything that we find attractive enough and taken it to the point where we can make any sort of announcement, but we are actively looking and we’re also looking at expanding the range of products that we are wanting to produce, namely going into the battery metal space.

FIFI PETERS: Talking about Sibanye-Stillwater, they’ve got a strike that’s looming at their operations and, just given the controlling stake that they have in DRDGold, what will a strike at Sibanye-Stillwater mean for you?

NIËL PRETORIUS: There are certain circuits, and there are certain facilities that are integrated with Sibanye-Stillwater. This is pertaining to our …..Zondo?11:11 operations. Those are by and large categorised as essential services because it relates to the pumping of underground water and so forth. So  if people play by the rules it shouldn’t have much of an impact. If they don’t play by the rules, we’ll only know when we know, and it could [have an impact].

But they’re working very hard to avoid a strike. I think what they’ve put on the table is reasonable, it ought to be accepted. I see some of the unions are urging their members to seriously consider the offer that’s on the table. It’s in nobody’s interest to go on strike, quite honestly.

FIFI PETERS: I imagine that you do have plans in place should the unexpected or unforeseen happen?

NIËL PRETORIUS: Yes, we do. In terms of access to water, there we have a dependency on the Sibanye-Stillwater infrastructure because we are a grey water consumer. The water that we are using at Far West is from an underground pumping station. That’s an essential service. It would be illegal to suspend or interrupt that.

But in terms of some of the other services and reliancies we’ve got contingency plans in place.

FIFI PETERS: All right. Niël, thanks so much for your time. We’ll leave it there. Niël Pretorius is the CEO at DRDGold.

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