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DRDGold operating profit rises to R2.2bn, thanks to strong gold price

‘We are very pleased with a level where the gold price seems to be’: CEO Niël Pretorius.

FIFI PETERS: DRDGold has more than doubled its profit for the year, boosted by higher sales and a stronger gold price. The miner also paid a dividend of 40 cents/share, marking its 14th straight year of rewarding its shareholders. We have DRDGold’s CEO, Niël Pretorius, on the show with us. Niël, thanks so much for your time. Your results indicate that it has been a good year for your company. What is behind the strong increase in sales – up 26%?

NIËL PRETORIUS: It’s year on year; remember that we’re coming out of a Covid year, so there was always going to be a slight increase if you just ran the business according to its capacity. And then if you were to compare volume throughput this year to previous years, then our volume throughput has actually been exceptionally good, but the plants have been predictable. They have been really well managed by our operating personnel, so we managed to get the tonnes in the mill. That’s key to a big-volume operation like ours.

FIFI PETERS: And how much of the heavy lifting, when you look at your profits for the year, was done by the gold price and the favourable gold environment that we’re currently in?

NIËL PRETORIUS: Oh, that’s huge. We produce just under six tonnes of gold per year. So you can imagine with R1 000 that the gold price moves that’s R6 000 in revenue. If you multiply that by the number of tonnes it could be massive; it’s a huge contributing factor. We are very pleased with a level where the gold price seems to be not settling down, but sort of in the range within which it’s trading now – around R870 000/kg. That’s still a very favourable number for us. It’s not quite as good as it was last year, but last year was an outlier year. I think the market understands that, and it has been factored into the price of most of the gold producers.

FIFI PETERS: So in terms of where the gold price could be headed from here on, it sounds like you’re saying you’re not expecting to see the levels that you saw last year. Is that accurate?

NIËL PRETORIUS: There are so many different things driving the gold price. There are the fundamentals, global economic fundamentals, like oversupply of money, fear of inflation, short supply of gold – that sort of thing. And then there are the sentiment-driven things, the stuff that people get excited about; a billionaire sends out a tweet about a new cryptocurrency and all of a sudden a lot of money just charges into that. Both of these things have an impact.

Personally what we try to track are the fundamentals, and we think that the fundamentals for gold remain strong and there seems to be very good support for gold at the $1 700/oz mark, which we saw about two weeks ago when it came off quite steeply. And then those I think who do this sort of fundamental analysis stepped in and said this is a good level for us to get back into the metal.

FIFI PETERS: That billionaire of course happens to go by the name of Elon Musk, the South African. Is he South African born or here by descent?

NIËL PRETORIUS: He ended up here. He went to school in South Africa. He went to Pretoria Boys High.

FIFI PETERS: You sound like you know him.

NIËL PRETORIUS: No, I don’t know him, but I know of him. He’s a genius. I think they have a little game – himself and Jeff Bezos – to see who can move things the most by a single tweak. I say that tongue-in-cheek.

FIFI PETERS: Well, I suppose we’ll never know. Maybe later on in the future, should we meet them.

But staying perhaps with something that is related to Elon and his world, I see that you’re looking to venture more into the batteries business. Tell us a bit about that.

NIËL PRETORIUS: Yes. Sibanye-Stillwater, our main shareholder – they own 40% of the company – are moving into that space. If you just look at what we do, mining gold, we’re producing gold out of tailings, which in essence is a restoration of environmental activity, using mostly grey water for that.

We are now also venturing into solar power, setting aside quite a bit of money to start putting infrastructures in place to become part of the battery-metals industry.

In other words, to also produce, out of tailings, the metals that are used for the generation and storage of clean energy. It’s such a good alignment.

We think we’re at the start of a very long cycle in that regard, because we get a sense that the world is determined to make this move away from dirty energy into clean energy. I think the way that the globe responded last year to lower carbon emissions, animal behaviour, just the drop-in air pollution over many cities – that’s what we really want. So I think that this is going to happen. Clean energy is happening and we want to be part of that. I think our business is set up to be part of that and there’s no clash….

FIFI PETERS: How much money are you setting aside to be part of that?

NIËL PRETORIUS: Well, initially just for the first year, out of our R600 million of capex that we’re setting aside for this year just over R100 million is going to go into some of the initial steps of setting ourselves up to get into the generation of solar power. And then obviously we would want to be looking at some of the tailings that contain some of the waste product – that waste material that contains battery metals. We’ll start feeling out that industry to see where we can get involved.

FIFI PETERS: Sticking with the current reality of the present, however, we are still fighting against this thing called Covid-19, Niël, and I’m interested in how it is still presently affecting your business. Which parts are maybe giving you a lot more sleepless nights than they should?

NIËL PRETORIUS: Firstly, I think we’ve been handed a gift, a wonderful thing with which we can start exercising a big degree of control over the impact that Covid is having, in just getting vaccinated, doing the sensible and responsible thing and getting vaccinated. We are committed in that regard, as a company. In terms of avoiding infections and keeping the workplace safe, I think our staff has been very responsible in following the protocols that we put in place to not get infected at the workplace. I think the workplace was a safe place. As a consequence we saw very little disruption in the last 12 months in terms of production, in terms of throughput, and we didn’t have high numbers of infections.

So I think we’ve been responsible in our approach. We will continue to be responsible in our approach. And, as a consequence, we were fortunate in the impact on our business being very limited.

FIFI PETERS: In terms of vaccination, where do you stand? Is it something that your workers can voluntarily choose to do, or is it something that you might take a harder stance on towards your workers, and perhaps require them to do it?

NIËL PRETORIUS: We are encouraging our workers. We think they’re sensible. They’ve showed themselves to be responsible in the months during which all we had was social distancing and good hygiene. We are seeing many of our staff members registering and making use of the opportunity to vaccinate. They know what my position is. I make no secret of the fact that I think to not get vaccinated is irresponsible, and maybe even a little selfish. But we’re not going to force anybody into anything.

It may have an effect on where we can safely deploy members of staff who choose not to make use of that opportunity, because we cannot place other staff members at risk. But our steps won’t be punitive. It could be operationally based, and operational requirements will determine how and where we can deploy staff who exercise this right.

FIFI PETERS: Niël, I imagine you must be following the economic data and you would have seen those shocking jobs numbers that came out yesterday. I’m just wondering with the mining sector right now in its position and having been given this gift in the form of a higher commodity prices presently, how are you thinking around investing in South Africa and perhaps being an agent that creates jobs?

NIËL PRETORIUS: Well, sustainable development’s been a prominent feature of our strategic thinking in our company for many, many years. I think we’ve stated in the past – and we haven’t changed – our viewpoint on this, that social capital and the development of a cohesive socioeconomic structure is very important for the future of South Africa.

The solution for the South African economy doesn’t lie in the gold mines necessarily employing more people to do the same work. The solution lies in taking what we’ve got, leveraging it and optimising it.

I think we need to maybe just reset where we want to start. A very large proportion of South Africans are unemployed, and they get paid a social grant every month. I’m not convinced that we are optimising that social grant, (which is) basically a monthly recapitalisation of the informal economy that’s not being put to use properly.

If you just look at the Pep Stores model (over) many, many years, Pep became the largest retailer in South Africa because they sold sort of bulk goods at a very low margin. They’ve basically scooped up social grants for many, many decades in South Africa, and they’ve provided a service. People could buy decent clothes at an affordable price. I think that’s how powerful the social-grant capital inflows could become in just resetting our economy.

I believe that for poverty alleviation, the first step out of poverty and the most dynamic and potentially powerful way of alleviating poverty is developing the informal economy and also leveraging the social grant system towards that.

And we are doing, in my view, something that could potentially be of good use, could be put to use in designing a model around that. We are basing it on a broad-based livelihood programme that’s been very effective. Over 5 000 families have adopted this. That’s both our network and I think the core strategy or the core ideology that drives us. We can have another discussion about this, but the focus is very specific.

It’s focused at five very specific activities in terms of human capital development, in terms of services, environmental management, access to data, education and then self-improvement in terms of just the optics and the aesthetics of many areas. The objective is to have, let’s call it, an inclusive enclave of self-sustainability and communities who are otherwise destitute and who are waiting for a government with limited capacity to render services which it is not capable of and can’t afford to render. I think that’s where we can step in as capital to provide the knowledge base for that, and the platform. We could be the economic enabler of a very powerful social partnership.

FIFI PETERS: You know what, I am happily taking on your invite. Thank you so much, and I look forward to a more fleshed-out conversation about that, because I think that is really critical towards building a sustainable economy here in South Africa.

But we’ll leave it there for now, sir. Thanks so much for your time. That’s Niël Pretorius, the CEO at DRDGold.

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Moneyweb is so behind that they did not even mention Sebanye R25 Billion profit in six months.

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