DRDGold to report higher interim earnings, despite cost increases

JSE-listed gold mining company DRDGold, which is in the process…

JSE-listed gold mining company DRDGold, which is in the process of finalising its results for the six months ended December 31, expects to report a 5% to 15% year-on-year increase in earnings per share (EPS) and headline earnings per share (HEPS).

EPS and HEPS for the interim period are expected to be between 65.3c and 71.5c, compared with the EPS and HEPS of 62.3c reported for the six months ended December 31, 2022.

The company attributed the increase in EPS and HEPs, in part, to a 12% year-on-year increase in revenue to about R2.97-billion.

Ergo Mining’s revenue increased to R2.19-billion from R1.95-billion in the prior comparable period, mainly owing to a 22% increase in the rand gold price received.

Gold sold decreased by 8% to 1 872 kg as a result of a decrease in throughput tonnages to 8.1-million tonnes, owing to ongoing delays in the regulatory approval for the 4L3 mine dump reclamation site and community interference in respect of the 5L27 mine dump, and Ergo having to rely on legacy and clean-up sites to make up tonnes.

The impact of the decrease in throughput tonnage was offset by a 15% increase in yield to 0.23 g/t from 0.20 g/t in the prior comparable period.

The water-use licence for 4L3 was received on January 18, with the construction of the pipe-column to 5L27 completed later on in January.

Far West Gold Recoveries’ revenue increased to R781.2-million, from R695.8-million in the prior comparable period. The 22% increase in the rand gold price received was offset by an 8% decrease in gold sold from 722 kg in 2022 to 663 kg.

The decrease in gold sold was as a result of a lower head grade from the new Driefontein 3 site, compared with that of the depleted Driefontein 5 site, resulting in a 12% decrease in yield from 0.25 g/t in 2022 to 0.22 g/t.

In terms of cash operating costs, the impact of the increase in revenue on earnings and headline earnings was moderated by an increase in group cash operating costs of R257.5-million, or 14%, to about R2.1-billion.

At Ergo, cash operating costs increased by 12% to R1.79-billion, owing to double-digit increases in machine hire costs and contract reclamation costs, driven by the reclamation of remnant material on legacy and clean-up sites and increased diesel prices.

At Far West Gold Recoveries, cash operating costs increased by 24% to R305.1-million. DRDGold said this was owing to increases mainly in reagent use, in particular lime and steel balls, in response to the increased acidity and coarser material reclaimed from Driefontein 3.

Electricity costs also increased as a result of the reclamation of Driefontein 3 and the installation of a high-shear agitator at the Driefontein 2 Plant to release more gold.

Meanwhile, machine hire costs were higher owing to the continued clean-up of Driefontein 5 and increased diesel prices.

In terms of capital expenditure, DRDGold said its cash expenditure on capital projects increased by R687.4-million, or 177%, to R1.07-billion for the period.

The significant increase was owing to the establishment of the solar power plant at Ergo, which is scheduled for substantial completion in March, with battery storage facilities scheduled to be completed by October. DRDGold said the construction of the solar power plant remained on track, with 14 MW currently being drawn by the Ergo plant.

In addition, specialist studies required for the environmental and water-use licence authorisation for the expansion of the Brakpan/Withok tailings storage facility were ongoing. DRDGold said it expected the design to be submitted to the Department of Water and Sanitation by the end of the 2024 financial year.

Meanwhile, at Far West Gold Recoveries, Phase II, which would double the capacity at the Driefontein 2 plant and build an 800-million-tonne regional tailings storage facility, was under way. The company said it expected the regulatory approvals required to begin construction soon.

DRDGold held about R1.53-billion in cash and cash equivalents as at December 31, compared with R2.39-billion held at the end of 2022. During the six months under review, the company had a free cash outflow of R370.8-million after a R685.7-million increase to R1.11-billion in investing activities year-on-year, and paying cash dividends of R559.4-million.

That said, DRDGold remains free of any bank debt.

In October last year, DRDGold published a production guidance of between 165 000 oz and 175 000 oz for the financial year to end on June 30. With the new reclamation sites now in operation at Ergo, the company said it expects to remain within this range, albeit towards the lower end.

Although DRDGold expects the cost pressures experienced in the first half of the financial year to ease going forward, it has nonetheless increased its cash operating unit cost guidance from R770 000/kg to R800 000/kg.

DRDGold expects to publish its condensed consolidated unaudited interim results for the six months ended December 31, on February 14.

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