Rising gold prices contribute to DRDGold's profit growth

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Jimmy Moyaha: As David Shapiro mentioned earlier, the oldest company on the JSE, founded in 1895, reported its interim results today. It refers to DRDGold.

DRDGold CEO Niël Pretorius also joined the call. Good evening, Mr. Pretorius. He really appreciates his time. Tentative proposals passed – clearly the market had minimal reaction to them. But what does he think when he looks back on the past six months?

Niel Pretorius: In fact, we're setting ourselves up pretty well in the short term. Volume capacity has been restored. There were some delays in launching the new site, but we overcame them. They are being commissioned and are being strengthened as we speak.

And, of course, what's really exciting from our perspective is the fact that solar farms are also doing well.

It is designed to produce 60 megawatts of power and currently delivers 14 megawatts of power. It will reach 60 megawatts by the end of March.

The battery storage system is also scheduled to be put into operation in stages by October of this year.

So I hope all of this helps us end this year a little better than how we started it from a production standpoint. And if gold prices prevail, the rest of the fiscal year will be favorable.

Jimmy Moyaha: Niel, let's take a look at the price of gold. Given the US inflation rate, it turns out that the dollar cannot recover from its weakness. With all of that back, the gold market became even stronger. And we obviously expect that there could be a rate cut later this year, which could cause the dollar to weaken a little bit and maybe have some windfall effect on the gold price.

Do you have any outlook for the future gold price? [where you would] Call now – $1,990 per ounce? What is the ideal price for you? Will $2,100 per ounce be on the cards again like we saw early this year or late last year?

Niel Pretorius: Something around $2,000 an ounce is still a very good price for us.

There is a lot of headroom in the $2,000 gold price, and there appears to be significant gold accumulation outside of the US market. So the view is that interest rates will continue to rise for a long time, and if the US market loses interest in gold, someone somewhere will pick up the gold they sell.

Five years ago, 10 years ago, 15 years ago, that wasn't the case. That has certainly changed recently. So I think the dynamics are a little more complex and there are a lot more forces influencing the performance of the gold price. The Company remains highly influenced by US market sentiment in terms of stock price performance, as it is listed on both the US and US markets.

Read: Gold treats investors well

However, when it comes to gold prices, there are new global dynamics that appear to be supporting gold prices at much higher levels than we have experienced in the past.

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

Jimmy Moyaha: absolutely. I'm looking at the gold chart right now, and if you look at it over a broader time frame from 2020 to the present, it's been a double or triple top, and now anything beyond that is split from a structural standpoint.

However, I am aware that, as you rightly stated, there are so many factors that influence the price of gold. And $2,000 an ounce isn't a bad price considering it was down to $1,600 an ounce during the pandemic. I think it was just over $1,640 an ounce at one point. That wouldn't have been good for the company.

Niel, if you look at the dividend paid out of the income reserve, it's 20 cents in Rand, 9 cents in USD at R18, but I'm concerned that if you look at the full year, it could be paid out of the income reserve. Do you? Again? “We have enough reserves to continue to reward our shareholders to maintain consistency regardless of how fluctuations occur from a production or price standpoint, because that's something else.” Is there a strategy behind this? Consistency is key.

Niel Pretorius: yes. I think as long as we're profitable, as long as we have positive operating cash flow, we tend to lean towards paying dividends. There are some major capital investment programs underway as we speak. Solar power plants are one of them, as well as some project investments over the next few years, but on a large scale.

But what we decided is, based on the production capacity of the business, if the gold price stays at least at this level, our cash flow looks good and we should be able to fund most of it.

If the investment begins to incur losses, dividends will no longer be paid. We have no intention of borrowing money to pay dividends. But from a project finance perspective, from a debt exposure perspective, we can accept some exposure.

So as long as we can pay dividends, we're going to do that. We still have R1.5 billion left in the bank. This is sufficient to provide forward-looking information regarding our capital reinvestment program for the foreseeable future.

Therefore, if operating cash flow is positive, it will be tilted in favor of dividends.

As it is an interim dividend, it is a fairly modest dividend, but naturally we are conservative and cautious when it comes to interim dividends. But by the end of the year, I had a better understanding of how things had landed.

For the past six months, last September after the year-end board meeting, the final dividend to shareholders was 65 cents. This equates to R500 million to him, because even though we had a capital agreement in place, we were in a position to pay that.

So we'll see how things turn out by the end of the year. The final dividend is usually determined at that time.

Jimmy Moyaha: I laughed because you just said this, Niel. “We're very conservative about it, but if we had to, he's got a billion dollars in his account and it's just sitting there casually.”

I'll leave the conversation here, Niel. We look forward to your continued support in the second half of this year. I look forward to reporting on the full-year results once they are released. We're definitely going to have that conversation.

I'll leave it as is. It was Mr Niël Pretorius, Chief Executive Officer of DRDGold, who provided an update on the interim results and its performance and said the business was progressing well.