CFO Riaan Davel: One good thing that came from Covid-19 was a favourable gold price environment.
DRDGOLD has declared a final dividend of 35 cents per share for the financial year ended 30 June 2020, following a more than four-fold increase in group operating profit to R1.562 billion.
This is the company’s thirteenth consecutive financial year of distribution. The company has also declared interim dividends of 50 cents per share, bringing the total dividend to 85 cents per share.
The group’s total gold production increased by 9 percent to 5,424kg, reflecting an 8 percent increase in total throughput and a 5 percent increase in average yield as Far West Gold Recoveries (“FWGR”) achieved stable production and made its first full 12-month contribution.
Group revenue increased by 52 percent to R4.185 billion due to higher gold production and gold sold, together with a 33 percent rise in the average Rand gold price received to R768,675/kg.
Group cash operating costs were 8 percent higher at R2.626 billion, due mainly to the inclusion of the cash operating costs of FWGR for the full financial year, and also reflective of the total volume throughput increasing by 8 percent.
Headline earnings of R634.5 million were reported compared with headline earnings of R72.7 million the previous year.
“Although it was the most difficult final quarter, I’m very proud of the business’s response to Covid-19 and our overall results,” says DRDGOLD’s CFO Riaan Davel.
Toughest year yet for finance team
He explains that one of the challenges brought on by Covid-19 was that his finance team could no longer work in physical teams from the office due to the lockdown restrictions in place. This was especially difficult when it came to the DRDGOLD interim audit, which happens around May. “We started off well in the beginning of lockdown, and there were definitely productivity advantages, but it was quite tough doing the interim audit from an external audit point of view on a remote platform.”
In the beginning of June, there was a slight lift in the Covid-19 regulations, and Riaan’s team could at least attend a physical inventory count at the end of June and interact physically to some extent. “I’ve heard some of my colleagues and team say it was their toughest year end. I think by July though, it had been too long a period of isolation with no physical interaction with colleagues.”
Ramping up operations
Riaan says that as a strictly surface mine, DRDGOLD could still continue its operations under level 5 lockdown. “We took a cautious approach; considered all the protocols, considered the interaction with the Dept of Mineral Resources and Energy, and then very cautiously ramped up our operations.”
He explains that DRDGOLD received a liquidity boost from Sibanye-Stillwater exercising their option to increase their stake to 51 percent in the company. “Going into Covid-19, from a liquidity point of view, we were well set to see us through.”
One good thing that came from the pandemic was a favourable gold price environment. “We have two operations, our mothership at Ergo, that we’ve been operating for more than 10 years, which consists of many fairly low grade, challenging sites. Then we have the new “kid on the block,” the operation that we bought from Sibanye-Stillwater, which we developed as the first phase and which has higher-grade material,” Riaan explains.
He adds that it was good to see the two businesses complement each other, especially when Ergo took slightly longer to restart, whereas FWGR got up to speed almost straight away. “We could benefit from the massive margin, with an increase in the gold price. For an operation that produces gold on an all-in sustaining cost basis in a 12-month period, with a price of below R300,000 per kilogram, that margin opened up tremendously for that operation.”
DRDGOLD is currently in a phase where the gold prices are high but the costs, which normally also go up, have not increased. “Our costs have always been under control and we can benefit from both the increase in US Dollar gold price and at the same time the Rand weakening quite a bit.”
The company also benefited from the gold price as it is an unhedged producer, meaning they do not take out any forward cover.
Market confidence in the DRDGOLD model
DRDGOLD had an excellent year from a share price growth point of view too, with its market cap growing from just under R3 billion to over R23 billion at the end of June. “We had a 680 percent increase in our market capitalisation,” Riaan says. “The growth was obviously partly gold price driven, but it was also because of the Sibanye-Stillwater increase in stake, which gave the market additional confidence in our model.”
He explains that he “really loves” the company’s model. “Our model is not just around mining, but also around environmental clean-up. Through that, we provide many benefits to people living close to those sites in Johannesburg. We clean it up completely, rehabilitate the site and are able to reuse the land.” In essence, rolling back the environmental legacy of mining.
Riaan believes that part of the positive market response is because people have seen that the DRDGOLD model of sustainable development and integrated value-add works, even more so in a post Covid-19 world.
Read more: CFO Riaan Davel an eco-champion for DRDGOLD
