Morila gold mine
Feature image credit: Wikimedia

DRDGOLD, in a trading statement released, says that it expects to report an almost sevenfold increase in earnings per share (EPS) of 82.5 cents per share for the financial year ended 30 June 2020 compared to 11.8 cents per share for the previous corresponding period.

Headline earnings per share (HEPS) of 82.4 cents per share are expected, compared to headline earnings of 10.9 cents per share for the previous corresponding period.

The expected increases in EPS and HEPS are due mainly to Group revenue increasing by R1,422.9 million, or 52%, to R4,185.0 million (2019: R2,762.1 million), a result of a R486.8 million increase in Ergo’s revenue to R3,064.3 million (2019: R2,577.5 million) and of R936.1 million in that of Far West Gold Recoveries (FWGR) to R1,120.7 million (2019: R184.6 million).

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At Ergo, a 33% increase in the gold price received offset an 11% reduction in gold sold, the result of a 3.0Mt drop in throughput to 20.2Mt due mainly to the COVID-19 national lockdown and interruptions in power supply from both Eskom and the City of Ekurhuleni.

FWGR enjoyed its first full financial year of Phase I production, taking full advantage of the higher gold price.

The impact of the increase in revenue on earnings and headline earnings was moderated by an increase in cash operating costs of R203.1 million, or 8%, to R2,626.0 million (2019: R2,422.9 million), due mainly to the inclusion of the cash operating costs of FWGR for the full financial year.

The increase of 8% in cash operating costs is also reflective of the total volume throughput increasing by 8%. Cash operating costs per unit were stable at R100/t.

EPS and HEPS increased notwithstanding the issuance of 168,158,944 shares to Sibanye Stillwater Limited, at an aggregate subscription price of R1,085,590,116, on 22 January 2020. This resulted in the DRDGOLD ordinary shares in issue increasing by 24% to 864,588,711 shares.

COVID-19 update

The Group temporarily halted its operations on 26 March 2020 pursuant to the announcement of the South African national lockdown. 

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The Disaster Management Act regulations issued by the Department of Co-operative Governance and Traditional Affairs define gold mining and refining as an essential service and therefore exempt from restrictions imposed by the lockdown.

In spite of this exemption, the Group elected to suspend production until it had implemented measures and protocols to limit the risk of infection to staff, decided in consultation with the Department of Mineral Resources and Energy and organised labour.

DRDGOLD only resumed production at its operations once it was satisfied that the appropriate measures and protocols to limit the risk of infection to staff and others were fully implemented and operational.

FWGR, with a relatively small footprint and staff living close by, was able to restart operations on 4 April 2020. Ergo restarted operations on 9 April 2020, with reclamation from a limited number of sites continuing through to the end of June. Ergo’s Knights plant only restarted on 7 May 2020.

Due to both operations being able to resume production relatively soon after the initial lockdown period, DRDGOLD was able to continue to pay salaries and wages, the understanding with staff being that everyone was on duty and on ‘standby at home’. During the initial restart, all staff returning were volunteers cleared as medically fit to work.

DRDGOLD’s staff showed unreserved support for the hygiene, social distancing and team and shift de-densification measures implemented. The Group’s infection rate has been low, and the 50-bed quarantine facility established at Ergo is presently vacant.

To assist in bringing urgent relief to people most impacted by COVID-19, DRDGOLD staff contributed R1.6 million through salary sacrifice to the nationwide Solidarity Fund. DRDGOLD further funded and participated in an initiative with Impophomo Rushing Waters and DRDGOLD’s social development partner, Umsizi Sustainable Social Solutions, to distribute some 5 420 food parcels to families in distressed communities neighbouring DRDGOLD’s operations.  

Management continues to manage the COVID-19 risk with no relaxation of any of its initial containment measures and protocols and through ongoing communication with and motivation of staff.

Liquidity

As at 30 June 2020, DRDGOLD’s cash and cash equivalents was R1, 715.1 million (30 June 2019: R279.5 million) with a revolving credit facility with ABSA Bank of R175 million, available if needed.

The Group remains free of any bank debt as at 30 June 2020 (30 June 2019: Rnil). Liquidity is further enhanced by current high Rand gold price levels.

The forecast information contained in this announcement is the responsibility of the directors of DRDGOLD, and such information has not been reviewed or reported on by the company’s auditors.

The condensed consolidated reviewed provisional results for the year ended 30 June 2020 are expected to be published on or about 1 September 2020.