Our opinion on the current state of DRDGOLD(DRD)

DRDGOLD (DRD) holds the distinction of being the Johannesburg Stock Exchange's (JSE) oldest listed company since 1895. It was followed by SA Breweries, listed in 1897, which has since been acquired by Anheuser Busch. Today, DRDGOLD focuses on gold surface treatment operations with an all-in sustaining cost (AISC) of extraction at approximately R627,247 per kilogram, contrasting with an average received gold price of R917,996. The company primarily engages in re-treating surface dumps, extracting trace amounts of gold left from previous mining activities using modern techniques.

This type of operation offers significant advantages, notably its lower risk compared to underground mining. It faces fewer challenges related to labor unions and avoids the high costs and complexities associated with underground operations. Additionally, the life and grade of its deposits—and consequently its profitability—are well-determined, contributing to its operational efficiency.

However, DRDGOLD's shares tend to be volatile, influenced heavily by the fluctuating gold prices. Despite this, the company maintains a debt-free balance sheet and robust free cash flows. A strategic move was made when Sibanye swapped its surface dumps for an additional 265 million DRD shares, increasing its stake to 38%. On 10th January 2020, Sibanye further raised its shareholding to 50.1% for R1,086 million.

CEO Niel Pretorius has ambitions to expand operations by integrating other tailing projects in the West Rand to form a large-scale unified re-processing facility. Additionally, the company is investing in renewable energy with the construction of a 20 MW solar and battery facility.

For the six months ending 31st December 2023, DRDGOLD reported a 12% increase in revenue and a 10% rise in headline earnings per share (HEPS). However, gold production declined by 7%, and gold sales decreased by 8%, although the average received gold price rose by 13%. The introduction of higher-grade material from legacy and clean-up sites and the commissioning of high-grade projects like the Valley Silts and Rooikraal sites provided some operational relief.

In the subsequent update for the quarter ending 31st March 2024, the company experienced a 3% reduction in gold production and a 4% decrease in gold sales. Nevertheless, the average gold price received increased by 5%, and the AISC in US dollars decreased by 4%. Notably, the 4L3 and 5L27 sites at Ergo Mining Proprietary Limited ("Ergo") were commissioned in late January 2024, marking significant developments in their operations.

Despite reaching a peak share price of 2458c on 9th May 2023, DRDGOLD's shares have since been on a decline. However, they are now poised potentially to break through the downward trendline. The stock remains a volatile commodity share, largely influenced by international gold prices.