Our opinion on the current state of DRD

DRDGOLD (DRD), established in 1895, holds the title of the JSE's oldest listed company, with SA Breweries, listed in 1897 and later acquired by Anheuser Busch, following it. DRD operates as a gold surface treatment entity, boasting an all-in sustaining cost of extraction slightly over R627247 per kilogram, which is notably less than the average received gold price of R917996. The company focuses on re-treating surface dumps containing trace amounts of gold that modern extraction methods can profitably recover. This operation type is significantly less risky than traditional underground gold mining due to reduced union exposure and the absence of underground operation expenses and challenges. Its profitability is well-defined due to known life and grade.

The company's share price is subject to volatility, influenced by fluctuating gold prices. However, DRD maintains a debt-free balance sheet and robust free cash flows. A strategic deal with Sibanye increased Sibanye's shareholding in DRD to 38% through a swap of surface dumps for an additional 265m DRD shares. On 10th January 2020, Sibanye further raised its stake to 50.1% for R1086m. DRD Gold's CEO, Niel Pretorius, aims to consolidate various tailing projects in the West Rand into a large, unified re-processing operation. Additionally, the company is developing a 20mw solar and battery facility to enhance its sustainability.

For the fiscal year ending 30th June 2023, DRD reported a 7% increase in revenue and a 13% rise in headline earnings per share (HEPS). Despite facing challenges such as delays in obtaining a water use license and global supply chain disruptions, which postponed the commissioning of new sites, the company managed to perform within its guidance range. In the quarter ending 30th September 2023, gold production increased by 5%, with all-in sustaining costs rising by 3% and the average price per kilogram decreasing by 2%. Cash and cash equivalents saw a significant decrease due to dividend payments and investments in capital expenditures and the solar project.

Looking ahead to the six months ending 31st December 2023, DRD anticipates a HEPS increase of between 5% and 15%, with group revenue rising by 12% and operating costs by 14%. Despite reaching a high of 2458c on 9th May 2023, the share has been on a downward trend, reflecting its nature as a volatile commodity share influenced by the international gold price.

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Snapshot: 4/2024

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