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The commissioning of a new tailings project and higher gold prices swung gold producer, DRDGOLD [JSE:DRD] back to profit in the second half of 2019. The news was evidently music to the ears of investors, whose scramble for the company’s shares pushed up the price by as much as 10% on Thursday morning.
The company, which specialises in the recovery of gold from the retreatment of tailings – by-products left over from mining and extraction of resources – is finalising its financial statements for the six months ended 31 December 2019.
It said the numbers in its possession, which are yet to be scrutinised by its auditors, indicated that its earnings per share will likely stand between 47.78 cents and 49.22 cents per share. In the six months to December 2018, the company reported a loss of 7.2 cents per share.
Its headline earnings per share – which zoom into profitability of operations alone and ignore once-off events affecting profits – are expected to be between 47.68 cents and 49.12 cents per share compared to a headline loss of 7.2 cents. This is almost an eight-fold turnaround from previous loss, thanks to a 69% jump in revenue to R2.1bn.
The inclusion of Far West Gold Recoveries, which the company commissioned in December 2018, contributed over R500m in new revenues that DRDGOLD didn’t have before. DRDGOLD bought this tailings retreatment project from Sibanye-Stillwater in July 2018. By December 2018, the project had already contributed R19.5m to the company’s interim revenues. In the period under review, it grew this to R529m.
Far West Gold Recoveries was a stellar performer from the start. It has become cash-positive just four months after it was commissioned in December 2018. When the company acquired the treatment project from Sibanye, it was betting on its commercial success to become a “growth” stock. At the time, CEO Niël Pretorius because of higher grade dumps that came with the project, DRDGOLD would become more resilient, even in the event of lower gold prices.
But DRDGOLD’s fortunes kept trickling in the first year of Far West Gold Recoveries’ commissioning. Gold prices surged by more than 18% per ounce in US dollar terms and DRDGOLD said it realised a 26% higher average Rand gold price in the six months to December 2019. The company’s Ergo mine also benefitted from the gold price increase, growing its revenue by R356.6m to R1.6bn. The revenue growth in Ergo was also supported by a 3% increase in gold sold.
