Prepared remarks
Welcome, and thank you for joining us. This is our first live presentation since COVID. It's great to be back in a setting where I can see more than just the upper section of the attendees. We would have preferred to share these results in person, look you in the eye, and discuss what we have accomplished, our future plans, and how we see ourselves moving forward. Before we start, let me turn off this device. Riaan Davel is here with me and will cover the financial portion of the presentation, along with Jaco and other colleagues. At the end of the presentation, we will be happy to address your questions and provide further insights on the material discussed. You're aware of the disclaimer regarding forward-looking statements, so please keep that in mind. Now, let's look at the financial performance for '24. We are committed to maintaining our dividend record, marking the 17th consecutive financial year that we are paying a dividend. This year, the final dividend is ZAR0.20, which is smaller as we invested significantly in our future. Reflecting on my 21 years with DRD, I recall only four of those were without dividends, which were the initial four years. Our revenue for the year increased by 14%, reaching just over ZAR6 billion, while our operating profit also rose by 14% to just beyond ZAR2 billion, aided by a strong gold price. We achieved 84% of our targeted volume throughput for the year for various reasons, but managed to hit 93% of our gold production target. Innovation and effort helped us navigate these challenges. The headline earnings increased by 4%. A significant point is our investment in a solar plant, which has a capacity of 60 megawatts, now being connected to the grid. Additionally, we are establishing around 60 megawatts of battery storage to reduce our dependence on grid electricity, resulting in substantial savings. In terms of operating performance, we produced over 5000 gold, representing a 5% year-on-year increase, although it was about 7% below our target due to lower volume throughput. We maintained a healthy sustaining margin of 24%, influenced by the elevated gold price, but throughput was only 86% of what we aimed for, and yield was down year-on-year. Cash operating costs were higher than expected, reaching ZAR833,000 per kilogram instead of our guidance of just under ZAR800,000, mainly due to the low volume throughput we experienced. On the ESG front, unfortunately, we experienced a fatal incident at Eskom, marking the first fatality in six years and the first of this type in over three decades. In response, we have implemented a range of measures to minimize future risks. A key highlight is the progress on our solar project, which has already resulted in a 6% reduction in electricity consumption, potentially saving us between ZAR9 and ZAR15 per tonne, varying with power tariffs. Our water consumption has also seen a remarkable 58% decrease, largely due to earlier measures to optimize water usage, with 95% of our mining water being recycled. We are initiating vegetation on our tailings dams to prevent dust, creating biodiversity opportunities as natural species return. We monitor dust closely, as most of our facilities are near communities, and we've effectively minimized dust emissions. Instead of using the term ESG, I prefer to refer to it as a component of sustainable development, which has become integral to our strategic direction. Our aim is to create integrated value across various resources, aligning our environmental actions with cost efficiency to mitigate business risks. Regarding our business renewal strategy, we have a history of maximizing our resources and plans for the future. We recently acquired the Far West gold operations and have developed a two-phase approach – the first phase was production with minimal capital investment, while the second phase is more capital-intensive and aims to fully utilize available resources. We’re re-evaluating the Ergo operations narrative as we approach the end of the original mining resource. We’ve already depleted many initial reclamation sites and have decided to extend Ergo’s lifespan through what we’re calling Ergo 2.0. Licensing for new sites has been sorted, and we are preparing for Vision 2028, with targets set for July 1, 2027. Construction is underway at new sites, formerly agricultural land, which allows us to repurpose it efficiently. We are excited about the community engagement and job creation opportunities this project will bring. On the financial side, the delays in project execution have impacted trends. In the first half of '23, there was a significant downturn in Ergo's volume due to several high-volume sites being offline, though yield remained steady. Despite challenges, cash operating costs have proven resilient. The Far West Gold operations have progressed smoothly, with the new dam currently at capacity and yielding strong returns. Now, I’ll hand it over to Riaan to discuss the consolidated financial position.
Thank you very much, Niel. Good morning, everyone. It's really good to be back in person. It's been a long while since we had to stay at a screen. This is much better. I also appreciate the continued online participation, and it's wonderful to talk to the results. If you would allow me, as I always try to do, I call it the story behind the numbers. For me, that is people. So Niel referred to, for every tonne that we mine, you can imagine there’s an engineer, security personnel tracking our vast footprint, administrative personnel, and others. We run a business 24 hours a day, 366 days a year. The remarkable numbers I’ll present are not possible without the consistent efforts of everyone on the ground. I'd like to acknowledge every single individual working for DRDGOLD and the contractors that make our mission a reality. The annual financial performance focuses year-on-year, specifically June 2024 compared to June 2023. For Ergo, revenue increased by 10%, driven by a substantial gold price increase of 20% year-on-year, with the rand gold price averaging just above ZAR1.2 million. This trend continues as we speak. However, gold sold dipped by 8% year-on-year. On the cash operating cost side, as Niel described, producing was challenging, consequently resulting in costly tonnes. Year-on-year, cash operating costs increased by 12%. Operating profit for Ergo increased by 7% year-on-year, with an operating profit of nearly ZAR1 billion — a respectable performance for the Ergo team. Regarding Far West, revenue overall surged by 24% year-on-year, with gold sold rising by 2%. On cash operating costs, year-on-year cost increased by 23%. Although this figure may appear concerning, it is essential to consider the operational context. Now operating two sites contributes directly to the cost structure. Operating costs increased due to an increase in reagent consumption and longer pumping distances from Driefontein 3 to Far West. Nevertheless, the operating profit indicates a 22% increase year-on-year, approaching ZAR1.1 billion. Bringing both operations together provides a stable operational margin, with an all-in sustaining cost margin increasing from 20% to 24%. However, looking at free cash flow, while it may seem on a downward trend, it is essential to consider the positive growth aspect and the context of our cash CapEx program of ZAR2.7 billion and an overall cash CapEx close to ZAR3 billion. It’s important to note that spending in this manner reflects a sound cash utilization strategy. Ending with headline earnings per share, as Niel mentioned, it is up by 4% year-on-year. We may be proud of the dividend situation, but we must remember that we have set aside funds for the extensive capital program we are focusing on over the next three to five years. The income statement reflects revenue up by 14%, primarily driven by a 20% gold price increase. Gold sold down 5%. Cost of sales increased by 13% year-on-year, while our rand per tonne costs rose by 18%. Finally, gross profit sits at ZAR1.8 billion, indicating a strong operational performance.
Thanks, Riaan. I'm not going to say much about this issue other than maybe to say, can you imagine if we get this right? What it might look like then? Looking at ESG performance there, again, my favorite word, ESG. If you want to refer to it as sustainable development, please feel free as long as the market insists that ESG is an important concept. Let's talk through these topics. We have a decade-long trend of how sustainable development has shaped DRD's strategic thinking, focused on reducing carbon footprint while improving business resilience. Power consumption has swung positively, and we've made efforts to drastically decrease potable water use by 83%. The environmental expenditure has been ZAR530 million over the same time. We've also established vegetation over 477 hectares, significantly improving local quality of life and biodiversity within the area. Employment figures remain stable at around 870 individuals in full-time positions. Our socio-economic development initiatives are also on the rise, showing a direct correlation between social stability and ease of doing business. Our governance within the South African mining context emphasizes effective tailings management, and we've implemented robust monitoring systems since taking control of tailings management. I believe we have achieved exceptional management at our Brakpan facility, which can serve as a benchmark for others. Moreover, we see promising developments with the World Gold Council, particularly in positioning gold as an investment opportunity. We are optimistic about driving the narrative forward. Overall, we are excited about our Vision 28 objectives and will continue aligning our goals with our operational capabilities.
Questions and answers
Can you talk about the implications for your dividend payouts over the next three years of this high capital expenditure program? Riaan described your final dividend as light. I would call it downright stingy. Is this what shareholders have to look forward to for the next three years?
If we don't make money, then there won't be a dividend. If we continue to generate free cash after the growth capital is accounted for, then we will continue to pay dividends. We must responsibly manage our cash flows. The priority has to be capital investment over dividends.
In the past, you have been very outspoken on the value of your shares and prospects. At ZAR70 or ZAR80 a share, what is your assessment of DRD's value in the current share price?
The only shares I own are DRD shares. I'm not selling them now. I want to emphasize that the solar farm is not just a success; it's likely a benchmark for project execution in South Africa. But there is still considerable investment that needs to happen. Imagine if we get it right by adding an extra tonne to our profile while keeping the gold price stable with a declining cost profile; it could be very exciting.
Is there anything you could tell us about the potential for a copper recovery operation from the tailings dams in the area?
We are currently assessing the ore body. We have an option to acquire half of that resource, which is about an 80 million tonne resource. Its complexity requires a thorough analysis of the samples, after which we will take a decision. The plan is to explore the copper opportunity cautiously and on a conservative budget.
The business case for solar seems compelling. Would you consider developing a similar facility on the West Rand? Could you also go up to 100% renewable energy in the future?
We do not have any immediate plans to build another solar farm at this time. However, we are always on the lookout for opportunities to participate in green energy distribution. We're not planning a West Rand solar farm, but we'll consider options for pulling green units off the grid.
You mentioned an interest in platinum tailings, but is there progress in pursuing that?
The decision largely lies with Sibanye-Stillwater at this stage. The operational model is straightforward, but the complexity arises from ownership and regulatory frameworks which must be disentangled before we can proceed.
If you achieve a cash operating cost in the ZAR833,000 to ZAR870,000 range, it would mark the smallest percentage increase in operating costs historically. The margins look positive if the gold price remains stable.
Absolutely. The construct of our cost profile is changing. As we streamline operations, fewer machines will lead to reduced expenses. The solar farm will factor into this equation significantly, resulting in expected improvements over time.
Ladies and gentlemen, thanks for attending. It’s been a pleasure having you here. Hopefully, you’ll stay for a chat and a cup of tea before we all go our separate ways.