DRDGold hurt by power disruptions
Power-related problems shaved R27m off DRDGold’s interim revenue, contributing towards a slide into a loss for the period in which the tailings retreatment specialist began a new project.
Power-related problems shaved R27m off DRDGold’s interim revenue, contributing towards a slide into a loss for the period in which the tailings retreatment specialist began a new project.
DRDGold recorded a R46m loss for the six months to endDecember compared with a profit of nearly R61m in the same period a year earlier. Revenue was flat at R1.25bn. DRDGold said it had lost production of 49kg directly related to power disruptions, including a fire at a substation, a lightning strike damaging a transformer at one of the miner’s sites and blackouts during the six months.
Based on an average received gold price of R554,760/kg for the period, the value of the lost production was R27.2m. Gold output was 3% lower at 73,304oz.
DRDGold produced its gold at an all-in sustaining cost of R551,131/kg a figure skewed by the inclusion of the new project compared with R500,125/kg a year ago.
A decision on a full-year dividend would be made at the end of the 2019 financial year and would depend on whether debt remained in the company after it spent R300m building a new tailings business to the west of Johannesburg, said CEO Niel Pretorius. If a dividend was not paid at year-end, it was almost certain to be paid by the interim period of its 2020 financial year.
DRDGold has concluded a deal with Sibanye-Stillwater to acquire its vast tailings dumps to the west of Johannesburg in exchange for 38% of the dedicated tailings recovery firm.
The first phase of developing a tailings retreatment business on these assets is nearing completion, and DRDGold bumped up its full-year gold output target to between 157,000oz and 165,000oz from an earlier guidance of up to 154,000oz.
The cash operating cost in the full year is forecast to be about R500,000/kg.
“With Far West Gold Recoveries off to a flying start, we look forward to the benefit of its contribution in the second half of financial year 2019,” said Pretorius, who noted Eskom was the company’s biggest risk.
The new project will be in commercial production by July, Pretorius said, adding it had far less electricity supply risk than its Ergo business to the east of Johannesburg, which drew power from a number of sources to turn old dumps to liquid mud that was pumped to the Ergo plant for treatment.
The Far West project drew power from lines serving large mines and Eskom was unlikely to cut electricity and trap thousands of miners underground, Pretorius said.
DRDGold is busy with a study into a second-phase expansion, which could entail a new processing plant at Sibanye’s nearby Kloof mining footprint or an expansion of the plant DRDGold has refurbished.
The latter could save R1bn in capital expenditure.
A new tailings facility will cost between R400m and R1bn, depending on the size DRDGold opts for, Pretorius said.
The flagship Ergo retreatment business had a difficult six months with the power disruptions, trucking costs and lower grades.
DRDGold has put in place a 50,000oz hedging programme, or forward sales of gold, with prices for the metal to end-May 2019 set between R565,000/kg and R609,000/kg.
This instrument was designed to reduce the financial risk stemming from the development of the West Rand business, which already has processing plants and a critically important deposition site for fresh tailings.