DRDGold gets ready to face tough con­di­tions

Head­line loss of R10.2m

The Star Late Edition - - BUSINESS REPORT - Sandile Mchunu

DRDGOLD said yes­ter­day that ad­verse changes in the global mar­ket and the sus­tained strength­en­ing of the rand against the dol­lar were likely to hurt its op­er­a­tions and af­fect the com­pany’s prof­itabil­ity in the fu­ture.

The com­pany said these fac­tors had al­ready im­pacted on its op­er­a­tions in the six months to De­cem­ber.

The miner said the price of gold, which has tum­bled more than $200 (R2 643) since July last year, had dented its prof­itabil­ity prospects. Jor­dan Weir, eq­ui­ties trader at BayHill Cap­i­tal, said the fall in the bullion spot price and the cur­rency ap­pre­ci­a­tion had squeezed most com­pa­nies in the gold sec­tor.

“They have all been af­fected by the a gen­tle fall in the gold spot price at the back end of the fourth quar­ter in 2016 as well the al­most 9.5 per­cent strength­en­ing of the rand against the US dol­lar,” Weir said. “The all-in sus­tain­ing costs – the cost of ex­tract­ing the gold from the ground and gen­eral op­er­at­ing costs – have been squeezed higher.”

DRDGold said the all-in sus­tain­ing costs mar­gin in­creased to 6 per­cent dur­ing the pe­riod and said it ex­pected the un­cer­tain­ties to con­tinue this year.

In its re­sults, the com­pany re­ported a head­line loss of R10.2 mil­lion for the six months to end-De­cem­ber com­pared to R10.9m head­line earn- ings re­ported in 2015.

It blamed the losses on the start of the fi­nal clean-up and clo­sure of var­i­ous sites at its Crown mines, caus­ing ac­cel­er­ated de­pre­ci­a­tion and re­trench­ment costs of R18m each.

How­ever, rev­enue in­creased to R1.19 bil­lion, slightly up from R1.13bn re­ported a year ago. Op­er­at­ing profit was up 4 per­cent to R172.6m on a 7 per- cent lower gold out­put. Gold pro­duc­tion of 2 100kg re­flected a 2 per­cent de­cline in through­put to 12 632 000 tons and a 6 per­cent de­cline in yield to 0.166 grams per ton.

DRDGold shares dropped 1.57 per­cent to close at R8.17 on the JSE yes­ter­day.

Weir said the shut­ting down of the var­i­ous sites and re­lo­ca­tion of busi­ness dur­ing the per- iod also had a neg­a­tive im­pact. “This gave rise to re­trench­ment costs as well as the ac­cel­er­ated write-downs of cer­tain as­sets that were in­volved in the com­pany’s Crown projects,” he said. “These costs are ex­pected to last un­til at least the third quar­ter of 2017.”

The com­pany said it re­mained wor­ried that reg­u­la­tory de­vel­op­ments which have re­sulted in dif­fi­cul­ties in main­tain­ing nec­es­sary li­cences or other gov­ern­men­tal ap­provals could hurt its com­pet­i­tive ad­van­tage. “Changes in busi­ness strat­egy, any ma­jor dis­rup­tion in pro­duc­tion at key fa­cil­i­ties or ad­verse changes in for­eign ex­change rates and var­i­ous other fac­tors can im­pact on the re­sults in the year ahead,” the com­pany said.

PHOTO: SUP­PLIED

DRDGold says that ad­verse world mar­ket con­di­tions and rand strength will hurt its op­er­a­tions and af­fect its prof­itabil­ity in fu­ture. The shut­ting down of var­i­ous sites and re­lo­ca­tion of busi­ness dur­ing last year also had a neg­a­tive im­pact on the miner.

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