Friday, January 21

DRDGold Operating Profit Increase to R2.2 Billion, Thanks to Strong Gold Price

FIFI PETERS: DRDGold has more than doubled its earnings for the year, driven by higher sales and a stronger gold price. The miner also paid a dividend of 40 cents per share, marking its fourteenth consecutive year of rewards to its shareholders. We have DRDGold CEO Niël Pretorius on the show with us. Niël, thank you very much for your time. Your results indicate that it has been a good year for your company. What’s behind the strong increase in sales, up to 26%?


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NIËL PRETORIUS: It is year after year; remember we are coming off a Covid year so there will always be a slight increase if you only run the business to your ability. And then if you were to compare this year’s volume performance to previous years, then our volume performance has actually been exceptionally good, but the plants have been predictable. They have been very well managed by our operational staff, so we managed to get the tons to the mill. That’s the key to a high-volume trade like ours.

FIFI PETERS: And how much of the heavy lifting, when you look at your earnings for the year, was due to the price of gold and the favorable gold environment we are in today?

NIËL PRETORIUS: Oh that’s huge. We produce just under six tons of gold a year. So you can imagine with R1,000 that the price of gold is moving, which is equal to R6,000 in revenue. If you multiply that by the number of tons, it could be huge; it is a huge contributing factor. We are very satisfied with a level where the price of gold seems not to stabilize, but is in the range in which it is trading now: around R870,000 / kg. It is still a very favorable number for us. It’s not as good as last year, but last year was an outlier. I think the market understands it and it has been included in the price of most gold producers.

FIFI PETERS: So in terms of where the price of gold could go from here on out, it sounds like you’re saying that you don’t expect to see the levels you saw last year. Is that accurate?

NIËL PRETORIUS: There are so many different things that drive the price of gold. There’s the fundamentals, the global economic fundamentals, like the excess money supply, the fear of inflation, the scarcity of gold, that sort of thing. And then there are the feeling-driven things, the things that get people excited; a billionaire tweets about a new cryptocurrency and suddenly a large amount of money is loaded. Both things have an impact.

Personally, what we are trying to track is fundamentals, and we believe that gold’s fundamentals are still strong and there appears to be very good support for gold at the $ 1,700 / oz mark, which we saw about two weeks ago when it was down quite a bit. abruptly. And then those who I think do this kind of fundamental analysis chimed in and said this is a good level for us to get back to metal.

FIFI PETERS: That billionaire, of course, is called Elon Musk, the South African. Were you born in South Africa or are you here by descent?

NIËL PRETORIUS: It ended here. He went to school in South Africa. He went to Pretoria Boys High.

FIFI PETERS: You sound like you know him.

NIËL PRETORIUS: No i don’t know but i know from he. He is a genius. I think they have a little game, him and Jeff Bezos, to see who can move things the most with a single adjustment. I say that jokingly.

FIFI PETERS: Well, I guess we’ll never know. Perhaps later in the future, we should meet them.

But if you are sticking with maybe something related to Elon and his world, I see that you are looking to venture further into the battery business. Tell us a little about that.

NIËL PRETORIUS: Yes. Sibanye-Stillwater, our main shareholder, they own 40% of the company, they are moving into that space. If you just look at what we do, extracting gold, we are producing gold from tailings, which in essence is a restoration of environmental activity, mainly using gray water for that.

Now we are also venturing into solar energy, setting aside enough money to start implementing infrastructure to become part of the battery metals industry. That is, to also produce, from tailings, the metals that are used for the generation and storage of clean energy. It’s such a good lineup.

We believe that we are at the beginning of a very long cycle in that regard, because we have the feeling that the world is determined to make this move from dirty energy to clean energy. I think the way the world responded last year to reducing carbon emissions, animal behavior, just air pollution in a lot of cities, that’s what we really want. So I think this is going to happen. Clean energy is happening and we want to be a part of that. I think our business is set up to be a part of that and there is no conflict in being a part of it.

FIFI PETERS: How much money are you setting aside to be a part of that?

NIËL PRETORIUS: Well, initially for the first year alone, of our 600 million rand of capex that we are setting aside for this year, a little over 100 million rand will go towards some of the initial steps to prepare us to enter the generation of solar energy. can. And then obviously we would want to look at some of the tailings that contain some of the waste product, that waste material that contains battery metals. We will start to feel that industry to see where we can get involved.

FIFI PETERS: However, if we stick to the current reality of the present, we are still fighting this thing called Covid-19, Niël, and I am interested in how it is still affecting your business today. Which parts are perhaps giving you many more sleepless nights than they should?

NIËL PRETORIUS: First of all, I think they have given us a gift, something wonderful with which we can begin to exercise a great degree of control over the impact that Covid is having, simply by vaccinating ourselves, doing the sensible and responsible thing and vaccinating ourselves. We are committed in that sense, as a company. In terms of avoiding infection and keeping the workplace safe, I believe that our staff have been very responsible in following the protocols that we put in place so as not to get infected in the workplace. I think the workplace was a safe place. As a consequence, we saw very few outages in the last 12 months in terms of production, in terms of performance, and we did not have a large number of infections.

That is why I think we have been responsible for our approach. We will remain responsible in our approach. And as a result, we were fortunate that the impact on our business was very limited.

FIFI PETERS: In terms of vaccination, what is your position? Is it something your workers can choose to do voluntarily, or is it something where you could take a tougher stance towards your workers and perhaps demand that they do so?

NIËL PRETORIUS: We are cheering on our workers. We think they are sensible. They have been responsible in the months when all we had was social distancing and good hygiene. We are seeing many of our staff members signing up and taking the opportunity to get vaccinated. They know my position. I’m not hiding the fact that I think not getting vaccinated is irresponsible, and maybe even a bit selfish. But we are not going to force anyone to do anything.

It may have an effect on where we can safely deploy staff members who choose not to take advantage of that opportunity, because we cannot put other staff members at risk. But our steps will not be punitive. It could be operational based, and operational requirements will determine how and where we can deploy personnel exercising this right.

FIFI PETERS: Niël, I imagine you must be following the economic data and you would have seen those shocking job numbers that came out yesterday. I am wondering with the mining sector in place right now and having received this gift in the form of higher commodity prices today, how do you intend to invest in South Africa and perhaps be a job-creating agent?

NIËL PRETORIUS: Well, sustainable development has been a prominent feature of our strategic thinking at our company for many, many years. I believe that we have stated in the past, and have not changed, our point of view on this, that social capital and the development of a cohesive socio-economic structure is very important for the future of South Africa.

The solution for the South African economy is not that gold mines necessarily employ more people to do the same job. The solution is to take what we have, take advantage of it and optimize it. I think maybe we need to reset the point where we want to start. A large proportion of South Africans are unemployed and receive a social allowance every month. I am not convinced that we are optimizing that social subsidy, (which is basically) a monthly recapitalization of the informal economy that is not being used properly.

If you just look at the Pep Stores model (for) many, many years, Pep became the largest retailer in South Africa because they were selling a kind of bulk product at a very low margin. Basically they have been getting social grants for many, many decades in South Africa, and they have provided a service. People could buy decent clothes at an affordable price. I think that is how powerful social grant capital inflows could be simply to reset our economy.

I believe that to alleviate poverty, the first step out of poverty and the most dynamic and potentially powerful way to alleviate poverty is to develop the informal economy and also take advantage of the social subsidy system to achieve this. And we are doing, in my opinion, something that could potentially be of good use, could be used to design a model around that. We are building it on a broad-based livelihood program that has been very effective. More than 5,000 families have adopted it. That is our network and I think it is the central strategy or the central ideology that drives us. We can have another discussion on this, but the focus is very specific.

It focuses on five very specific activities in terms of human capital development, in terms of services, environmental management, data access, education, and then self-improvement in terms of the optics and aesthetics of many areas. The goal is to have, let’s call it, an inclusive enclave of self-sustainability and communities that would otherwise find themselves destitute and waiting for a government with limited capacity to deliver services that it is unable and unable to pay. I think that’s where we can step in as capital to provide the knowledge base for that and the platform. We could be the economic facilitator of a very powerful social association.

FIFI PETERS: You know what? I happily accept your invitation. Thank you very much, and I hope to have a fuller conversation on that, because I think it is really critical to building a sustainable economy here in South Africa.

But we’ll leave it there for now, sir. Thanks for your time. That’s Niël Pretorius, the CEO of DRDGold.

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