DRDGOLD Limited (DRD) Earnings

Management highlights

- **Financial and Dividend Performance**: DRDGOLD achieved its 19th consecutive year of dividend payments, declaring a final cash dividend of ZAR 1.20 per share (totaling just over ZAR 1 billion), with total declared dividends for the year equal to 65% of FY2026 free cash flow. The company remains completely debt-free with a closing cash and cash equivalents balance of just under ZAR 2.8 billion, and its environmental rehabilitation trust fund surpassed the ZAR 1 billion mark, a key milestone. - **Vision 2028 Capital Project Milestones**: The 5-project Vision 2028 expansion program hit all key FY2026 milestones, with FY2026 representing the peak capital spending year: (1) Daggafontein tailings storage facility at Ergo was commissioned in June 2026, reaching its target 750,000 tonnes per month throughput and adding 120 million tonnes of deposition capacity; (2) The Withok tailings dam at Ergo is in the authorization phase, with all regulatory applications submitted and approvals pending; (3) The DP2 plant expansion at Far West Gold (doubling capacity from 600,000 to 1.2 million tonnes per month) commissioned its on-site smelt house in July 2026, with full plant commissioning expected in Q1 FY2027; (4) 95% of the 135-kilometer pipeline network for Far West is complete, and the required water use license for the Libanon reclamation station was received in July 2026; (5) The RTSF tailings facility at Far West (one of the largest lined tailings dams globally, with 800 million tonnes capacity and 35-year mine life) is approximately 2/3 complete, with full commercial operation targeted for Q1 FY2028. - **Sustainability and Operational Performance**: The company maintained strong safety trends, with continued improvement in lost time injury frequency ratios. Key sustainability achievements include: a 23% reduction in potable water usage (saving 900 million liters) as part of a multi-decade intentional reduction program; a 23% reduction in carbon emissions (from 303,000 tonnes to 233,000 tonnes) driven by the operational solar farm; only 0.5% of air quality dust emission exceedances against regulatory thresholds across 300 monitoring points, reflecting strong tailings facility management. The on-site solar farm generated 146 gigawatt-hours of power for internal use, reducing Eskom grid consumption to 8.6 kilowatt-hours per tonne of material processed (from 13.6 kWh/t in 2024), delivering cost savings of ZAR 13.50-ZAR 14.50 per tonne at Ergo, aligned with prior guidance. The company added 67 million tonnes of reserves via the Kloof 2 dump transfer, extending Far West Gold's mine life by 4 years, offsetting 23 million tonnes of reserves depleted during the year. - **Strategic Value Proposition**: DRDGOLD's core business of tailings reclamation delivers profitable, sustainable environmental remediation of historical mining footprints. The company remains intentionally unhedged to give investors full exposure to gold price movements, and management notes the share price has recently begun tracking gold price and peer movements more closely after a period of lag, reflecting growing investor confidence in project delivery.

Guidance

- For FY2027, DRDGOLD guides gold production of 160,000 to 170,000 ounces, with cash costs of just over ZAR 1 million per kilogram and all-in sustaining costs of ZAR 1.2 million per kilogram. - Planned total capital expenditure for FY2027 is just over ZAR 3 billion, down from the peak ZAR 3.5 billion spent in FY2026. Capital spending will continue on RTSF completion, and is expected to begin on Withok construction in late FY2027 if regulatory approvals are received by end-2026. - Key milestones targeted for FY2027 include: full completion and commissioning of the DP2 plant expansion by October 2026, achieving beneficial occupation of the RTSF tailings facility, full commissioning of the Libanon reclamation station, obtaining regulatory approvals to commence Withok construction, and completing Withok construction by 2029 (delayed from the original 2028 target). - Post-Vision 2028, once major capital expenditure declines, management expects free cash flow available for dividends to increase substantially if gold prices remain stable and cost discipline is maintained. Management does not provide guidance for FY2028 and beyond, citing too many uncontrollable assumptions for long-term forecasting. - DRDGOLD is actively exploring expansion opportunities for its tailings reclamation model outside of South Africa, focusing on assets in Africa and South America.

Segment performance

DRDGOLD operates two core product/operating segments: Ergo and Far West Gold. - **Ergo**: Revenue of ZAR 8.1 billion in FY2026, up from ZAR 5.7 billion year-on-year (YoY), representing 72.3% of total group revenue. Gold production increased 1% YoY, with cash operating costs increasing 7% YoY to ZAR 1,120,000 per kilogram (a 6% unit cost increase YoY). Operating profit more than doubled from ZAR 2 billion last year to ZAR 4.1 billion in FY2026. - **Far West Gold**: Revenue of ZAR 3.1 billion in FY2026, up from ZAR 2.2 billion YoY, representing 27.7% of total group revenue. Cash operating costs increased 10% YoY from ZAR 674 million to ZAR 744 million. Operating profit increased from ZAR 1.5 billion to ZAR 2.3 billion YoY, achieving a 76% operating profit margin with a cash operating cost of ZAR 561,000 per kilogram and all-in sustaining cost of ZAR 639,000 per kilogram. On a group basis, total revenue was ZAR 11.2 billion, up 42% YoY. Group operating profit was ZAR 6.4 billion, an 83% YoY increase. Headline earnings reached ZAR 4.2 billion, up 89% YoY, while free cash flow hit ZAR 2.2 billion, up 85% YoY after ZAR 3.5 billion in capital expenditure. Total annual gold production came in just under 5 tonnes, approximately 5,000 ounces above the high end of prior guidance, with an average yield of just under 0.2 gram per tonne (a 2% YoY increase).

Risks & headwinds

- Regulatory approval risk: Approval for the Withok tailings dam could be delayed beyond the end-of-2026 target. While Daggafontein provides sufficient short-term capacity to avoid an operational crisis, a long delay would require reducing Ergo's throughput by 650,000 tonnes per month until Withok is completed, which would reduce revenue and profitability and incur additional costs. - Gold price risk: Higher current trucking volumes of higher-grade material depend on strong gold prices to maintain attractive margins; a significant drop in the gold price would shrink these margins and reduce overall profitability. - Input cost risk: Diesel is a material input cost for trucking and construction activities, and prices are volatile, creating upward pressure on operating and capital costs. The company built 11-17% risk factors into FY2027 budgeting for diesel and other volatile cost components, but higher-than-expected price increases could hurt margins. - Technical and project execution risk: The RTSF facility is a large, complex engineering project, and management is intentionally prudent with commissioning to avoid safety or environmental failures, as any incident would have long-term negative consequences for the 35-year planned facility. Any delays in project execution would push back the increase in production and free cash flow. - Uranium co-production risk: Co-producing uranium and gold from tailings requires conflicting process conditions (acidic vs alkaline PH levels), leading to lower recovery rates for one of the two metals. The resulting revenue/cost tradeoff is not economically justified at current South African resource grades and prices.

Analyst Q&A

• Q: What are DRDGOLD's additional ambitions for renewable energy, and is there an opportunity to process platinum group metal tailings?

  A: The company already has a locked-in 30-megawatt additional renewable energy facility that will come online in a few years, which will offset increased power demand from the Far West expansion and prevent the company's carbon footprint from growing. Management supports additional solar investment, though the internal team is still recovering from the first solar farm implementation. Regarding PGM tailings, there is substantial latent opportunity, and the natural partner for this work is Sibanye-Stillwater. DRDGOLD stands ready to contribute technical expertise if invited by Sibanye, which is currently prioritizing and restructuring its asset portfolio.

• Q: What is your outlook on adding uranium recovery to your tailings operations?

  A: Uranium and gold recovery require incompatible process conditions: uranium needs acidic leaching, while gold recovery operates in an alkaline environment. Co-producing both requires sacrificing recovery rates for one metal, and the lost gold revenue from even a small 0.01 gram per tonne reduction in gold yield outweighs any potential profits from uranium production at current South African grades. No existing new technology has resolved this tradeoff, so the company has no plans to pursue uranium recovery.

• Q: What is your capital allocation and dividend policy going forward?

  A: The core policy is straightforward: as Vision 2028 capital expenditure declines, provided operating conditions and gold prices remain stable, the dividend payout and absolute dividend per share will grow. The company already paid out 65% of FY2026 free cash flow as dividends, and this payout ratio will increase as large-scale capital spending falls post-project completion.

• Q: If Withok approval is delayed beyond December 2026, what is your contingency plan?

  A: Daggafontein was specifically built to provide short-term leeway by reducing deposition onto Brakpan, so a moderate delay is not an existential risk. If approval is delayed, Ergo would simply operate at a reduced throughput of 750,000-1,000,000 tonnes per month until approvals are received. This is not ideal, it reduces output and incurs extra costs, but it does not threaten ongoing operations.