DRDGOLD Limited Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Revenue for the year was up 14% to over ZAR6 billion, and operating profit was up 14% to over ZAR2 billion. It's the 17th consecutive dividend year, with the final dividend at ZAR0.20.
• Operational: Produced just over 5000 gold, a 5% year-on-year increase. Sustaining margin was 24%. Cash operating cost was ZAR833,000 per kilogram, higher than guidance.
• ESG/Sustainable Development: A fatal incident at Eskom led to implemented measures to reduce risk. A 60-megawatt solar plant and 60-odd megawatts battery storage were installed, reducing electricity consumption by 6%. Water consumption decreased 58%, and 477 hectares of vegetation were planted on tailings dams.
• Strategy and Transition: Vision 28 aims to reposition the business. Ergo 2.0 will extend operations, and Far West Gold will increase production. ZAR7 billion in capital investment is needed, with ZAR3 billion spent on the solar farm.

Segment Performance

• Ergo: Revenue up 10% year-on-year, driven by a 20% increase in the rand gold price, but gold sold down 8%. Cash operating cost increased 12%, and operating profit rose 7% to just under ZAR1 billion.
• Far West Gold: Revenue up 24% year-on-year, with gold sold up 2%. Cash operating cost increased 23%, and operating profit rose 22% to just under ZAR1.1 billion.
• Group: Operating margin remained stable at 33.4%, and the all-in sustaining cost margin was 24% (up from 20% the previous year). Free cash flow was negative just under ZAR1.2 billion due to capital expenditure. Headline earnings per share increased 4%.

Guidance

• Near Term: Run at a throttled back rate (Ergo at 1,650,000 tonnes and Far West Gold at 500,000 tonnes) until deposition facilities are in place. Cash operating costs are high but expected to decrease incrementally. Continued capital investment, with Far West Gold RTSF construction and Driefontein 2 plant expansion.
• Long Term: Aim to move to 3 million tonnes per month and 6 tonnes of gold production per year by the start of financial '28, requiring ZAR7 billion in capital investment.

Risks

• Operational Delays: Licensing and construction delays for new sites impacted production.
• Cost Volatility: Cash operating costs are higher than industry norms, dependent on a complex operational model.
• Market Factors: Fluctuations in the gold price impact revenue and margin.

Question and Answer

• Q: Implications for dividend payouts over the next three years of high capital expenditure? A: Depends on free cash flow after sustaining capital expenditure. We won't borrow money to pay dividends; if there's free cash available after project capital expenditure, we may take on debt for projects while continuing to pay dividends.
• Q: Assessment of DRD's value at the current share price? A: The solar farm is a benchmark success, but significant capital is still needed. There's potential for exciting returns if plans succeed.
• Q: Assessment of the copper recovery operation? A: Assessing an 80 million tonne copper resource, with 9 months needed for test work, followed by 1-1.5 years for process flow and licensing.