DRDGold CEO, Niël Pretorius, said Tuesday that he believed the rand will weaken further this year, with a higher local unit of exchange impacting the gold producer’s rand cost of production elevated.
South African gold producers, currently benefiting from elevated bullion prices, have been impacted by high costs of production and inflation. Local inflationary increases in the half year period to December contributed to a 6% increase in total cash operating costs to R2.2 billion for the company.
Moreover, cash operating costs for DRDGold over the half-year rose 11% in US dollar terms and 6% in rand terms.
Pretorius said this was a reflection of the lower rand to US dollar exchange rate.
“Part of that increase in costs in US dollar terms would be the fact that the rand weakened against the dollar. This is a rand to US dollar foreign currency adjustment,” he said.
He said he now expected the rand to weaken further this year.
“I think that the rand is probably going to weaken against the dollar further, considering the state that relationship with the United States is in now,” explained Pretorius.
With most of the spending by DRDGold in rand terms and the company commissioning a solar power plant, Pretorius was optimistic that the company will not suffer large cost increases this year.
Consumer headline inflation has also come down relatively to 3%, boding well for DRDGold.
“You will see that in rand terms, where we actually spent the money, it’s been a 6% increase in costs compared to 12 months ago, whereas our cost per ton has decreased by 9% so below inflation increase and a per unit decrease in cash operating costs in terms of throughput tons.”
Per ton costs for the company are expected to come down further, attributable to “the increase of power from the solar plant” and because of the changing footprint from Ergo project.
DRDGold now has “less mechanical mining and more hydraulic mining” at Ergo while there are also fewer sites.
“A lot of the cleanup and legacy sites are being completed. So there's a there's a construct change in terms of the the cost profile in particular, which we think we we might benefit from,” explained Pretorius.
However, yields from Ergo decreased by 20% to 0.187 grams per ton, a contrast to the period-on-period increase seen previously.
“This reduction is primarily linked to the lower-grade material from the newly commissioned sites replacing higher-grade sources,” said the company.
Cash operating costs for Far West Gold increased 8% to R328.7 million, attributable to inflation and particularly higher than inflation increases in security and labour costs.
For the half year period to December, interim headline earnings in DRDGold grew 65% to R970.1m, equating to 112.6 cents in headline earnings per share.
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