Higher taxes take shine off DRDGold’s strong operating performance
DRDGold, a gold tailings retreatment specialist, reported an improved annual operating performance and cash flows as it continued its legal battle with the Ekurhuleni municipality over tens of millions of rand in fees charged for electricity.
DRDGold reported operating profit for the year to end-June rose 38% to R355m from the previous year, with revenue up 6% to R2.49bn.
Post-tax profit, however, fell to R6.5m from R13.7m on higher tax payments. Pretax profit was R32.4m from a loss of R37m the year before.
Gold output for the year was 10% higher at 150,423oz at an all-in sustaining cost of R505,622/kg against a received price of R534,344/kg.
The higher gold production came from a 13% improvement in the yield put through the Ergo plant near Brakpan to the east of Johannesburg.
Looking ahead, DRDGold expects Ergo to deliver 148,000oz to 154,000oz of gold for its 2019 financial year.
DRDGold had free cash flow of R93m compared with outflows of R45m the previous year.
The biggest development for DRDGold was the conclusion after the year-end of the transaction with Sibanye-Stillwater to acquire the gold and platinum group metals miner’s tailings west of Johannesburg, immediately boosting DRDGold’s reserves by 82% from the 3.3-million ounces the company reported at the end of its 2018 financial year.
DRDGold has agreed a R300m facility with Absa for the Far West Gold Recovery project, which is expected to be commissioned in the first quarter of 2019 as the company treats up to 600,000 tonnes of tailings a month.
DRDGold expects the project to "materially contribute to our bottom line by the end of the second half of the financial year", said CEO Niël Pretorius
DRDGold has put in place forward gold sales or a hedge book to secure the loan in case of a fall in the rand gold price. It has locked in sales of 50,000oz of gold at prices between R565,000/kg and R609,000/kg for nine months.
Meanwhile, the legal battle with Ekurhuleni continues, with the main application against the tariff imposed by the municipality on Eskom-supplied electricity to Ergo expected to be heard in December 2018.
The dispute started in 2014 when DRDGold objected to a 40% levy the Ekurhuleni municipality slapped on the company’s electricity charges and it wanted a refund of the excess charges it had already paid.
DRDGold has been paying the surcharge amount into a trust account pending the outcome of the court ruling and there’s about R100m held in the account.
Ekurhuleni municipality has subsequently begun charging an 11% tariff for what it describes as "bulk supplies at medium and high voltage situated in a position designated by the municipality as close-coupled to the Eskom grid".
Pretorius said Ergo’s legal team was "confident about the prospects of success" in the challenge because they would "demonstrate that the municipality does not supply electricity to Ergo or in any manner add value to Eskom’s supply of electricity to Ergo".
The argument is that Ekurhuleni "does not supply electricity to it and is not licensed to supply it", and that it is beyond the municipality’s powers in various regulations to impose such a tariff.