After an exceptional run in 2020, DRDGOLD has been a disappointment for investors. The gold price simply hasn’t behaved itself despite periods of volatility, inflation and even war, causing many to scratch their heads over the shiny metal.
The trouble is that in a difficult environment of rampaging input costs and other issues like electricity (or lack thereof), the gold price needs to increase at a rate that at least covers the expense growth. After peaking at over R1,150,000 per kilogram in 2020, the gold price in local currency has come off sharply. It fell to just over R800,000 per kilogram in mid-2021 and is now at around R950,000 per kilogram.
I held DRDGOLD in 2021 and eventually gave up. I still have look-through exposure through Sibanye, which holds a majority stake in DRD.
The latest update from DRD covers the three months ended March 2022. Production fell 3% vs. the prior quarter (not year-on-year) and sales fell by 6%. The average gold price received thankfully increased by 3% but that wasn’t enough to offset the drop in volumes, so adjusted EBITDA fell by 3%.
The increase in cash operating costs confirms why I sold out. All-in costs increased 4% in the last quarter alone. On a per tonne basis, cash operating costs increased by 8%. When the gold price seems to be languishing sideways, this is really tough on margins.
The balance sheet is strong thankfully (R2.3 billion in cash at the end of March and no debt) so the company still expects to declare a dividend in August 2022.
DRD is a profitable business but the trend is concerning in an environment of significant input cost inflation and a lazy gold price. The share price is down by just over 5% this year.
