DRDGold CEO, Niel Pretorius, believes gold prices will remain elevated and supported by global demand fundamentals, though the company was basing its plans for future profitability on a lower bullion price as it ramps up production, contains costs, and explores acquisitions.
Gold prices steadied around $2 510 (R44 524) per ounce yesterday, holding close to record levels thanks to the boost to rate cut sentiments by US Federal Reserve chairman, Jerome Powell. The higher gold price has helped South African gold miners such as DRDGold avoid drastic earnings plunges after production for the year to June missed targets.
Pretorius told Business Report in an interview that demand fundamentals for bullion remained high, likely providing support for gold prices for longer. Moreover, Asian gold buying and private sector investments into gold remain elevated.
“There are many different dynamics at play. The gold price used to reduce quite substantially before, but recently we have seen Western economies no-longer being the only determining factor in the gold price, and we are seeing a lot of central bank-buying and private sector investment from the East,” said Pretorius.
He admitted that the company would have benefited more from the high gold price if it had attained its production targets for the year to June. Nonetheless, the company is investing into its operations over the next two years to boost gold output to 6 tonnes by 2028.
Even if the gold price was to come down from its current highs, Pretorius reckons that DRDGold will still have to be profitable in the future. Its strategies for profitability are not hinged on the current gold prices but on a much lower price, he said.
“We are not planning our profits on the basis of a higher gold price; we are planning our future profitability based on a slightly weaker price. We don’t hedge,” he said.
But with the ongoing appetite for investment into gold, the company and its peers could continue to benefit from higher prices of the precious metal.
“There is no slowdown in buying from the East; China is still buying. And with interest rates coming down in the world, the winds change. People who sold at $17 000 a few years ago are now buying at $800 more,” Pretorius pointed out.
One of the factors that has characterised DRDGold over the past few months are high operational costs. These have mainly emanated from high power charges and higher prices of reagents for its production purposes. In the year to June, costs spiked by as much as 20%.
But with the company having set up its own solar power plant, closing some legacy mining sites that are expensive to run, and adopting cheaper mining methods, it is expected that DRDGold will be able to lower its costs.
“Costs depend on what happens to energy costs in SA, and the cost of reagents, and the main cost-reduction driver for us is that we now have a solar plant that’s coming online and its going to impact unit cost,” added Pretorius.
“We are also having far fewer yellow machines as the tons we will be treating will be hydrological which is quite cheaper… Costs should come down,” he said.