DRDGOLD Ltd. 2026 H2 Earnings Call

Good morning, everyone. Thank you very much for joining us today for this presentation. Before we start, I just want to pause for a moment to remember a very good friend and advisor of ours, John Weber, who was, as long as I had been with the company, he was one of our professional advisors and attorney with the firm Cliffe Dekker Hofmeyr, who passed away the week before last after he was very, very sick. We will remember him, and he was a dear friend and a valuable service provider. It is a privilege again to be presenting to you today. This is the 19th time that I have been doing this, the year-end results, or that I was part of the team that presented the year-end results. Some of you were there the very first time. Many new faces. I am joined today by my colleagues, Henriette, who is our CFO, and Jaco, who is our Chief Operating Officer, and then there are also several members of senior management who are here.

Please, afterwards, we have to eat the food. It is expensive food, so we cannot leave before all of it has been eaten. Please, ask them questions if you want any clarification on anything. We will be around for a few minutes after the presentation. Please also just take note, there is the customary disclaimer. There will be forward-looking statements in this presentation, and some of those forward-looking statements are based on assumptions, and some of those assumptions we do not have control over. Just be mindful in the interpretation of those, that they are contingent upon a number of factors that we do not necessarily control. It has been a very good year for DRDGOLD.

It is the 19th consecutive financial year where we will be paying a dividend, and the final cash dividend for the year is ZAR 1.20 per share, which is just over ZAR 1 billion, which was roughly the market cap of the company when I first did the presentation 19 years ago. It was as a consequence of a number of factors working together, and obviously, in order to have the revenues and the cash flows from which you could pay this cash dividend, you need the production. Production was pretty pleasing. We managed to come in just below the 5 tons of production. 5 tons is prominent because you would have seen it in our communications when we talk about Vision 2028. What was pleasing in particular was the fact that it was roughly 5,000 ounces higher than the higher end of guidance for the year.

That was because of what I thought was very smart management of the throughput mix of the material going into the mix. You will see that we achieved an average yield of just under 0.2 gram per ton, which was a 2% increase, so the plants were working really efficiently. Obviously, the big role player this year was the increase in the gold price, and being a deliberately unhedged producer of gold. We have never hedged, with the exception of a very small period of time when we needed to protect cash flows in order not to test some of the ratios that form part of a financial arrangement that we had at the time. This was in 2018 when we bought Far West Gold Recoveries. We have never hedged, and deliberately so.

We were in a position to take full advantage of the 40% increase in gold price, and that translated into revenue for the year of just over ZAR 11 billion, a 42% increase in revenue. Cash operating costs for the year was just under ZAR 1 million a kilo, which was also better than guidance, and a 7% increase year-on-year, which considering the number of double-digit increases that form part of the cost basket of gold production in South Africa, I think was testimony to some really good cost discipline. Cash operating costs, a slightly higher increase of 10% at ZAR 188 per ton, and that is because there was a larger component of trucking that still formed part of the cost composite this year.

In the current climate, trucking your high-grade material, expending the higher costs in order to truck those cleanup materials and remnant materials is always a good idea because of the higher grade that invariably form part of those tons. At the current gold price, it does offer a very attractive margin. If the gold price decreases, then obviously that margin shrinks and you lose some of that gearing. You do want to take advantage of the higher gold price and truck in some more materials. There will be some of that also in the year going forward. The trucking will be part of the throughput profile for the foreseeable future. That obviously then translates into your operating profit, so ZAR 6.4 billion in operating profit, an 83% increase. That is a very nice number, which informs your headline earnings, ZAR 4.2 billion in headline earnings, an 89% increase.

Free cash flow, which is a very important parameter for us because as a dividend-paying company, generating cash is a very important internal measure of our efficiency. To have generated ZAR 2.2 billion in free cash flow was very pleasing. That was an 85% increase, and that was after capital expenditure of ZAR 3.5 billion for the year. Jaco will take you through some of the capital spent this year, as well as the capital planned for the next two years. Then it is an important number to remember, because we are talking final dividend of just more than ZAR 1 billion against free cash flow of ZAR 2.2 billion and capital expenditure of ZAR 3.5 billion. Remember, a big part of our story, of the Vision 2028 story is that at some point in future, this number is going to become considerably smaller, the ZAR 3.5 billion capital expenditure.

Whilst at the time, hopefully that number, if the gold price holds up, will not have shrunk or will not have diminished significantly. In fact, it could be significantly higher because remember, we are targeting about a ton of additional gold production. These margins, there is the margin, the cash margin, these margins potentially also, if everything stays the same, could potentially also remain very favorable. Then as a dividend-paying company, start factoring in a substantial portion of that into what is available for your dividend. That is the DRDGOLD promise. That is really what we are working towards this stage, and we are hoping that it will find its way into how share price is being interpreted at some stage over the next few years as we get closer and nearer to completion of the Vision 2028 sub-parts. My point number 9, that was the free cash flow.

My point number 10, that is the capital expenditure. My point number 11 is on the sustainability. This did not come at the cost of our people. This did not come at the cost of the health and the wellbeing of our people, because you see that trend is still a good one. From 1.65 to 1.25. 0.8 to 0.7 on those lost injury scales and ratios. That also is not coincidental. Obviously, we are very aware of the fact that sometimes there are near misses where it is only the amount of time that you spend on your knees that saves you from something really bad. We are also very deliberately focused on how we manage safety and improving safety awareness amongst staff. Some of the other sustainability measures that we enjoy sharing, because sustainable development is core to our business, is the usage of potable water.

Many years ago, I forget how many years ago it was. It may have been 15 years, it may have been 18 years. We very deliberately took the decision to reduce potable water usage by 10% every year. That trend, if you follow our reporting on our integrated reports over the years, you will see that trend has been healthy and it has taken us to a point now where very little of our processed water is actually potable water. Once again, you saw 900 million liters of potable water saving this year, 23% decrease. Also, a very deliberate part of our sustainable development value pursuit. Carbon emissions is an important one. Only, well, it is still a lot, 233,000 tonnes of carbon that went into the atmosphere because of our activities, but that is down from 303,000 tonnes of last year. That is obviously because of the solar farm.

We have not stopped. We still have other ambitions with regards to renewable power. We have spoken about some of those in the past, but I think we are on a good trend here with the solar farm really working really well. We are seeing that both in the bottom line as well as in the nature dividend that we are in pursuit of. I think that is what I am going to talk to in terms of the first slide. There is obviously quite a lot more detail that my colleagues will talk about as we go forward. You can report these numbers if you produce. At this stage, we are in an interim phase. We are in a phase where we are managing volume throughput because we need to manage our tailings dams very carefully in order to stay within the prescribed safety factors.

Some of those are prescribed, some of them are self-imposed, but it is important that we stick to those, and therefore we are not sweating our TSFs. You saw earlier this week, again, a report of things going wrong on a tailings dam, and that is just the unimaginable from our perspective. Tonnes are deliberately kept at 25 million tonnes between the two operations. The yields have been good, and those yields are good for two reasons. It is both the blend and also plant efficiency. Both of our plants are operating extremely well.

A big thing for us this year as well is that, excuse me, everything that we are producing, that one part of the process where we are at our most vulnerable, where our product is at its most concentrated, namely when it goes into the smelt house, that is now universally treated at our own facilities, which was a big milestone for us. Jaco will talk more about that. They get to talk about all the good stuff, the numbers and all the projects and stuff. I will slip some of it in here and there. Anyway, the yields were good, and we saw that in the production numbers as well. That is now on the Ergo side. Far West Gold, similar. That volume line is a flat line. It is managed very carefully and deliberately.

The yields have been pretty good, and that is as we are getting into a slightly deeper part of dam number 3. As you go deeper into the dam, gold migrating to the bottom, obviously your yields do pick up. You could see it is sort of back to where it was when we were at the tail end of dam number 5, and some of those materials were still being sort of dribbled into the bigger mix. Production, bang on target, 674 kilos for the last half year and just over 1.3 tonnes for the financial year. On a group basis, these are numbers that you will see in more detail when Henriette talks to the numbers. The volumes for the two operations combined, just on 25 million tons. The yields just under 0.2 gram a ton, which is a good number for us.