Earnings Call Transcript - DRD Q4 2021

Operator, Operator

Good morning, everyone. Before we officially start our results presentation, I'd just like to briefly note a couple of rules for this webinar: everyone will be in listen-only mode for the remainder of the presentation. Everyone will remain muted, and just to note that these handouts stack with all the handouts that you can download and access. Please feel free to type your questions at any time during the presentation, and we'll answer as many of those questions at the end of the presentation. So, please signal in as you know where the coffee is and your own emergency exit, and obviously washroom facilities if required. On that note, I am going to hand it to you and ask you to take us through the start of the presentation. Thanks.

Hugh Julius, Company Representative

Thanks, Dan. Good morning, everybody. Thank you for joining us. I am Hugh Julius. I'll be presenting with my colleagues, Riaan Davel, our CFO, and Jaco Schoeman, and at the end, will also be taking any questions that you may have. Thank you for joining us for the release of our results for the 2021 financial year—a remarkable year it has been. Before we start, just wanted to share with you again our disclaimer. This presentation will contain a number of forward-looking statements, so please exercise the necessary caution. You might remember that last year we focused on people, planet, and profit. This year we focus on mine and sustainability, which nicely ties into the ESG theme that has become very prominent. Now, just some key features from the year. It has been an exceptional year, mostly due to particularly the first six months of the financial year through to December when coal prices were still really high, in the region of about a million Rand a kilo—a moment we never thought we would witness. However, we were very well positioned to take full advantage. Our production was really good, and we managed to keep our costs under control, while ensuring staff safety amidst the COVID protocols. What this translates to is highlighted on this slide: revenue up 26% to north of R5.2 billion. Operating profit increased nicely by 39% to about R2.1 billion, with production just shy of 5.75 tons—a 6% rise in production from both sides. We saw exceptional volume throughput from both of our circuits and excellent plant performance indicators, and our teams really managed to keep the plants stable and operating well, resulting in an all-sustaining cost margin of just under 32%. The gold price, as I said, was quite beneficial to us this financial year, with a 19% increase in the average gold price received compared to the previous year, at north of R900,000 a kilo. Headline earnings saw a 127% increase on the back of both performance and the high gold price. I'm just going to try to see if I can get there—much better screen. This enabled us to announce the 14th consecutive year of dividends. The final dividend will be R0.40, which brings the total for the year to R0.80, and Riaan will elaborate on that later in regards to the percentage and yield compared to the rest of the market. For us as a company, this has always been a vital indicator as it shows we are making money and some of that finds its way back to our shareholders. I am pleased to say that for 14 years in a row, we've been able to achieve this. During this successful year, R452 million went to income tax, and R223 million was contributed to employee tax. In terms of funds distributed, it was more or less on equal footing for north of R600 million. With Women's Month in mind, I want to report on the numbers achieved in this regard. We have 23% women in our total staff, which is about double the average in the mining industry. Additionally, 38% of our board members are female, and we're very proud of the women in our staff contingent. We have set ourselves the target of not only supporting their success and celebrating it but also creating an inclusive environment where all staff members are both physically and psychologically safe to reach their full potential. Focusing our company on socioeconomic development has always been essential. Sustainable development has been an important theme in our strategic focus for many years now, and this year was no different, with a 50% increase in socioeconomic spend. It's important to note that South Africa, like many parts of the world, is in dire straits due to COVID and its associated lockdowns, impacting the economy. We operate mostly in areas where surrounding communities are living in a daily economic environment, where individuals often work as guards or gardeners or engage in recycling activities. When lockdowns came in, that daily economy suffered greatly and many people lost their jobs. Those conditions lead to an increase in our socioeconomic spending this year. Our focus remains on sustainable development and sustainable communities. It has been an extraordinary year; we experienced a notable increase in concentration on ESG matters and company operations, particularly in a city. We do not want the communities around our operations to experience discomfort or health issues due to our presence, and thus we take great measures to ensure the management of dust and closely monitor its impact. Going through the upcoming environmental numbers, I will elaborate further on this, but measurements are taken regularly from just under 90 different sites across our entire belt, with limited exceedances. I believe we've broken the back on dust management and are refining our program further. Now, I'll spend a bit of time on our operational trends for the year and discuss what these trends are telling us about our future. We've segmented our findings into two parts, and we also have a consolidated overview. Firstly, looking at Ergo, you can see that volume throughput for the financial year was quite strong, with us having processed over 11 million tons. In the second half of the financial year, we returned to outperforming our best half from the previous year, which was affected by COVID with 9.3 million tons. We recovered nicely and volume throughput remained one of our star performers. However, yields did slightly decrease, along with tracking and recovery. Interpretatively, the yield is starting to settle in, and we do anticipate the trends you've noted could continue as we operate with the last of our high-grade materials phasing out.

Riaan Davel, CFO

I appreciate the warm welcome as I take you through our results for the year ended June 30, 2021. As I've mentioned, we are over 126 years old, and having experienced one of our best periods is personally rewarding. These results are indeed wonderful. Let's start with the financial results for Ergo. Since the previous years have affected the current theme, I am pleased to report that the overall revenue is up 29% year-on-year. Volumes were impacted by COVID, but we have effectively managed this and continued focus on keeping our costs in check. The good news is that operating profit year on year is also up a massive 57%, demonstrating the resilience and strength of Ergo in these challenging times. When we look at the aggregate financial results, even with lower gold prices affecting specific operations, the overall numbers still show encouraging year-over-year growth in operating profit. The performance during the financial year resulted in substantial growth in our annual earnings per share, driven by solid production levels across our operations, and remarkable amounts generated in free cash flow. As Neil previously highlighted, our focus remains on generating cash and maintaining solid returns for our shareholders. While we see cost increases due to several factors, including lower production from our highest-grade material, we are well-positioned to manage these pressures. We continue to keep our capital expenditures clear, ensuring we can invest in projects that are vital to our success.

Operator, Operator

Thank you. Yes, we decided to include the performance of the share price chart for a slightly longer period; I think the last two years in particular are relevant. We've seen how the share price responded to various dynamics, especially with uncertainty due to COVID. Our performance remains buoyed by the gold market as a safe haven investment, and we acknowledge the ongoing fluctuations. We find comfort that support seems to have rebased at a slightly higher level than before, particularly when gold prices recently saw a drop and bounce back.

Unidentified Analyst, Analyst

Thank you for the insights shared today. I wanted to ask how the capacity is anticipated to significantly increase moving forward; will we see a shift towards better ratios of production from both Ergo and Fore Waste as we leverage the opportunities available in each site?

Hugh Julius, Company Representative

In the next 12 months, we expect a similar split to the previous year. However, as soon as the Fore Waste Phase Two operations kick in, we believe this will change substantially, favoring the production from that sector. We are anticipating it will enhance our resource management and operational efficiency.