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DRDGOLD reports higher profit and production; upbeat about 2019 prospects

Its strategy is to remain unhedged but keep borrowings to a minimum
gold bars and US dollars
DRDGOLD is a South African gold producer and a specialist in the recovery of the metal from the retreatment of surface tailings.

DRDGOLD Ltd (JSE:DRD) (NYSE:DRD) reported on Wednesday an increase in both operating profit and gold production, saying the prospects for the company going into 2019 are bright.

The company said its year-on-year operating profit climbed 38% to R355.2mln (US$23.01mln) while gold output rose 10% to 4,679kg, although the average rand price for gold received slipped 3% to R534.34/kg (US$34.63/kg).

The company announced that while its long-term strategy is to remain unhedged and to keep borrowings at a minimum, the need for medium-term borrowings for the first-phase development of Far West Gold Resources  (FWGR) introduced some liquidity risk.

To mitigate or reduce the risk, DRDGOLD has traded a zero-cost collar to provide price protection against a possible decrease in the rand gold price while borrowings are in place. A zero-cost collar is an option-based strategy that offsets the volatility risk by putting a cap and a floor as a form of insurance against possible losses.

Shares of DRDGOLD in Johannesburg gained 3.2% to settle on Wednesday at R322. In New York, the stock was trading 1.2% higher at US$2.07 on Wednesday.

BIG PICTURE: DRDGOLD glitters with vast reserves in its flagship Ergo and Sibanye-Stillwater West Rand Project

As for FWGR and the recently acquired West Rand Tailings Retreatment Project (WRTRP), the company said an R300mln (US$19.44mln) revolving credit facility has been secured from ABSA Bank Limited and work has already begun on the first phase of its development.

Phase 1 involves the upgrading of the Driefontein 2 plant to process tailings from the Driefontein 5 dump at a rate of between 400 000 and 600 000 tonnes per month and depositing the residue on the Driefontein 4 tailings dam. First production is expected in the first quarter of calendar 2019.

The FWGR acquisition increases DRDGOLD’s gold reserves by approximately 82% to 6mln oz.

Three major projects at its Ergo project were completed by the end of FY2018. For 2019, gold production of between 148,000 and 154,000 ounces is planned, at a cash operating cost of around R490,000/kg (US$31,754), DRDGOLD said.

DRDGOLD is a South African gold producer and a specialist in the recovery of the metal from the retreatment of surface tailings.

(R1 = US$0.065)

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