By Mpinane Puleng Senkhane
With a business model like no other, debt-free DRDGOLD has positioned itself as an aggressive dividend payer despite limited resource optionality and a defined life of mine. CEO Niël Pretorius discusses the company’s enviable success and what the future holds amid a booming gold price.
Bullion producer DRDGOLD has seen some incredible returns over the past year due to a combination of factors, an increase in production following a boom in the gold price and the weak rand. Subsequently, DRDGOLD shareholders have seen some impressive returns on investment, with the self-proclaimed high-dividend payer living up to its promise. Niël Pretorius has been CEO of the company since 2009, and is optimistic that the “small” gold producer can look forward to some big returns.
Describing the somewhat unconventional business model, “It is different in some very important aspects. We do not do any underground mining; we process and do the cleaning up of tailings in and around the Johannesburg area,” Pretorius explains. DRDGOLD moves two million tonnes a month, more than any other mine in South Africa. This is because the miner deals solely with tailings, which has a very low gold content. Another distinction is that of power; the amount of electricity that DRDGOLD uses is much lower per tonne in comparison to other mining operations in the region.
“As a percentage of total cost at your typical underground mine, 75% of total cost is made up of labour and electricity; with DRDGOLD, the figure is less than 50% for both, which makes for a slightly healthier model,” Pretorius describes, adding that the company is, however, more exposed than others at the cost of chemicals per unit.
Pretorius indicates that, because the operation is essentially the movement of a stockpile, the company has managed to mechanise the process significantly, with a much lower number of labourers than that of a conventional mine. This differentiates DRDGOLD from other gold producers, mitigating labour unrest, a big risk factor in the South African mining industry.
“The labour we do have is mostly at operator level, and it’s important that these workers are fully integrated with society, living within the surrounding communities, rather than in a separate mining community.”
“That is a much bigger distinction than most appreciate. It becomes difficult for labour unions to act in bad faith, rounding up and possibly intimidating employees living in a single area,” Pretorius explains.
DRDGOLD also boasts significant power savings, which Pretorius attributes to the company’s operations, “Moving items horizontally consumes far less power than moving them vertically; hoisting uses far more electricity per unit.” He adds that a vast amount of electricity normally goes into underground ventilation, which DRDGOLD doesn’t need.
Some major components of DRDGOLD’s strategy relate to optimising extraction efficiency, narrowing in on research and development, keeping an eye on technology improvements and upskilling its labour force.
“We have a knowledge-based labour force, with a more intellectual contribution than a physical one. This is a very important aspect of our strategy,” he emphasises.
For the full story, click here.