Niël Pretorius, the CEO of DRDGold, which recently raised a R500 million financing facility, yesterday said conditions to access capital in South Africa have eased although banks were being rigorous in their due diligence processes.
DRDGold’s cash balances reduced from R2.4 billion in June 2023 to R521.5m as the company utilised “cash savings to finance the capital expenditure, the bulk of which paid for the solar power plant and battery energy storage system” at the Ergo operation.
In June, the bullion producer secured the R500m facility from Nedbank while in June it entered into a 5-year R1bn revolving credit facility, with a R500 million accordion option, with the same bank.
Pretorius said that conditions for accessing capital in SA were easing, allowing mining firms to expand operations, build infrastructure such as renewable energy and boost working capital.
Mining industry CEOs have also been seeing an improvement in the operating framework, with electricity supply by Eskom solidifying and Transnet also improving its port and rail capacity.
“When we gauged the ease of getting funding with regards to how restrictive the conditions are and the cost of capital, I can tell you that we got very favourable terms suggesting that there wasn’t a very significant risk premium into the facility that we secured,” Pretorius said in an interview.
Moreover, DRDGold “didn’t have to provide any security outside of balance sheet” and did not have to “commit any of (its) production to a forward selling” scenario.
This is in stark contrast to Sibanye-Stillwater which said in August it had sold R1.8bn worth of gold forward through a “prepay” arrangement aimed at solidifying its balance sheet although it had also refinanced its rand revolving credit facility to R6bn.
“We didn’t have to hedge (and) I don’t think it gets much easier than that. However the due dilligence process was brutal but its clear that the banks were comfortable with what they saw,” explained Pretorius.
Avoiding a forward selling scenario for its gold production allowed DRDGold to “take full exposure to the current gold price,” with Pretorius describing this as a “good” condition.
Gold prices are currently at their highest levels, boosting revenues and earnings for SA bullion producers although costs and inflation have also been eating into the miners’ full earnings potential.
Pretorius believes that gold prices will remain elevated, supported by strong global demand fundamentals although the company is basing its plans for future profitability on a lower bullion price as it ramps up production, contain costs and explore acquisitions.
“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 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 six
“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,” he has previously told Business Report.
“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 costs.”