Ergo redesigned

2025FY Tailwinds: Despite a 3% drop in gold production to 155koz, DRDGOLD increased its earnings to R2.60/s, thanks to a record gold price of R1.63m/kg (+31%). Slower capex spend than expected of R2.2bn allowed DRDGOLD to both distribute a dividend and increase cash held to R1.3bn. 

2026FY Best ever? The gold price is at new record levels of R2.36m/kg, which coincides with DRDGOLD’s prediction of peak spending of R4bn in 2026FY. Even with a fall in gold production to 146koz, we expect earnings to reach R4.3/s. We expect a lower capex spend which along with the strong gold price, should allow the balance sheet to remain in a net cash position. 

Ergo 2025 TRS: Ergo has made substantial changes to its operating strategies since its last Technical Report Summary (TRS) published in 2023FY. Ergo’s current Tailing Storage Facility (TSF) at Brakpan is close to full capacity and it must ensure the continuous deposition of 20mtpa after it closes in 2029.

Withok transition: The 2023FY plan envisaged that the 310mt Withok Extension TSF would replace Brakpan. Since then, Withok has been found to be more complex and expensive to build than originally forecast and its regulatory approvals are still outstanding.

Daggafontein buffer: Ergo will convert the 1.5moz Daggafontein reserve into a fully licensed 120mt TSF that will be almost immediately available with a deposition rate of 6mtpa. This should bridge any delays to the Withok TSF build, which will provide a 16mtpa deposition rate when complete.

Crown Mines replacement: The Crown Mines dumps were previously a low-grade resource with a chance of being stranded. However, the withdrawal of Daggafontein dump and the live TSF capacity upgrade to 490mt will allow Crown Mines dumps to be treated and extend the LOM from 2042 to 2047.

The new LOM: The revised TRS has reduced Ergo’s forecast gold output over the next five years from 16.1t to 14.9t along with higher capex and opex. Even with the FWGR expansion, the revisions suggest that the group may be 15koz short of its stated 200koz target in 2028FY.  

Better earnings: Although gold output may be lower than 200koz, we expect the group to achieve over R6.9/s earnings for 2028FY at current gold prices.  Cash flows would increase to over R5b/a if no new projects are undertaken.

New projects? The RTSF will create significant optionality for DRDGOLD. By 2031FY, the FWGR’s depositional rate will increase to 1.8mtpm, and we expect further growth investments to be announced over the next few years to utilise this spare capacity and create a significant upside to our valuations.

Valuation: We value DRDGOLD at a spot price of R2.36m/kg between R42.1/s and R63.5/s with a mid-point of R52.8/s. A gold price of $5,000/oz or R2.65m/kg would increase the midpoint value to R62.3/s. The gold price, legislative proposals as well as cost increases are the largest risks to our valuations.

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