FY25 update

FY25 update: Despite poor production in Q3:25, the gold price should ensure that DRDGOLD (DRD) enjoys a record financial year, with HEPS estimated to be R2.35/s. 

Gold price impact: At a gold price of $3,200/oz, which is below spot prices of c $3,300/oz, HEPs could rise to R2.97/s in FY26, by our estimate. Beyond our forecast period, by FY28, the expansion of gold production currently in progress could increase DRD’s real HEPS to above R4.00/s. 

FWGR capex delays: The Q3:25 results confirmed that the FWGR expansion project spend is behind the scheduled R2.7bn forecast at the end of FY24. The rain in the quarter as well as possibly over-ambitious capex targets imply that it is unlikely that FWGR will spend more than c. R2bn in FY25. 

FWGR capex delay outcome 1: The delay in capex spend will push some of the c. R7bn originally forecast to be spent on the FWGR expansion into FY28. It may also require the DP2 plant to ‘throttle back’ for a short period. 

FWGR capex delay outcome 2: The capex delay at FWGR as well as the high gold prices should also help reduce possible balance sheet stress and negative impacts. In other words, DRD’s capital spend is happening at the best of times.

ERGO grades: Recovered grade in H1:25 fell to 0.187g/t and may have fallen further in Q3 because of the impact of rain on operational flexibility.  ERGO will over time move to younger, lower-grade dumps on the East Rand. DRD expects falling costs and capex to maintain ERGO’s annual cash flows.

ERGO reimagined: Based on frequent references in company reports, ERGO may be on the cusp of a major change to its mine plan. This would see the Daggafontein TSF used as a complementary deposition site along with Brakpan and Withok TSFs that are either in use or in the process of approval.

Crown Mines replacement: The use of Daggafontein as a deposition site would require DRD to replace it as a source of reserves by 2032. We expect that the Crown Mines resources will be upgraded to replace Daggafontein’s reserves, underpinning a small net increase in ERGO’s life of mine.

Minerals Bill issues: The Bill may pose some risk to DRD’s resources by placing dumps into the ambit of the Act. This could require them to be licensed and to pay royalties. However, it could also require them to enter some form of additional BEE.

Valuation: We value DRD on a DCF basis. The gold price used is $3,200/oz compared to spot prices of c. $3,300/oz and our real discount rate is 10%.  Our base case uses existing reserves and life-of-mine forecasts. Our optimistic case assumes another expansion at FWGR in 2035, using full-margin third-party resources and a discount rate of 12%. Our valuations range from R23.5/s to R28.0/s. This compares to our previous range of R16.4/s to R23.8/s and is almost entirely due to the gold price increase from $2,500/oz to $3,200/oz.

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