2. DRDGOLD (NYSE:DRD)
Upside Potential: 82.14%
Market Cap: $731.87 Million
DRDGOLD (NYSE:DRD) is a prominent gold mining company headquartered in Johannesburg, South Africa. The company specializes in the extraction of gold from surface tailings within the Witwatersrand Basin in Gauteng, South Africa. DRDGOLD’s (NYSE:DRD) operations are divided into two main segments: the Ergo segment, which is responsible for approximately 60% of the company’s total mineral reserves and 75% of its total mineral resources, and the Far West Gold Recoveries (FWGR) segment. DRDGOLD (NYSE:DRD) holds approximately 5.8 million ounces of gold in mineral reserves and about 9.6 million ounces in mineral resources.
In the first half of 2024, DRDGOLD (NYSE:DRD) gold production declined by 6.3% year-over-year, totaling 81,888 ounces, which contributed to a 10% rise in all-in costs, reaching $1,575 per ounce, which is considered high for the sector. However, strong gold prices helped improve the company’s operating margin to 30.2%, and earnings increased by 10.1% to $30.8 million.
The lower production was mainly due to delays in commissioning two high-volume sites, which were expected to replace recently depleted ones. These delays were caused by community issues and slow regulatory approvals, but the problems were resolved in January. As a result, there is optimism that gold production in the second half of FY24 could reach around 90,000 ounces, with all-in costs likely decreasing below $1,500 per ounce due to economies of scale and reduced energy costs from the solar plant. Despite challenges, DRDGOLD (NYSE:DRD) has a good chance of meeting the lower end of its FY24 production guidance of 165,000 to 175,000 ounces.
DRDGOLD (NYSE:DRD) remains debt-free, but cash and cash equivalents decreased to $80 million by the end of December 2023. This decline was primarily due to a 177.5% increase in capital expenditures to $56.2 million and a rise in trade and other receivables by $22.9 million. Looking ahead, DRDGOLD (NYSE:DRD) is expected to continue benefiting from the favorable gold price environment, which is anticipated to remain elevated, with projections from Citi and Goldman Sachs suggesting potential peaks of $3,000/oz and $2,600/oz, respectively, in the coming months.
DRDGOLD (NYSE:DRD) is implementing strategic expansions at its Ergo and Far West Gold Recoveries (FWGR) segments. The commissioning of new feeders at the Ergo plant has already set the stage for improved production, while ongoing projects, such as the construction of a 60 MW solar project and the expansion of processing capacity at Driefontein Plant, further strengthen DRDGOLD’s (NYSE:DRD) growth prospects.
DRDGOLD’s (NYSE:DRD) commitment to reinvest in capital infrastructure with approximately $193.2 million underscores its focus on long-term sustainability and growth. DRDGOLD (NYSE:DRD) is well-positioned to navigate any operational challenges while continuing to capitalize on the robust gold market. This combination of strategic investments, operational efficiency, and favorable gold prices makes DRDGOLD (NYSE:DRD) a compelling investment opportunity for those seeking exposure to the gold sector.
DRDGOLD (NYSE:DRD) is trading 11.01 times its earnings, which is a 30% discount compared to the sector median of 15.85. In the second quarter, DRDGOLD (NYSE:DRD) stock was held by 7 hedge funds with stakes worth $10.55 million. Renaissance Technologies is the largest shareholder in the company with a stake worth $6.90 million as of June 30. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $15.50, which represents an 82.14% upside potential from its current level.
