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Drdgold Limited (DRD)
NYSE:DRD
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Risk Overview Q2, 2024
Risk Distribution
35% Production
28% Legal & Regulatory
17% Finance & Corporate
17% Macro & Political
2% Tech & Innovation
0% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Drdgold Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q2, 2024
Main Risk Category
Production
With 16 Risks
Production
With 16 Risks
Number of Disclosed Risks
46
S&P 500 Average: 31
46
S&P 500 Average: 31
Recent Changes
1Risks added
2Risks removed
2Risks changed
Since Jun 2024
1Risks added
2Risks removed
2Risks changed
Since Jun 2024
Number of Risk Changed
2
S&P 500 Average: 3
2
S&P 500 Average: 3
See the risk highlights of Drdgold in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 46
Production
Total Risks: 16/46 (35%)Above Sector Average
Manufacturing9 | 19.6%
Manufacturing - Risk 1
We are subject to operational risks associated with our flotation and fine-grind (FFG) project.Manufacturing - Risk 2
The exploration of mineral properties is highly speculative in nature, involves substantial expenditures, and is frequently unproductive.Exploration is highly speculative in nature and requires substantial expenditure for drilling, sampling and analysis of ore bodies to quantify the extent of the gold reserve. Many gold exploration programs, including some of ours, do not result in the discovery of mineralization and any mineralization discovered may not be of sufficient quantity or quality to be mined profitably. If we discover a viable deposit, it usually takes several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of production may change.
Moreover, we rely on the evaluations of professional geologists, geophysicists, and engineers for estimates in determining whether to commence or continue mining. These estimates generally rely on scientific and economic assumptions, which in some instances may not be correct, and could result in the expenditure of substantial amounts of money on a deposit before it can be determined with any degree of accuracy whether the deposit contains economically recoverable mineralization. Uncertainties as to the metallurgical recovery of any gold discovered may not warrant mining based on available technology.
Our future growth and profitability will depend, in part, on our ability to identify and acquire additional mineral rights and gold reserves, and on the costs and results of our continued exploration and development programs. Our business focuses mainly on the extraction of gold from tailings, which is a volume driven exercise. Only significant deposits within proximity of services and infrastructure that contain adequate gold content to justify the significant capital investment associated with plant, reclamation and deposition infrastructure are suitable for exploitation in terms of our model. There is a limited supply of these deposits which may inhibit exploration and developments, especially in a declining gold price environment that may occur in future.
Because of these uncertainties, we may not successfully acquire additional mineral rights, or identify new Proven and Probable Mineral Reserves in sufficient quantities to justify commercial operations in any of our operations. The costs incurred on exploration activities that do not identify commercially exploitable reserves of gold are not likely to be recovered and therefore are likely to be impaired.
Manufacturing - Risk 3
Theft at our sites, particularly of copper and pipelines, may result in greater risks to employees or interruptions in production.Crime statistics in South Africa indicate an increase in theft. This together with price increases for copper and steel has resulted in theft of copper cables and pipelines. Our operations experience high incidents of copper cable theft and pipelines despite the implementation of enhanced security measures which have increased our security spend. At times, the incidences have resulted in serious injuries of our security personnel. In addition to the general risk to employees' lives in an area where theft occurs, we may suffer production losses and incur additional costs as a result of power interruptions caused by cable theft and theft of bolts used for the pipeline.
Manufacturing - Risk 4
Gold mining is susceptible to numerous events that could have an adverse impact on a gold mining business.The business of gold mining is exposed to numerous risks and events, the occurrence of which may result in the death of or personal injury to employees, the loss of mining and reclamation equipment, damage to or destruction of mineral properties or production facilities, monetary losses, delays in production, environmental damage, loss of the license to mine and potential legal claims. The risks and events associated with the business of gold mining include:
- environmental hazards and pollution, including dust generation, toxic chemicals, discharge of metals, pollutants, radioactive materials and other hazardous material into the air and water;- flooding, landslides, sinkhole formation, ground subsidence, ground and surface water pollution and waterway contamination;- a decrease in labor productivity due to labor disruptions, work stoppages, disease, slowdowns or labor strikes;- unexpected decline of ore grade;- metallurgical conditions or lower than expected gold recovery;- failure of unproven or evolving technologies;- mechanical failure or breakdowns and ageing infrastructure;- energy and electrical power supply interruptions;- availability of water;- injuries to employees or fatalities due to falls from heights and accidents relating to mobile machinery or electrocution or other causes;- activities of illegal or artisanal miners;- material and equipment availability;- legal and regulatory restrictions and changes to such restrictions;- social or community disputes or interventions;- accidents caused from the collapse of tailings facilities;- pipeline failures and spillages;- safety-related stoppages; and - corruption, fraud and theft including gold bullion theft.
The occurrence of any of these hazards could delay production, result in losses, or increase production costs or decrease earnings and may result in significant legal claims and adversely impact our business results of operations and financial condition.
Manufacturing - Risk 5
Limited deposition capacityOur operations are based on ultra-volume and almost nano-gold extraction. The volume of reclaimed material delivered has one of the most profound impacts on the gold output of our metallurgical plants. The large volumes of material that are processed at our operations are deposited on tailings facilities which have a finite capacity. The Brakpan/Withok TSF is a Category 3 dam, described as "Large" and carrying a Hazard Rating of "Significant", which renders it subject to a strict safety monitoring and reporting regime and that imposes the obligation on the operator to periodically compile and submit independent Dam Safety Audit Reports. Whilst Ergo has not received any directive that restricts or inhibits its current and future deposition regime, the Brakpan/Withok TSF is a mature facility subject to a strict compliance regime, and it may attract more onerous conditions from the regulator. Additionally, Ergo plans to eventually move onto the adjacent Withok TSF, and has filed an application with Department of Water and Sanitation to have it recommissioned. Alternative facilities will be required to ensure adequate deposition capacity for the current life of mine and for the future. Key projects to increase such a deposition capacity include the development of the RTSF as part of Phase 2 FWGR project, as well as obtaining regulatory approvals for the recommissioning of the Withok TSF at Ergo to expand its deposition capacity. The timing to have the new facilities on line is critical as a delay may result in reduced deposition rates or a halt in deposition which will have an adverse financial impact on the business if interim alternative deposition facilities cannot be obtained.
Manufacturing - Risk 6
Any interruption in gold production at any of our two mining operations generating cash flows, will have an adverse effect on the Company.We have two mining operations generating cash flows, namely Ergo and FWGR. Ergo's reclamation sites, processing plants, pump stations and the Brakpan/Withok TSF are linked through pipeline infrastructure. The Ergo plant is currently our major processing plant. FWGR's reclamation sites, DP2 processing plant, pump stations and the Driefontein 4 Tailings Storage Facility are linked through pipeline infrastructure.
Our reclamation sites, plants, pipelines infrastructure and the tailings storage facilities are exposed to numerous risks, including operational down time due to planned or unplanned maintenance and possible load shedding or power dips, adverse weather, destruction of infrastructure, spillages, higher than expected operating costs, or lower than expected production as a result of decreases in extraction efficiencies due to imbalances in the metallurgical process as well as inconsistent volume throughput or other factors.
Our FWGR operations are reliant on the use and access to Sibanye-Stillwater Limited's ("Sibanye-Stillwater") mining infrastructure, related services including the smelting and recovery of gold from gold loaded carbon produced at FWGR (FWGR has the option to transfer gold loaded carbon to Ergo's Knights plant as an alternative to Sibanye-Stillwater) as well as the use of various rights, permits and licenses held by Sibanye Gold Proprietary Limited (wholly owned subsidiary of Sibanye-Stillwater) pursuant to which FWGR operates, pending the transfer to FWGR of those that are transferable. Any disruption in the supply of, or our ability to use and access the Sibanye-Stillwater mining infrastructure, related services and rights, permits and licenses, could have an adverse impact on our operations.
Any of the risks above or other interruptions could adversely impact our operations which could have a material adverse effect on our business, operating results and financial condition.
Manufacturing - Risk 7
Damage to tailings storage facilities and excessive maintenance and rehabilitation costs could result in lower production and health, safety and environmental liabilities.Our tailings storage facilities are exposed to numerous risks and events, the occurrence of which may result in the failure, breach or damage of such a facility. These may include sabotage, piping or seepage failures, failure by our employees to adhere to the codes of practice and natural disasters such as excessive rainfall and seismic events, any of which could force us to stop or limit operations. This is further impacted and expected to intensify with the effects of climate change. In addition, the facilities could overflow or a side wall could collapse jeopardizing the health and safety of our employees and communities living around these facilities and potentially resulting in extensive property and environmental damage.
In the event of damage to, or any failure of, our tailings facilities, we could face legal proceedings (including criminal proceedings and public civil actions) and investigations for significant amounts of damages. Such actions would also likely entail significant costs and potentially involve the need for large expenditures to help regions and people affected to recover. The occurrence of any of these risks could adversely affect our operations and this in turn could have a material adverse effect on our business, operating results and financial condition.
The potential elimination of conventional wet tailings could also lead to large additional expenditures on research and development of new technologies. Changes in law and regulation, to impose more stringent standards, may also lead to increased capital expenditure to update our facilities, be able to expand our facilities in the future or continue to meet existing or more stringent legal (including permit) requirements.
Manufacturing - Risk 8
Flooding at our discontinued underground operations may cause us to incur liabilities for environmental damage.If the rate of rise of water is not controlled, water from our discontinued underground mining areas and active tailings storage facilities ("TSFs") could potentially rise and come into contact with naturally occurring underground water or decant into surrounding underground mining areas, active TSFs and could ultimately also rise to surface. Progressive flooding of these abandoned underground mining areas and surrounding underground mining areas could eventually cause the discharge of polluted water to the surface and to local water sources.
This may lead us to face claims and liabilities relating to environmental damage and liabilities for breaches, or alleged breaches, of applicable laws (see also Our operations are subject to extensive environmental regulations which could impose significant costs and liabilities). Any such claims may have a material adverse effect on our business, operating results and financial condition.
Manufacturing - Risk 9
Our large projects, most notably the development of FWGR Phase 2 to expand our operations to the western side of Johannesburg and the Solar Plant and recommissioning of Withok TSF to enable mining on the east of the Ergo plant, are subject to schedule delays and cost overruns, and we may face constraints in financing our existing projects or new business opportunities, which could render our projects unviable or less profitable than planned.Changed
The development of our projects are capital intensive processes carried out over long durations and requires us to commit significant capital expenditure and allocate considerable management resources in utilizing our existing experience and know-how.
Projects like the development of Phase 2 of the FWGR assets acquired from Sibanye-Stillwater, the Solar Plant and the recommissioning of the Withok TSF are subject to the risk of delays, regulatory approvals and cost overruns which are inherent in any large construction project including, inter alia:
- unforeseen increases in the cost of equipment, labor and raw materials;- delays or disruptions in the supply of equipment and raw materials - unforeseen design and engineering problems;- changes in construction plans that may require new or amended planning permissions;- unforeseen construction problems;- unforeseen delays commissioning sections of the project;- inadequate phasing of activities;- labor disputes and social challenges;- security issues - inadequate workforce planning or productivity of workforce;- inadequate management practices;- natural disasters and adverse weather conditions;- failure or delay of third-party service providers; and - changes to regulations, such as environmental regulations.
We also face the risk that expected benefits of our projects are not achieved.
The construction of the RTSF commenced towards the end of fiscal year 2024 and the early works for Driefontein Plant 2 ("DP2") expansion commenced during the first quarter of fiscal year 2025, both related to Phase 2. A delay in the construction of the RTSF may result in deposition capacity to be reduced as the Driefontein 4 TSF is expected to reach capacity at the end of fiscal year 2026 at the current deposition rate, where after the deposition rate would have to decrease materially. A delay in the DP2 expansion project may result in the under utilisation of the RTSF resulting in lower returns being generated.
Ergo is currently developing a Solar Power Project to reduce its reliance on Eskom and to reduce its future cost of electricity. The Solar Plant definitive feasibility study was completed during fiscal year 2022 and is currently under development. A significant capital investment was needed for the project and the purchase of imported solar panels and battery energy storage system subject to fluctuations in the USD and euros to the rand exchange rate. The solar panels are all installed and have been progressively started to generate and supply power towards the end of current fiscal year. It is estimated that the full benefit from the project, in reduced electricity costs and reduced carbon footprint, will materialise during the second quarter of fiscal year 2025.
Regulatory approvals for the recommissioning of the Withok TSF are yet to be obtained. The implementation of the design is expected to be crucial to sustain and increase the life of mine of Ergo as it will accommodate material toward the east of the Ergo plant.
In addition, if the assumptions we make in assessing the viability of our projects, including those relating to commodity prices, exchange rates, interest rates, inflation rates and discount rates, prove to be incorrect or need to be significantly revised, this may adversely affect the profitability or even the viability of our projects. The uncertainty and volatility in the gold market makes it more difficult to accurately evaluate the project economics and increases the risk that the assumptions underlying our assessment of the viability of the project may prove incorrect.
As the development of FWGR, the Solar Power Project and the recommissioning of the Withok TSF are particularly material to DRDGOLD, significant cost overruns or adverse changes in assumptions affecting the viability of these projects could have a material adverse effect on our business, cash flows, financial condition and prospects.
Our operating cash flow, available banking facilities and ability to raise funds from banks or the capital markets may be insufficient to meet our capital expenditure plans and requirements, depending on the timing and cost of development of our existing projects and any further projects we may pursue. As a result, new sources of capital may be needed to meet the funding requirements of these projects and to fund ongoing business activities. Our ability to raise and service significant new sources of capital will be a function of, inter alia, macroeconomic conditions, rising cost of debt, our credit rating, our gearing and other risk metrics, the condition of the financial markets, future gold prices, the prospects for our industry, our operational performance and operating cash flow and debt position. Inability to raise these funds may place a burden on the Group cash reserves.
In the event of operating or financial challenges, any dislocation in financial markets or new funding limitations, our ability to pursue new business opportunities, invest in existing and new projects, fund our ongoing business activities and pay dividends, could be constrained, any of which could have a material adverse effect on our business, operating results, cash flows and financial condition.
Employment / Personnel3 | 6.5%
Employment / Personnel - Risk 1
Labor unrest could affect production.Employment / Personnel - Risk 2
Since our South African labor force has substantial trade union participation, we face the risk of disruption from labor disputes and new South African labor laws.Labor costs are significant for Ergo, constituting 17% of Ergo's production costs for fiscal year 2024 (2023: 18%). As of June 30, 2024, our Ergo operations provided full-time employment for 715 employees while our main service providers deployed an additional 1755 employees to our operations, of whom approximately 88% are members of trade unions or employee associations.
Labor costs are significant for FWGR, constituting 18% of FWGR's production costs for fiscal year 2024 (2023: 20%). As of June 30, 2024, our FWGR operations provided full-time employment for 153 employees while our main service providers deployed an additional 298 employees to our operations, of whom approximately 85% are members of trade unions or employee associations.
We have entered into various agreements regulating wages and working conditions at our mines. FWGR's wage current wage agreement came to an end on June 30, 2024 and new wage negotiations are currently ongoing. Unreasonable wage demands could increase production costs to levels where our operations are no longer profitable. This could lead to accelerated mine closures and labor disruptions. We are also susceptible to strikes by workers from time to time, which result in disruptions to our mining operations.
In recent years, labor laws in South Africa have changed in ways that significantly affect our operations. In particular, laws that provide for mandatory compensation in the event of termination of employment for operational reasons and that impose large monetary penalties for non-compliance with the administrative and reporting requirements of affirmative action policies could result in significant costs to us. In addition, future South African legislation and regulations relating to labor may further increase our costs or alter our relationship with our employees. Labor cost increases could have an adverse effect on our business, operating results and financial condition.
Employment / Personnel - Risk 3
If we are unable to attract and retain key personnel our business may be harmed.The success of our business will depend, in large part, upon the skills and efforts of a small group of management and technical personnel including the positions of Chief Executive Officer and Chief Financial Officer. The loss of any of our key personnel could delay the execution of our business plans, which may result in decreased production, increased costs and decreased profitability. For example, the Ergo Financial Director retired during fiscal year 2024, and while there was sufficient succession planning in place, there is no guarantee that future departures will not disrupt the business. In addition, we compete with mining and other companies on a global basis to attract and retain key human resources at all levels with appropriate technical skills and operating and managerial experience necessary to operate the business. Factors critical to retaining our present staff and attracting additional highly qualified personnel include our ability to provide these individuals with competitive compensation arrangements, and other benefits. If we are not successful in retaining or attracting highly qualified individuals in key management positions, our business may be harmed. We do not maintain "key man" life insurance policies on any members of our executive team. Any of the foregoing may have a material adverse effect on our business, operating results and financial condition.
Supply Chain1 | 2.2%
Supply Chain - Risk 1
Uncertainties regarding supply chainCosts3 | 6.5%
Costs - Risk 1
Events may occur for which we are not insured which could affect our cash flows and profitability.Costs - Risk 2
An increase in production costs could have an adverse effect on our results of operations.An increase in our production costs will impact our results of operations. Production costs are affected by, inter alia:
- rising global and national inflation;- labor stability, productivity and increases in labor costs;- increases in reagents and nature of material reclaimed;- increases in electricity and water prices;- increases in crude oil and steel prices;- increases in security measures to protect our employees and infrastructure;- changes in regulation;- unforeseen changes in ore grades and recoveries;- unexpected changes in the quality or quantity of reserves;- technical production issues;- availability and cost of smelting and refining arrangements;- environmental and industrial accidents;- gold theft;- shortages or availability of materials used in production;- environmental factors; and - pollution.
Our production costs consist mainly of materials including reagents and steel, labor, electricity, specialized service providers, machine hire, security, water, fuels, lubricants and other oil and petroleum-based products. Production costs have in the past, and could in the future, increase at rates in excess of our annual inflation rate and impact our results of operation and can result in the restructuring of these operations at substantial cost.
A three-year wage agreement was reached with organized labor at FWGR in November 2021. FWGR is in the process of reaching a new wage agreement and is aiming to conclude on this in the second quarter of fiscal year 2025. Ergo reached a three-year wage agreement with organized labor effective from 1 July 2022.
Increases in production costs, if material, will adversely impact our results of operations. In addition, any initiatives that we pursue to reduce costs, such as reducing our reliance on Eskom's grid through self-generation of power, for example through the Solar Power Project at Ergo, reducing our labor force, a reduction of the corporate overhead, negotiating lower price increases for consumables and cost controls may not be successful or sufficient to offset the increases affecting our operations and could adversely affect our business, operating results and financial condition.
Costs - Risk 3
Power stoppages or shortages or increases in the cost of power could negatively affect our results and financial condition.Our mining operations are currently dependent on electrical power supplied by Eskom, South Africa's state-owned utility company. Electricity makes up approximately 14% of our operating costs. Eskom has become incapable of satisfying the energy requirements of the South African economy and applied a system of power rationing or load shedding to prevent a complete collapse of the national electricity grid. Load shedding was suspended during March 2024, but can be reinstated at any given time. It is a distressed enterprise unlikely to make a full recovery. It is owed billions of rands by local municipalities and in more recent times has also fallen victim to damage to its supply grid through incessant cable theft. This poses a threat to our ability to maintain the requisite volume throughput to deliver into our business plan, while the steps we are required to take to curtail load during load shedding, like intermittently switching off our mills, also impact recovery efficiencies. The private sector has responded by accelerating private production of renewable power. Government's own measures are lagging though, and it has been slow to administer the freeing up of power generation on a larger scale. Although load shedding remained suspended at June 30, 2024, load shedding will be with us for the foreseeable future if the required maintenance and renewing of the Eskom power generation fleet does not take place, which comes at a significant cost to the end user of Eskom electricity. Eskom and the government has introduced a number of initiatives to over the past two years to reduce load shedding, being:
- The introduction of the energy plan by the president of South Africa;- The introduction and appointment of an Electricity Minister;- Eskom launched a two year generational operational recovery plan to increase power generation and supply;- Change in the leadership of Eskom;- R254 billion debt relief from National Treasury - Decrease in electricity demand from Eskom over the years due to renewable energy alternative from residents, business and large electricity consumers such as miners.
- As part of unbundling of Eskom, Eskom announced the appointment of the National Transmission Company of SA board in January 2024, a step toward operationalising the company who will be focused on managing the national grid which is independent of Eskom's generation and distribution functions.
- Additional tax incentives for companies and households to build or implement their own renewable electricity sources to assist in lowering the demand from Eskom.
All these initiatives have improved load shedding in South Africa with load shedding suspended since March 2024. However the future of Eskom remains precarious due to the following major risks which if materialise may have an adverse impact on their viability.
National Energy Regulator of South Africa ("NERSA") approved Eskom annual tariff increases of 12.74% effective 1 April 2024, significantly above the South African CPI. During September 2024 Eskom submitted its proposed increases of 36.15% from April 1, 2025, 11.81% from April 1, 2026 and 9.1% from April 1, 2027, for NERSA's consideration. Eskom tariff increases have increased the cost of mining and should the proposed increases be awarded, would have adverse effect on profitability.
The security of future power supply as well as the cost thereof remains a risk and may have major implications for our operations, which may result in significant production losses.
In 2019, the President of South Africa announced the vertical unbundling of Eskom to improve efficiencies and have an independent grid operator and open competition for energy generation at lower cost to the consumer. While full state ownership will be maintained, the unbundling is expected to result in the separation of Eskom's generation, transmission and distribution functions into separate entities, which may require legislative and/or policy reform. The unbundling is still ongoing; however during March 2024 NERSA approved the Eskom's request to transfer its control over independent power producers ("IPPs") to the National Transmission Company of South Africa ("NTCSA"). The NTCSA will be Eskom's transmission subsidiary under the unbundling process that will split Eskom into generation, transmission and distribution entities. Any IPP will be able to engage with the NTSCA to supply electricity via the Eskom grid to Eskom, thus reducing the risk of future load shedding. Poor reliability of the supply of electricity and instability in prices through the unbundling process is expected to continue. Eskom's coal fired power plants have not performed well for a number of years, with national rotational power cuts (load shedding) having been implemented intermittently through the last number of fiscal years. Should we experience further power tariff increases, our business operating results and financial condition may be adversely impacted.
Ergo is currently finalising the construction and commissioning of a Solar Power Project to reduce its reliance on Eskom and to reduce its future cost of electricity but we face risks in the development of this project as such the project may not reduce our dependence on Eskom as designed.
Ergo is also currently disputing the electricity tariff charged by Ekurhuleni Metropolitan Municipality. Over the past several years, the municipality has charged Ergo for the electricity it draws from the Ergo Central Substation. However, Ergo determined that only Eskom may legitimately charge for the drawn and consumed electricity. Ergo has instituted legal proceedings by way of an application and since then, the municipality has issued two summonses. Ergo has made payments under protest and without prejudice or admission of liability. The outcome of Ergo's application remains uncertain and may result in adverse impacts on the business, operating results and financial condition.
Legal & Regulatory
Total Risks: 13/46 (28%)Above Sector Average
Regulation5 | 10.9%
Regulation - Risk 1
Due to the nature of our business, our operations face extensive health and safety risks and regulation of those risks.Regulation - Risk 2
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside of the United States.The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. This includes aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non- U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with the FCPA and other applicable anti-bribery laws. Our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees, the employees of any of our businesses, or third party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we would investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits, reputational harm or other restrictions which could disrupt our business and have a material adverse effect on our business, financial condition, results of operations or liquidity.
We face risks with respect to compliance with the FCPA and similar anti-bribery laws through our acquisition of new companies and the due diligence we perform in connection with an acquisition may not be sufficient to enable us fully to assess an acquired company's historic compliance with applicable regulations. Furthermore, as we make acquisitions such as the acquisition of FWGR, our post-acquisition integration efforts may not be adequate to ensure our system of internal controls and procedures are fully adopted and adhered to by acquired entities, resulting in increased risks of non-compliance with applicable anti-bribery laws.
Regulation - Risk 3
Government policies in South Africa may adversely impact our operations and profits related to financial provisioning for rehabilitation.Revised Financial Provisioning Regulations ("FPR") were published on November 20, 2015, under the National Environmental Management Act, 107 of 1998 ("NEMA") and became effective from the date of publication thereof. Proposed amendments to the FPRs were published for public comment GNR 1228 GG 41236 of November 10, 2017 ("Draft Regulations"), which seek to address some challenges relating to the implementation thereof. Under these FRPs to be implemented by the DMRE, existing environmental rehabilitation trust funds may only be used for post closure activities and may no longer be utilised for their intended purpose of concurrent and final rehabilitation and closure.
Several further proposed amendments to the FPRs, ("Proposed Amendments") were published subsequently. On February 1, 2024, the Minister of Forestry, Fisheries and the Environment again amended the transitional period contained in regulation 17B of the Financial Provision Regulations, 2015. The transitional arrangements in regulation 17B of the FPRs allows the holder of a right or permit granted or issued, as the case may be, in accordance with the MPRDA, who applied for such right or permit before 20 November 2015, to continue making financial provision in accordance with regulations 53 and 54 of the regulations published under the MPRDA. Stated differently, a person who applied for a right or permit prior to 20 November 2015, is not yet required to comply with the Financial Provision Regulations. In the previous amendments to the regulation 17B of the Financial Provision Regulations, the Minister always specified a date by when the transitional period would expire and when all holders would be required to comply with the Financial Provision Regulations. However, this time the Minister has amended regulation 17B to provide that the transitional period will continue to apply until the Minister published a date by when all holders are required to comply with the Financial Provision Regulations.
The Proposed Amendments, in their current form and which are still subject to the approval of the DMRE and Treasury, allow under certain circumstances for the withdrawal against financial provision (which is currently not contemplated in the FPR). It is therefore uncertain whether these provisions relating to withdrawal will remain in their current form, or at all.
See discussion in 4.B. Business Overview – Governmental regulations and their effect on our business – Financial Provision for Rehabilitation.
Regulation - Risk 4
Failure to comply with the requirements of the Broad Based Socio-Economic Empowerment Charter 2018 could have an adverse effect on our business, operating results and financial condition of our operations.On September 27, 2018, the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 ("Mining Charter 2018") was published in Government Gazette No. 41934 of Government Notice No. 639 on September 27, 2018. Mining Charter 2018 requires, inter alia, an enduring 30% Black Economic Empowerment ("BEE") interest in respect of new mining rights. It also has extensive provisions in respect of Historically Disadvantaged Persons ("HDP") representation at board and management, as well as provisions relating to local procurement of goods and services. The procurement target of the total spend on services from South African companies has been pegged at 80% (up from 70% in Mining Charter III) and 60% of the aggregate spend thereof must be apportioned to BEE entrepreneurs.
In March 2019, the Mineral Council of South Africa brought an application in the High Court, Pretoria for a judicial review and setting aside of certain provisions in Mining Charter 2018.
On September 21, 2021, the High Court of South Africa ruled that the Mining Charter 2018 is not binding subordinate legislation but an instrument of policy. This ruling affirmed that the Minister of Mineral Resources and Energy ("MRE Minister") was not entitled to make law through the Mining Charter 2018 to require 30% HDP ownership for the renewal of existing mining rights. The DMRE Minister confirmed that they will not appeal the ruling.
DRDGOLD cannot guarantee that it will meet all the targets set out by the Mining Charter 2018. For example, if the Mining Charter 2018 were to remain in its current form, there is no assurance that the goods, services and supplies in South Africa would be sufficient to allow us to meet the targets. More specifically, DRDGOLD may not be able to meet the requirement that 80% of total mining goods and services procurement spend be on South African-manufactured goods due to an insufficient number of suppliers in South Africa with heavy equipment. DRDGOLD may be required to increase participation by HDP in senior positions and allocate additional resources for the development of the mine community, human resources, sustainability, procurement and enterprise. DRDGOLD may also be required to make further adjustment to the ownership structure of its South African mining assets, including increasing the ownership of HDP, in order to meet the Mining Charter 2018 requirements. Any such additional measures could have a material adverse effect on our business, operating results and/or financial condition.
In addition, if we are unable to obtain sufficient representation of HDP at the board level and in management positions or if there are not sufficient succession plans in place, this could have a material adverse effect on our business (including resulting in the imposition of fines and having a negative effect on production levels), operating results and financial position. In relation to this, the mining industry, including DRDGOLD, continues to experience a global shortage of qualified senior management and technically skilled employees. DRDGOLD may be unable to hire or retain appropriate senior management, technically skilled employees or other management personnel, or may have to pay higher levels of remuneration than it currently intends in order to do so.
Also, there is no guarantee that any steps DRDGOLD has already taken or might take in the future will ensure the retention of its existing mining rights, the successful renewal of its existing mining rights, the granting of applications for new mining rights or that the terms of renewals of its mining rights would not be significantly less favourable than the terms of its current mining rights. Any further adjustment to the ownership structure of DRDGOLD's South African mining assets in order to meet the above mentioned requirements could have a material adverse effect on the value of DRDGOLD's securities
Refer to Item 4B. Business Overview – Governmental regulations and their effect on our business – The Broad Based Socio-Economic Empowerment Charter.
Regulation - Risk 5
Government policies in South Africa may adversely impact our operations and profits.The mining industry in South Africa is extensively regulated through legislation and regulations issued through the government's administrative bodies. These involve directives in respect of health and safety, water usage, the mining and exploration of minerals and managing the impact of mining operations on the environment. A variety of permits, regulatory approvals and authorities are required to mine lawfully, and the government enforces its regulations through the various government departments. Lack of communication between government and regulators as well as ineffective regulators remains an issue that may increase the cost of compliance and obtaining permits. The formulation or implementation of government policies may be discretionary and unpredictable on certain issues, including changes in conditions for the issuance of licenses insofar as social and labor plans are concerned, transformation of the workplace, laws relating to mineral rights, ownership of mining assets and the rights to prospect and mine, additional taxes on the mining industry and in extreme cases, nationalization. A change in regulatory or government policies could adversely affect our business and may also result in increased project costs and potential delays.
Litigation & Legal Liabilities3 | 6.5%
Litigation & Legal Liabilities - Risk 1
It may not be possible for you to effect service of legal process, enforce judgments of courts outside of South Africa or bring actions based on securities laws of jurisdictions other than South Africa against us or against members of our board.Litigation & Legal Liabilities - Risk 2
We have experienced an increase in organised crime activities which have started to target gold plants.In October 2019, a number of companies, including our Knights and Ergo plants, were subject to armed attacks targeting the gold in the plants or high-grade gold bearing material. These incidents were very well organised and in all the incidents the thieves were armed. In some of the incidents employees of companies were also held hostage until the targeted material was obtained. In the 2019 incident, a security officer was fatally injured.
Any such incidents have and may still result in losses of gold or other damage which could have a material adverse impact on our business, financial results or condition.
Litigation & Legal Liabilities - Risk 3
The treatment of occupational health diseases and the potential liabilities related to occupational health diseases may have an adverse effect on the results of our operations and our financial condition.We may be subject to claims relating to occupational health diseases and we are currently subject to legal action described below.
In January 2013, DRDGOLD, East Rand Proprietary Mines Limited ("DRDGOLD Respondents") and 23 other mining companies ("Other Respondents") (collectively referred to as "Respondents") were served with a court application issued in the High Court of South Africa for a class certification on behalf of former mineworkers and dependents of deceased mineworkers ("Applicants"). In the application the Applicants allege that the Respondents conducted underground mining operations in a negligent and complicit manner causing the former mineworkers to contract occupational lung diseases. The Applicants have as yet not quantified the amounts which they are demanding from the Respondents in damages.
On May 3, 2018, the Applicants and Anglo American South Africa Limited, AngloGold Ashanti Limited, Sibanye Gold Proprietary Limited trading as Sibanye-Stillwater, Harmony Gold Mining Company Limited, Gold Fields Limited, African Rainbow Minerals Limited and certain of their affiliates ("Settling Companies") settled the class certification application in which the Applicants in each sought to certify class actions against gold mining houses cited therein on behalf of mineworkers who had worked for any of the particular respondents and who suffer from any occupational lung disease, including silicosis or tuberculosis.
The DRDGOLD Respondents, are not a party to the settlement between the Applicants and Settling Companies. The dispute, insofar as the class certification application and appeal thereof is concerned, still stands and has not terminated in light of the settlement agreement (refer to Item 18. "Financial Statements - Note 26 – Contingencies").
An adverse judgment in the claim described above or any other claim could have an adverse impact on our financial condition and operating results and could result in increased regulatory and stakeholder scrutiny which could lead to increased compliance costs.
Taxation & Government Incentives4 | 8.7%
Taxation & Government Incentives - Risk 1
Mining royalties and other tax reform could have an adverse effect on the business, operating results and financial condition of our operations.Taxation & Government Incentives - Risk 2
Assessment of unredeemed capital expenditure by the South African Revenue Service could have an adverse effect on the business, operating results and financial condition of our operations.The South African Revenue Service ("SARS") assesses capital expenditure when it is redeemed against taxable mining income rather than when it is incurred. A different interpretation by SARS could have an adverse effect on our business, operating results and financial condition.
Taxation & Government Incentives - Risk 3
Ring-fencing of unredeemed capital expenditure for South African mining tax purposes could have an adverse effect on the business, operating results and financial condition of our operations.The Income Tax Act No 58 of 1962, or the ITA, contains certain ring-fencing provisions in section 36 specifically relating to different mines regarding the deduction of certain capital expenditure and the carry over to subsequent years. After the restructuring of the surface operations, effective July 1, 2012, Ergo is treated as one taxpaying operation pursuant to the relevant ring-fencing legislation. It is expected that FWGR will also be treated as one taxpaying operation pursuant to the relevant ring-fencing legislation. In the event that we are unsuccessful in confirming our position or should the South African Revenue Service have a different interpretation of section 36 of the ITA, it could have an adverse effect on our business, operating results and financial condition.
Taxation & Government Incentives - Risk 4
The implementation of Carbon Tax effective from June 1, 2019 may have a direct or indirect material adverse effect on our business, operating results and financial condition.The Carbon Tax Act No 15 of 2019, or the CTA, came into effect from June 1, 2019. The CTA is based on the polluter-pays-principle and will be implemented across phases. The first phase ran from June 1, 2019 to December 31, 2022 and is applicable to scope 1 emitters. The first phase did not have a material financial impact on the Group. The second phase starting date was pushed from January 1, 2023 to January 2026. During the first phase, tax-free emission allowances ranging from 60 per cent to 95 per cent are available to emitters in this first phase. This includes a basic tax-free allowance of 60 per cent for all activities, a 10 per cent process and fugitive emissions allowance, a maximum 10 per cent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to 5 per cent for companies that reduce the emissions intensity of their activities, a 5 per cent carbon budget allowance for complying with the reporting requirements and a maximum 10 per cent allowance for trade exposed sectors. The South African government indicated that a review of the impact of the carbon tax will be conducted before the second phase of the South African Carbon Tax Act is implemented.
Initially, the draft explanatory memorandum of the Taxation Laws Amendment Bill proposed that amendment to section 5(2) of the Carbon Tax Act to provide for the carbon tax rate adjustment by US$1, US$2 and US$3/ t CO2e for the 2023, 2024 and 2025 tax periods ending on 31 December using the average exchange rate as defined in the Income Tax Act. The rate will thereafter increase gradually to US$20t CO2e in 2026 and at least to US$30/t CO2e in 2030. However, after public consultation, it was decided that the increases would be rand-based due to the instability of the USD/rand exchange rate. Currently under phase 1 an amount of R190/t CO2e carbon tax is charged on scope 1 emissions. It remains unclear whether the scope will include scope 2 emissions which typically include indirect emissions from electricity consumption. Although the decarbonization of electricity as an energy supply must nevertheless be prioritized by both the country and industries at large to de-carbonize the economy, the increased proposed rates is expected to have an adverse impact on business.
The carbon tax has not had an impact on the price of electricity. However, should Eskom be required to pass on the cost of the tax from its emissions to its customers, electricity tariffs may rise significantly. This may also affect the electricity prices charged to our suppliers who may pass on the tax to us increasing the price of goods and services we consume in our operation.
Regulations detailing the tax-free emission allowances during the second phase have not been published to date. The second phase of implementation of the Carbon Tax may have a material direct and/or indirect adverse effect on our business, operating results and financial condition if the tax-free emission allowances are significantly reduced or the scope of implementation of the CTA is significantly increased. In addition, the potential increases in costs resulting from suppliers passing through their Carbon Tax exposure to the Company may have a direct or indirect material adverse effect on our business, operating results and financial condition.
Environmental / Social1 | 2.2%
Environmental / Social - Risk 1
Our operations are subject to extensive environmental regulations which could impose significant costs and liabilities.Finance & Corporate
Total Risks: 8/46 (17%)Below Sector Average
Share Price & Shareholder Rights3 | 6.5%
Share Price & Shareholder Rights - Risk 1
Sales of large volumes of our ordinary shares or ADSs or the perception that these sales may occur, could adversely affect the prevailing market price of such securities.Share Price & Shareholder Rights - Risk 2
Control by principal shareholders could adversely affect our other shareholders.Sibanye-Stillwater beneficially owns 50.1% of our outstanding ordinary shares and voting power and has the ability to control, our board of directors. Sibanye-Stillwater will continue to have control over our affairs for the foreseeable future, including with respect to the election of directors, the consummation of significant corporate transactions, such as an amendment of our constitution, a merger or other sale of our company or our assets, and all matters requiring shareholder approval. In certain circumstances, Sibanye-Stillwater's interests as a principal shareholder may conflict with the interests of our other shareholders and Sibanye-Stillwater's ability to exercise control, or exert significant influence, over us may have the effect of causing, delaying, or preventing changes or transactions that our other shareholders may or may not deem to be in their best interests. In addition, any sale or expectation of sale of some or all the shares held by Sibanye-Stillwater could have an adverse impact on our share price.
Share Price & Shareholder Rights - Risk 3
Your rights as a shareholder are governed by South African law, which differs in material respects from the rights of shareholders under the laws of other jurisdictions.Our Company is a public limited liability company incorporated under the laws of the Republic of South Africa. The rights of holders of our ordinary shares, and therefore many of the rights of our ADS holders, are governed by our memorandum of incorporation and by South African law. These rights differ in material respects from the rights of shareholders in companies incorporated elsewhere, such as in the United States. In particular, South African law significantly limits the circumstances under which shareholders of South African companies may institute litigation on behalf of a company.
Accounting & Financial Operations2 | 4.3%
Accounting & Financial Operations - Risk 1
Dividend withholding tax will reduce the amount of dividends received by beneficial owners.Accounting & Financial Operations - Risk 2
There is inherent uncertainty in Mineral Reserves and Mineral Resources estimates.Our Mineral Reserve and Mineral Resources figures described in this document are the best estimates of our current management as of the dates stated and are reported in accordance with the requirements of the SEC's Regulation S-K (Subpart 1300). These estimates may not reflect actual Mineral Reserves and Mineral Resources or future production.
Should we encounter mineralization or formations different from those predicted by past drilling, sampling and similar examinations, reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might ultimately cause our reserve estimates to decline. Moreover, if the rand price of gold declines, or stabilizes at a price that is lower than recent levels, or those assumed in our mining plans, or if our labor, specialized services providers, water, steel, electricity and other production costs increase or recovery rates decrease, it may become uneconomical to recover Mineral Reserves and Mineral Resources, particularly those containing relatively lower grades of mineralization. Under these circumstances, we would be required to re-evaluate our Mineral Reserves and Mineral Resources. Short-term operating factors relating to the ability to reclaim our Mineral Reserves, at the required rate, such as an interruption or reduction in the supply of electricity, limited deposition capacity or a shortage of water may have the effect that we are unable to achieve critical mass, which may render the recovery of Mineral Reserve, or parts of the Mineral Reserve no longer feasible, which could negatively affect production rate and costs and decrease our profitability during any given period. Estimates of Mineral Reserves and Mineral Resources are based on drilling results and because unforeseen conditions may occur in these mine dumps that may not have been identified by the drilling results, the actual results may vary from the initial estimates. These factors have in the past and could in the future result in reductions in our Mineral Reserves and Mineral Resources estimates and as a result, our production, which could in turn adversely impact the total value of our mining asset base and our business, operating results and financial condition.
Debt & Financing1 | 2.2%
Debt & Financing - Risk 1
We may not be able to meet our cash requirements because of a number of factors, many of which are beyond our control.Corporate Activity and Growth2 | 4.3%
Corporate Activity and Growth - Risk 1
We may be unable to make desirable acquisitions or to integrate successfully any businesses we acquire, including the development of Phase 2 of the FWGR assets acquired from Sibanye-Stillwater.Corporate Activity and Growth - Risk 2
A failure to acquire new Mineral Reserves could negatively affect our future cash flows, results of operations and financial condition.New or ongoing exploration programs may be delayed or may not result in new mineral producing operations that will sustain or increase our Mineral Reserves. A failure to acquire new Mineral Reserves in sufficient quantities and quality to maintain or grow the current level and quality of our reserves will negatively affect our future cash flow, results of operations and financial condition. In addition, if we are unable to identify Mineral Reserves that have reasonable prospects for economic extraction while maintaining sufficient controls on production and other costs, this will have a material effect on the future viability of our operations.
If we are not successful in increasing reserves in future years, our reserves could decrease, and such reduction would adversely affect our business, operating results and financial condition.
Macro & Political
Total Risks: 8/46 (17%)Above Sector Average
Economy & Political Environment2 | 4.3%
Economy & Political Environment - Risk 1
Inflation can adversely affect us.Economy & Political Environment - Risk 2
Political or economic instability in South Africa may reduce our production and profitability.We are incorporated in South Africa and all our operations are currently in South Africa. Large parts of our operations are situated in urban areas where most of the communities that live near our facilities are in the grip of poverty and experience socio-economic stress. As a result, political and economic risks relating to South Africa which have been escalated over the last few years, could have a significant effect on our production and profitability. Large parts of the South African population are unemployed and do not have access to adequate education, health care, housing and other services, including water and electricity. Government policies aimed at alleviating and redressing the disadvantages suffered by most citizens under previous governments may increase our costs and reduce our profitability. Crime levels in recent years in South Africa have increased which expose the business to increase in frequency and severity of security issues that may disrupt business operations. These problems may impede fixed inward investment into South Africa and increase emigration of skilled workers and as a result, we may have difficulties retaining qualified employees.
The sustained high unemployment rate of 33.5%, for 2024, rising inequality and increased lawlessness has increased the risk of social unrest, such as protests and conflict, in our surrounding communities. Continuous lack of service delivery, political instability and slow reformative action being taken by all spheres of the South African government, specifically, in combating unemployment particularly in the youth of the country adds to a sense of frustration that may increase the potential of violent strikes that could cause damage to property, harm to people and disrupt operations. This frustration was a contributing factor that led to social unrest, people committing crimes, vandalisation and theft of property, and damaging infrastructure during fiscal year 2024 which was a contributing factor to delays in commissioning new reclamation sites. A prolonged economic downturn could result in an extended period of high unemployment, further exacerbating anti-mining sentiments in South Africa. Poor service delivery by local government has caused communities to shift expectations to the private sector to provide essential services and for increased support and assistance. Poverty and high levels of unemployment have lead to demands to participate in, and benefit from, the economic activities of our business. Failure to recognise these could result in miscommunication, misaligned expectations and loss of trust that in turn could threaten our social license to operate.
The GNU was formed post the outcome of the national elections which has been received positively by both local and international financial markets however, it is still new and its stability, sustainability and ability to fix the systematic economic, political and societal issues in South Africa (Crime, low education quality, unemployment particularly amongst youth, gender based violence, water and electricity shortage, decaying infrastructure etc.) and create sustainable term economic growth over a long period remains untested. If the GNU is not successful there would be adverse consequences.
Furthermore, the rise of Environmental, Social, and Governance ("ESG") factors, such as electricity usage, social unrest, social license to operate, climate change, water usage and environmental stewardship, in investment decisions may result in divestment in the mining sector.
Natural and Human Disruptions3 | 6.5%
Natural and Human Disruptions - Risk 1
Failure to adapt or transition to climate change measuresNatural and Human Disruptions - Risk 2
Scarcity of water may exacerbate the risk of climate change and may negatively affect our operations.Changed
South Africa is a relatively dry area and predictions are that dry conditions will escalate. South Africa faces water shortages, which may lead to the revision of water usage strategies by several sectors in the South African economy, including electricity generation and municipalities. This may result in rationing or increased water costs. Such changes would adversely impact our surface retreatment operations, which use water to transport the slimes or sand from reclaimed areas to the processing plant and to the tailings facilities. In addition, as our gold plants and piping infrastructure were designed to carry certain minimum throughputs, any reductions in the volumes of available water may require us to adjust production at these operations.
DRDGOLD invested R22 million in the construction of a filtration plant at the Rondebult Waste Water Works (operated by the East Rand Water Care Company) to treat sewage water to reduce the use of potable water. This water is used both to reclaim and carry production materials and also, ultimately, to irrigate rehabilitation vegetation at a significantly lower cost than that of potable water. The plant was commissioned in early fiscal year 2016 and has design capacity to provide Ergo with 10 Mega Litres ("Ml") a day from the Rondebult sewage treatment facility. However, due to the deterioration of the local government authorities' infrastructure, the expected quantity of sewerage is not reaching the treatment facility and as a result Ergo is still not able to extract the full design capacity of 10 Ml of water a day. It is not certain if and when the flow of sewerage will reach expected levels.
These measures may not be sufficient to alleviate the water scarcity issues we face.
Natural and Human Disruptions - Risk 3
Physical risks including extreme weatherAdded
As a result of climate change, our operations are exposed to severe weather events that have in the past and could in the future interrupt production and our supply chain. Major property, infrastructure and/or environmental damage as well as loss of human life could be caused by extreme weather events such as droughts, heatwaves, extreme rainfall and high wind volumes which are all on the increase in terms of frequency, duration and intensity. Specifically, we have experienced an increase in intensity of events, such as thunderstorms on the Highveld, where our operations are situated. It is believed that the long-term upward trend in global temperature is directly correlated with the increase in global severe weather events both in terms of magnitude and frequency.
For example, dry weather conditions have prompted level 1 water restrictions on residential water users in the Johannesburg area. These water restrictions remain in place as at September 30, 2024. In the cases where municipal water is used, these restrictions can result in reclamation sites not being able to transfer material to the processing plants and also the processing plants not being able to operate at full capacity. Severe thunderstorms and high winds, especially during the summer rainy season, may also cause damage to operation infrastructure that may in turn cause an interruption in the production of gold. Such incidents and other weather events may damage the facility and may result in water shortages which can impact our operations and cause the interruption of deposition and gold production until the facility is repaired or alternative deposition is brought online.
The occurrence of these risks and events may result in adverse impacts to our workforce, production interruptions, increased operational costs associated with mitigation, measures and power and supply chain disruptions, project delays and increased production pricing. All of this may result in adverse impacts on our business, operating results and financial condition.
Capital Markets3 | 6.5%
Capital Markets - Risk 1
Our financial flexibility could be materially constrained by South African currency restrictions.Capital Markets - Risk 2
A change in the dollar price of gold, which in the past has fluctuated widely, is beyond our control.Historically, the gold price has fluctuated widely and is affected by numerous industry factors over which we have no control including:
- a significant amount of above-ground gold in the world that is used for trading by investors;- the physical supply of gold from world-wide production and scrap sales, and the purchase, sale or divestment by central banks of their gold holdings;- the demand for gold for investment purposes, industrial and commercial use, and in the manufacturing of jewelry;- speculative trading activities in gold;- the overall level of forward sales by other gold producers;- the overall level and cost of production of other gold producers;- international or regional political and economic events or trends;- the strength of the dollar (the currency in which gold prices generally are quoted) and of other currencies;- financial market expectations regarding the rate of inflation;- interest rates;- gold hedging and de-hedging by gold producers; and - actual or expected gold sales by central banks and the International Monetary Fund.
During fiscal year 2024 the gold price reached a high of U$2,450 per ounce and a low of U$1,810. We benefited from a sustained high gold price due to slower than expected global economic recovery and growth, economic uncertainty and geopolitical tensions.
Investors globally, as they have in so many previous times of crisis, turned to gold and the rand/dollar exchange rate was volatile throughout the fiscal year 2024 mainly as a result of the uncertainty around the National and Provincial elections in South Africa and the subsequent formation of the GNU, emerging markets and South Africa's economic uncertainty, including uncertainties resulting from the global economic slowdown sentiment, uncertainty around the lowering of interest rates, geopolitical tensions between Israel and Gaza, perceived political and economic instability, structurally weak economic growth of the South African economy exacerbated by load shedding by power utility Eskom up to March 2024 as it battles with supply and maintenance of the power generation units.
The factors mentioned above indicate the various factors that causes the volatility in the price of gold or the rand/dollar exchange rate in the future. Our profitability may be negatively impacted by a decline in the gold price as we incur losses when revenue from gold sales drops below the cost of production for an extended period.
Capital Markets - Risk 3
Changes in the market price for gold and exchange rate fluctuations, both of which have fluctuated widely in the past, affect the profitability of our operations and the cash flows generated by those operations.Our results are significantly impacted by the price of gold and the USD-rand exchange rate. Any sustained decline in the market price of gold from the current levels would adversely affect us, and any sustained decline in the price of gold below the cost of production could result in the closure of some or all of our operations which would result in significant costs and expenditure, such as, incurring retrenchment costs earlier than expected which could lead to a decline in profits, or losses, as well as impairment losses. In addition, as most of our production costs are in rands, while gold is sold in dollars and then converted to rands, our results of operation and financial condition have been and could be in the future materially affected by an appreciation in the value of the rand. Accordingly, any sustained decline in the dollar price of gold and/or the strengthening of the South African rand against the dollar would negatively and adversely affect our business, operating results and financial condition.
As US inflation started to recover there was uncertainty whether the US Federal Reserve would halt interest rate hikes and the collapsing of Silicon Valley Bank meant that gold remained a safe haven for investors which kept the gold price high in fiscal year 2023. During fiscal year 2024 the recovery of the US inflation continued. With inflation starting to decrease, the US Federal Reserve lowered interest rates by 50 basis points during September 2024 and further decreases are expected over fiscal year 2025. The uncertainty around the lowering of interest rates and the extent of the lowering, meant that the gold price remained high, this was further fueled by the conflict between Israel and Gaza. In addition, we are impacted by movements in the exchange rate of the rand against the dollar as described below.
Exchange rates are influenced by global economic trends. The closing exchange rate of the rand against the dollar at June 30, 2024 strengthened by 3% compared to June 30, 2023. The closing price of the rand against the dollar at June 30, 2023 weakened by 16% compared to June 30, 2022. At September 30, 2024, the rand traded at R17.26 = $1.00 (based on closing rates), representing a 5% strengthening of the rand against the dollar from June 30, 2024 as the rand remained strong as a result of quantitative easing and lowering the interest rates by the US Federal Reserve and Eskom Holdings SOC Limited ("Eskom") providing stable electricity to the grid during the first quarter of fiscal year 2025 (load shedding has been suspended since March 2024, but can be reinstated at any given time). The rand/dollar exchange rate was volatile throughout the fiscal year 2024 mainly as a result of the uncertainty around the National and Provincial elections in South Africa and the subsequent formation of the Government of National Unity ("GNU"), emerging markets and South Africa's economic uncertainty, including uncertainties resulting from the global economic slowdown sentiment, uncertainty around the lowering of interest rates, geopolitical tensions between Israel and Gaza, perceived political and economic instability, structurally weak economic growth of the South African economy exacerbated by load shedding by power utility Eskom up to March 2024 as it battles with supply and maintenance of the power generation units.
A decrease in the dollar gold price and/or a strengthening of the rand against the dollar results in a decrease in our profitability. If the rand was to appreciate against the dollar or the gold price were to decrease for a continued time, our operations could experience a reduction in cash flow and profitability, and this would adversely affect our business, operating results and financial condition.
We typically do not enter into forward contracts to reduce our exposure to market fluctuations in the dollar gold price or the exchange rate movements of the rand. Gold is sold at a dollar gold price and spot exchange rate specified in a contract with the South African bullion banks to deliver the gold at a specified settlement date. If the dollar gold price should fall and/or the rand should strengthen against the dollar, this would adversely affect us, and we may experience losses, and if these changes result in revenue below our cost of production and remain at such levels for any sustained period, we may be forced to curtail or suspend some or all our operations.
Tech & Innovation
Total Risks: 1/46 (2%)Below Sector Average
Cyber Security1 | 2.2%
Cyber Security - Risk 1
A disruption in our information technology systems, including incidents related to cyber security, could adversely affect our business operations.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.