DRDGOLD Limited

DRDGOLD Limited (DROOY - Snapshot Report), the South African gold miner, is growing its profits as gold remains at multi-decade highs. The stock is cheap, trading at only 4.6x forward earnings. DROOY is unhedged and has little debt, so it will see big benefits if gold prices continue to rise.

Company Description

DRDGOLD is a mid-tier un-hedged gold mining company. The company operates underground mines, surface re-treatment operations, and exploration programs exclusively in South Africa.

In Oct 2007, the company sold its interest in an Australian mining company to focus its attention on improving performance and exploration opportunities in South Africa.

Earnings Rise in the Second Quarter 2009

On Feb 6, the company reported fiscal second quarter 2009 earnings for the quarter ending Dec 31, 2008 which were $1.38 per share compared to 25 cents per share in the year ago period when measured in constant currencies.

Gold production fell 15% but was offset by an 18% increase in the average gold price and a 2% decrease in cash operating costs. Lower gold production was due to a 45% production drop at ERPM after the company suspended underground mining there in Oct 2008.

2009 Outlook

DRDGOLD is clearly playing it safe given economic conditions even though gold prices remain elevated and the company has little debt.

"With the global liquidity squeeze, we will remain cautious of long lead capital projects, and avoid projects that we cannot fully cover with the cash and facilities that we have at hand.," said Niel Pretorius, CEO.

"DRDGOLD will be taking a very disciplined approach to growth," he added.

2009 Consensus Estimates Rise

Covering analysts are bullish on the company. 1 out of the 2 covering analysts have raised estimates in the last week by 24% to 88 cents from 71 cents. Analysts expect year over year earnings per share growth of 30.60% in 2009.

Analysts also expect 5-year earnings growth of 29.32%.

Zacks Equity Analyst Paul Raman has a "hold" on the stock.

"There are some challenges facing the company with respect to its ageing assets, environmental laws, currency risks, and power shortages," he said.

Value Fundamentals

DRDGOLD is a Zacks #1 Rank (strong buy) stock. It is trading at only 4.6x forward earnings. The company has a price-to-book of 2.35. Additionally, it pays a dividend with a current yield of 1.3%.