20-F 1 drd_main.htm
As filed with the Securities and Exchange Commission on October 28, 2011
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
7
7
7
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
1934
For the fiscal year ended June 30, 2011
Commission file number 0-28800
DRDGOLD LIMITED
(Exact name of Registrant as specified in its charter and translation of Registrant's name into English)
REPUBLIC OF SOUTH AFRICA
(Jurisdiction of incorporation or organization)
50 CONSTANTIA BOULEVARD, CONSTANTIA KLOOF EXT 28, ROODEPOORT, 1709, SOUTH AFRICA
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act
Title of each class:
Name of each exchange on which registered:
Ordinary shares (traded in the form of American Depositary
Shares, each American Depositary Share representing ten
underlying ordinary shares.)
The NASDAQ Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the
period covered by the annual report.
As of June 30, 2011 the Registrant had outstanding 384,884,379 ordinary shares, of no par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232-405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing. U.S. GAAP International Financial Reporting Standards as issued by the IASB Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow. Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes No
Contact details: Mr. T.J. Gwebu – Executive Officer: Legal, Compliance and Company Secretary
DRDGOLD Limited, Quadrum Office Park, First Floor, Building 1, 50 Constantia Boulevard, Constantia Kloof Ext. 28, Roodepoort,
1709, South Africa; Telephone: +27 11 470 2600
TABLE OF CONTENTS
Page
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.................................................
5
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE ...............................................................................
5
ITEM 3.
KEY INFORMATION ..................................................................................................................................
5
3A.
Selected Financial Data .................................................................................................................................
5
3B.
Capitalization And Indebtedness ....................................................................................................................
7
3C.
Reasons For The Offer And Use Of Proceeds .................................................................................................
7
3D.
Risk
Factors
..................................................................................................................................................
7
ITEM 4.
INFORMATION ON THE COMPANY ........................................................................................................
21
4A.
History And Development Of The Company ................................................................................................
21
4B.
Business
Overview
........................................................................................................................................
25
4C.
Organizational
Structure
................................................................................................................................
35
4D.
Property, Plants And Equipment ..................................................................................................................
36
ITEM 4A.
UNRESOLVED STAFF COMMENTS .........................................................................................................
54
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS....................................................................
55
5A.
Operating
Results
.........................................................................................................................................
56
5B.
Liquidity
And
Capital
Resources
....................................................................................................................
78
5C.
Research And Development, Patents And Licenses Etc .................................................................................
80
5D.
Trend
Information
.........................................................................................................................................
80
5E.
Off-Balance
Sheet
Arrangements
...................................................................................................................
80
5F.
Tabular Disclosure Of Contractual Obligations ...............................................................................................
81
5G.
Safe
Harbor
..................................................................................................................................................
81
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES .....................................................................
82
6A.
Directors And Senior Management.................................................................................................................
82
6B.
Compensation
...............................................................................................................................................
84
6C.
Board
Practices
.............................................................................................................................................
86
6D.
Employees
....................................................................................................................................................
90
6E.
Share
Ownership
...........................................................................................................................................
92
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ....................................................
94
7A.
Major
Shareholders
.......................................................................................................................................
94
7B.
Related
Party
Transactions
.............................................................................................................................
95
7C.
Interests Of Experts And Counsel...................................................................................................................
95
ITEM 8.
FINANCIAL INFORMATION .....................................................................................................................
96
8A.
Consolidated Statements And Other Financial Information ...........................................................................
96
8B.
Significant
Changes.......................................................................................................................................
96
ITEM 9.
THE OFFER AND LISTING ........................................................................................................................
97
9A.
Offer And Listing Details ..............................................................................................................................
97
9B.
Plan Of Distribution ......................................................................................................................................
97
9C.
Markets
........................................................................................................................................................
98
9D.
Selling
Shareholders
......................................................................................................................................
98
9E.
Dilution
........................................................................................................................................................
98
9F.
Expenses Of The Issue ..................................................................................................................................
98
ITEM 10.
ADDITIONAL INFORMATION ..................................................................................................................
99
10A.
Share
Capital
................................................................................................................................................
99
10B.
Memorandum And Articles Of Association ....................................................................................................
99
10C.
Material
Contracts
.........................................................................................................................................
101
10D.
Exchange
Controls
........................................................................................................................................
102
10E.
Taxation
.......................................................................................................................................................
104
10F.
Dividends And Paying Agents .......................................................................................................................
108
10G.
Statement
By
Experts
....................................................................................................................................
108
10H.
Documents On Display ..................................................................................................................................
108
10I.
Subsidiary
Information
..................................................................................................................................
108
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ....................................
109
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ...................................................
110
12A.
Debt Securities ..............................................................................................................................................
110
12B.
Warrants and Rights ......................................................................................................................................
110
12C.
Other Securities.............................................................................................................................................
110
12D
American Depositary Shares ..........................................................................................................................
110
TABLE OF CONTENTS
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ............................................................
111
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS .
111
ITEM 15.
CONTROLS AND PROCEDURES ...............................................................................................................
111
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT .............................................................................................
112
ITEM 16B.
CODE OF ETHICS .......................................................................................................................................
112
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES..................................................................................
112
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES .....................................
113
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ................
113
ITEM 16F
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT....................................................................
113
ITEM 16G.
CORPORATE GOVERNANCE ....................................................................................................................
113
PART III
ITEM 17.
FINANCIAL STATEMENTS .......................................................................................................................
115
ITEM 18.
FINANCIAL STATEMENTS .......................................................................................................................
F-pages
ITEM 19.
EXHIBITS....................................................................................................................................................
116
1
Preparation of Financial Information
We are a South African company and currently all of our operations, as measured in production ounces, are located there.
Accordingly, our books of account are maintained in South African Rand. Our financial statements included in our corporate filings
in South Africa were prepared in accordance with International Financial Reporting Standards (IFRS), as approved by the
International Accounting Standards Board (IASB) for the financial years ended June 30, 2009, 2010 and 2011. All references to
“dollars” or “$” herein are to United States Dollars, references to “rand” or “R” are to South African Rands and references to “A$”
are to Australian Dollars.
Prior to fiscal year ended June 30, 2008, our annual financial statements (translated into dollars) were prepared and filed
with the U.S. Securities and Exchange Commission (“SEC”) in accordance with generally accepted accounting principles in the
United States (“U.S. GAAP”). On December 21, 2007, the SEC adopted rules allowing foreign private issuers that file Annual
Reports on Form 20-F to file financial statements with the SEC in accordance with IFRS as issued by the IASB without
reconciliation to U.S. GAAP. As per these new rules, we changed our basis of presentation and included in this Annual Report our
consolidated financial statements prepared in accordance with IFRS as issued by the IASB. All financial information, except as
otherwise noted, are stated in accordance with IFRS as issued by the IASB.
We present our financial information in rand, which is our presentation currency. Solely for your convenience, this
Form 20-F contains translations of certain rand amounts into dollars at specified rates. These rand amounts do not represent actual
dollar amounts, nor could they necessarily have been converted into dollars at the rates indicated. Unless otherwise indicated, rand
amounts have been translated into dollars at the rate of R7.90 per $1.00, which was the noon buying rate in New York City on
September 30, 2011.
In this Annual Report on Form 20-F, we present certain non-IFRS financial measures such as the financial items “cash
costs per kilogram” and “total costs per kilogram” which have been determined using industry guidelines promulgated by the
Gold Institute. An investor should not consider these items in isolation or as alternatives to cash and cash equivalents, operating
costs, profit/(loss) attributable to equity owners of the parent, profit/(loss) before taxation and other items or any other measure of
financial performance presented in accordance with IFRS or as an indicator of our performance. While the Gold Institute has
provided definitions for the calculation of cash costs, the calculation of cash costs per kilogram, total costs and total costs per
kilogram may vary significantly among gold mining companies, and these definitions by themselves do not necessarily provide a
basis for comparison with other gold mining companies. See “Glossary of Terms and Explanations” and Item 5A.: “Operating
Results - Cash costs and total costs per kilogram- Reconciliation of cash costs per kilogram, total costs and total costs per
kilogram.”
DRDGOLD Limited
When used in this Annual Report, the term the “Company” refers to DRDGOLD Limited and the terms “we,” “our,” “us” or
“the Group” refer to the Company and its subsidiaries, associates and joint ventures, as appropriate in the context.
Special Note Regarding Forward-Looking Statements
This Annual Report contains certain “forward-looking” statements within the meaning of Section 21E of the Exchange Act,
regarding future events or other future financial performance and information relating to us that are based on the beliefs of our
management, as well as assumptions made by and information currently available to our management. Some of these forward-
looking statements include phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” or
“will continue,” or similar expressions or the negatives thereof or other variations on these expressions, or similar terminology, or
discussions of strategy, plans or intentions. These statements also include descriptions in connection with, among other things:
• estimates regarding future production and throughput capacity;
• our anticipated commitments;
• our ability to fund our operations in the next 12 months; and
• estimated production costs, cash costs per ounce and total costs per ounce.
Such statements reflect our current views with respect to future events and are subject to risks, uncertainties and
assumptions. Many factors could cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others:
• adverse changes or uncertainties in general economic conditions in the markets we serve;
• regulatory developments adverse to us or difficulties in maintaining necessary licenses or other governmental approvals;
• changes in our competitive position;
• changes in business strategy;
• any major disruption in production at our key facilities; or
• adverse changes in foreign exchange rates and various other factors.
2
For a discussion of such risks, see Item 3D.: “Risk Factors.” The risk factors described in Item 3D. could affect our future
results, causing these results to differ materially from these expressed in any forward-looking statements. These factors are not
necessarily all of the important factors that could cause our results to differ materially from those expressed in any forward-looking
statements. Other unknown or unpredictable factors could also have material adverse effects on future results.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date
hereof. We do not undertake any obligation to update publicly or release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.
Imperial units of measure and metric equivalents
Units stated in this Annual Report are measured in Imperial and Metric.
Metric Imperial Imperial Metric
1 metric tonne
1.10229 short tons
1 short ton
0.9072 metric tonnes
1 kilogram
2.20458 pounds
1 pound
0.4536 kilograms
1 gram
0.03215 troy ounces
1 troy ounce
31.10353 grams
1 kilometer
0.62150 miles
1 mile
1.609 kilometres
1 meter
3.28084 feet
1 foot
0.3048 metres
1 liter
0.26420 gallons
1 gallon
3.785 liters
1 hectare
2.47097 acres
1 acre
0.4047 hectares
1 centimeter
0.39370 inches
1 inch
2.54 centimetres
1 gram/tonne
0.0292 ounces/ton
1 ounce/ton
34.28 grams/tonnes
0 degree Celsius
32 degrees Fahrenheit
0 degrees Fahrenheit
- 18 degrees Celsius
Glossary of Terms and Explanations
Adularia ......................................... A transparent or translucent variety of common feldspar.
Archaean........................................ A period of the geological time scale between 2.5 and 4.6 billion years ago, the earliest part of the
Precambrian.
Assaying ........................................ The chemical testing process of rock samples to determine mineral content.
Auriferous ...................................... Containing gold.
Bonanza ........................................ Unexpected high-grade occurrences.
Care and maintenance ..................... Cease active mining activity at a shaft, but continue to incur costs to ensure that the Ore Reserves
are open, serviceable and legally compliant.
Cash costs per kilogram .................. Cash costs are operating costs incurred directly in the production of gold and include labor costs,
contractor and other related costs, inventory costs and electricity costs. Cash costs per kilogram
are calculated by dividing cash costs by kilograms of gold produced. Cash costs per kilogram
have been calculated on a consistent basis for all periods presented. This is a non-IFRS financial
measure and should not be considered a substitute measure of costs and expenses reported by us
in accordance with IFRS.
Caving ........................................... A type of mining in which the ore is blasted and drawn in a manner causing the overhead rock to
cave in.
Conglomerate ................................. A coarse-grained sedimentary rock consisting of rounded or sub-rounded pebbles.
Cut-and-fill .................................... A mining method in which a slice of rock is removed after blasting and replaced with a slice of
fill material to provide workers with a platform to mine the next slice of rock.
Cut-off grade .................................. The minimum in-situ grade of ore blocks for which the cash costs per ounce, excluding overhead
costs, are equal to a projected gold price per ounce.
Depletion .......................................
The decrease in the quantity of ore in a deposit or property resulting from extraction or
production.
Deposition ..................................... Deposition is the geological process by which material is added to a landform or land mass.
Fluids such as wind and water, as well as sediment flowing via gravity, transport previously
eroded sediment, which, at the loss of enough kinetic energy in the fluid, is deposited, building
up layers of sediment. Deposition occurs when the forces responsible for sediment transportation
are no longer sufficient to overcome the forces of particle weight and friction, creating a
resistance to motion.
Dilution ......................................... Broken rock entering the ore flow at zero or minimal grade and therefore diluting the gold
content per ton.
Diorite ........................................... An igneous rock formed by the solidification of molten material.
Doré .............................................. Unrefined gold and silver bullion bars consisting of approximately 90% precious metals which
will be further refined to almost pure metal.
3
Electrowinning ............................... The process of recovering metal from ore by means of electro-chemical processes.
Grade ............................................. The amount of gold contained within auriferous material generally expressed in ounces per ton or
grams per ton of ore.
g/t .................................................. Grams per ton.
Horizon.......................................... A plane indicating a particular position in a stratigraphic sequence. This may be a theoretical
surface with no thickness or a distinctive bed.
Igneous rock................................... Rock which is magmatic in origin.
Intrusive ......................................... Rock which while molten, penetrated into or between other rocks, but solidified before reaching
the surface.
Life of mine ................................... Projected life of a mining operation based on the Proven and Probable Ore Reserves.
Metallurgical plant.......................... A processing plant (mill) erected to treat ore and extract the contained gold.
Mine call factor .............................. This is the gold content recovered expressed as a percentage of the gold content called.
Mill ............................................... Material passed through the metallurgical plant for processing.
Mt ................................................. Million tons.
Opening up .................................... The potential that previously abandoned shafts and mining or developed areas, have to be
reopened and mined.
Ore ................................................ A mixture of valuable and worthless minerals from which the extraction of at least one mineral is
technically and economically viable.
Ore Reserves .................................. Attributable total ore reserves of subsidiaries.
Pay-limit ........................................ The minimum in-situ grade of ore blocks for which cash costs, including all overhead costs, are
equal to a projected gold price per ounce.
Payshoot ........................................ Is a zone in which the average value of the ore is well in excess of that of the surrounding area,
and which has a more or less consistent direction or trend, or orientation.
Proven Ore Reserves ......................
Reserves for which (a) the quantity is computed from dimensions revealed in outcrops, trenches,
workings or drill holes; grade and/or quality are computed from the results of detailed sampling
and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth, and mineral content of Ore Reserves are
well-established.
Probable Ore Reserves .................... Reserves for which quantity and grade and/or quality are computed from information similar to
that used for Proven Ore Reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately spaced. The degree of assurance, although lower
than that for Proven Ore Reserves, is high enough to assume continuity between points of
observation.
oz/t ................................................ Ounces per ton.
Reef ............................................... A gold-bearing sedimentary horizon, normally a conglomerate band that may contain economic
levels of gold.
Refining ......................................... The final purification process of a metal or mineral.
Rehabilitation ................................. The process of restoring mined land to a condition approximating its original state.
Reserves ........................................ That part of a mineral deposit which could be economically and legally extracted or produced at
the time of the reserve determination.
Sedimentary ................................... Formed by the deposition of solid fragmental material that originated from weathering of rocks
and was transported from a source to a site of deposition.
Shaft .............................................. An opening cut downwards for transporting personnel, equipment, supplies, ore and waste. A
shaft is also used for ventilation and as an auxiliary exit. It is equipped with a hoist system that
lowers and raises a cage in the shaft, transporting equipment, personnel, materials, ore and waste.
A shaft generally has more than one compartment.
Shrinkage stoping ........................... A mining method in which a small percentage of the broken ore is drawn as mining progresses to
make room for subsequent mining activities. Most of the blasted ore is left to accumulate in the
stope and is drawn after the stope is completely mined.
Slimes ............................................ The fraction of tailings discharged from a processing plant after the valuable minerals have been
recovered.
Sloughing ...................................... The localized failure of part of the slimes dam wall caused by a build up of water within the dam.
Stope ............................................. Underground production working area on the Ore Horizon.
Stoping .......................................... Is the removal of the wanted ore from an underground mine leaving behind an open space known
as a stope. Stoping is used when the country rock is sufficiently strong not to cave into the stope,
although in most cases artificial support is also provided.
Sub-level stoping ............................ A method of mining in which the ore is blasted, on multiple levels in one stope, and drawn off as
it is blasted, leaving an open stope.
Tailings .......................................... Finely ground rock from which valuable minerals have been extracted by milling, or any waste
rock, slimes or residue derived from any mining operation or processing of any minerals.
Tailings dam .................................. A dam created from waste material of processed ore after the economically recoverable gold has
been extracted.
4
Tonnage/Tonne .............................. Quantities where the metric tonne is an appropriate unit of measure. Typically used to measure
reserves of gold-bearing material in-situ or quantities of ore and waste material mined,
transported or milled.
Total costs per kilogram ................. Total costs per kilogram represent the full amount of costs incurred and represents the difference
between revenues from gold bullion and profits or losses before taxation. Total costs per
kilogram are calculated by dividing total costs by kilograms of gold produced. Total costs per
kilogram have been calculated on a consistent basis for all periods presented. This is a non-IFRS
financial measure and should not be considered a substitute measure of costs and expenses
reported by us in accordance with IFRS.
Tpm ............................................... Tonne per month.
Up-dip mining ................................ A mining method in which the drilled and blasted ore gravitates into slushers or gullies leaving
an open space. This is normally used in narrow stopes.
Waste rock ..................................... Non-auriferous rock.
Yield.............................................. The amount of recovered gold from production generally expressed in ounces or grams per tonne
of ore.
5
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3A. SELECTED FINANCIAL DATA
The following selected consolidated financial data as at June 30, 2011, 2010 and 2009 and for the years ended June 30,
2011, 2010 and 2009 are derived from our consolidated financial statements set forth elsewhere in this Annual Report, which have
been prepared in accordance with IFRS, as issued by the IASB. These consolidated financial statements have been audited by
KPMG Inc. as at June 30, 2011, 2010 and 2009 and for the years ended June 30, 2011, 2010 and 2009. Prior to fiscal year ended June
30, 2008, our annual financial statements (translated into dollars) were prepared and filed with the SEC in accordance with U.S.
GAAP. On December 21, 2007, the SEC, adopted rules allowing foreign private issuers that file Annual Reports on Form 20-F to
file with the SEC financial statements in accordance with IFRS as issued by the IASB without reconciliation to U.S. GAAP. As per
these new rules, we changed our basis of presentation and have included in this Annual Report our consolidated financial statements
prepared in accordance with IFRS as issued by the IASB. The selected consolidated financial data as at June 30, 2007 and 2008, for
the years ended June 30, 2007 and 2008 are derived from audited consolidated financial statements not appearing in this Annual
Report which have been prepared in accordance with IFRS as issued by the IASB. The selected consolidated financial data set forth
below should be read in conjunction with Item 5.: “Operating and Financial Review and Prospects” and with the consolidated
financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report.
6
Selected Consolidated Financial Data
(in thousands, except share, per share and ounce data)
Year ended June 30,
2011
1
2011
2010
2009
2008
2
2007
2
$’000 R’000 R’000 R’000 R’000 R’000
Profit or loss Data
Revenue
......................................................
324,723 2,565,319 1,990,522 1,910,738 1,933,147
2,209,705
Results from operating activities ...................
(52,401)
(413,971)
35,485
(82,008)
(15,175)
(1,173,375)
Results from operating activities from
continuing operations ................................
(52,401)
(413,971)
35,485
(82,008)
102,194
22,541
(Loss)/profit for the year attributable to
equity owners of the parent ........................
(36,445)
(287,915)
207,815
129,124
996,041
(924,466)
(Loss)/profit for the year attributable to
equity owners of the parent from
continuing
operations
................................
(36,445)
(287,915) 207,815 129,124 128,558
(2,674)
Per Share Data
Basic (loss)/earnings per share (cents) ...........
(9)
(75)
55
34
265
(271)
Basic (loss)/earnings per share - continuing
operations
(cents)
.....................................
(9)
(75) 55 34 34 (1)
Diluted (loss)/earnings per share (cents) ........
(9)
(75)
55
34
265
(271)
Diluted (loss)/earnings per share -
continuing operations (cents) ....................
(9)
(75)
55
34
34
(1)
Dividends proposed per share (ZAR cents)....
7.5
5.0
5.0
10.0
-
Dividends proposed per ADS (USD cents) ....
9.5
7.3
6.7
10.6
-
Average
exchange
rate
(USD1:ZAR)
............
6.9865 7.6117 9.0484 7.3123
7.2188
Number of shares issued as at June 30...........
384,884,379
384,884,379
384,884,379
378,001,303
376,571,588
370,341,981
Statement of financial position Data
Total
assets..................................................
289,704 2,288,661 2,580,292 2,625,772 2,262,495
1,947,163
Equity
(Net
assets)
.......................................
154,325 1,219,166 1,649,961 1,583,979 1,305,461
143,456
Ordinary
share
capital
..................................
523,114 4,132,604 4,133,318 4,104,480 4,098,206
4,069,096
Month
2011 2011 2011 2011 2011 2011
September August July June May April
Exchange Rate Data
Average (USD1:ZAR) ...................................
7.4833 7.0549 6.7628 6.7765 6.8243 6.7045
High (USD1:ZAR) ........................................
8.3065 7.2764 6.9500 6.8890 7.0185 6.8312
Low (USD1:ZAR) .........................................
6.9963 6.6368 6.6364 6.6624 6.5173 6.5863
1
2
Translations into Dollars in this table are for convenience only and are computed at the noon buying rate in New York City at September 30,
2011 of R7.90 per $1.00. You should not view such translations as a representation that such amounts represent actual Dollar amounts.
Comparatives have been restated for the reclassification of the Australasian operations as discontinued operations. The discontinued operations
relate to the Porgera Joint Venture (disposed on August 17, 2007), Emperor (disposed on October 22, 2007) and Netgold (disposed on March 13,
2008).
7
3B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
3C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
3D. RISK FACTORS
In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks relate to
our operational processes, while others relate to our business environment. It is important to understand the nature of these risks and
the impact they may have on our business, financial condition and operating results.
Some of the most relevant risks are summarized below and have been organized into the following categories:
• Risks related to our business and operations;
• Risks related to the gold mining industry;
• Risks related to doing business in South Africa; and
• Risks related to ownership in our ordinary shares or American Depositary Shares, or ADSs.
Risks related to our business and operations
Changes in the market price for gold, which in the past has fluctuated widely, and exchange rate fluctuations affect the
profitability of our operations and the cash flows generated by those operations.
As the majority of our production costs are in rands, while gold is generally sold in dollars, our financial condition has
been and could be materially harmed in the future by an appreciation in the value of the rand. Due to the marginal nature of our
underground mine any sustained decline in the market price of gold, below the cost of production, could result in the closure of
our underground mine which would result in significant costs and expenditure, for example, incurring retrenchment costs earlier
than expected, that would negatively and adversely affect our business, operating results and financial condition.
We 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. We sell our gold and trade our foreign currency at the spot price in the market on the date of trade. If the
dollar gold price should fall and the regional functional currencies should strengthen against the dollar, resulting in revenue below our
cost of production and remain at such levels for any sustained period, we may experience losses and may be forced to curtail or
suspend some or all of our operations. In addition, we might not be able to recover any losses we may incur during that period or
maintain adequate gold reserves for future exploitation.
Exchange rates are influenced by global economic trends which are beyond our control. In fiscal 2011, fiscal 2010 and fiscal
2009 the rand strengthened against the dollar by 10.8%, 2.9% and 1.0% respectively (based on exchange rates at June 30 of each
year). From December 2001, when it reached R13.44 = $1.00, the rand has appreciated by 49.2% against the dollar to R6.83= $1.00
at June 30, 2011 (based on closing rates). At September 30, 2011 the rand traded at R7.90 = $1.00, a 15.7% weakening relative to the
Dollar from June 30, 2011.
A decrease in the dollar gold price and a strengthening of the foreign exchange rate of the rand could result in a decrease in
our profitability. In fiscal 2011, 2010 and 2009 100% of production was from our South African mines providing significant exposure
to the strengthening of the rand and a decrease in profitability. If the rand were to continue to appreciate against the dollar, our
operations could experience a reduction in cash flow and profitability and this would negatively and adversely affect our business,
operating results and financial condition.
Inflation may have a material adverse effect on our results of operations.
South Africa has experienced high rates of inflation in the past. Because we are unable to control the market price at
which we sell the gold we produce, it is possible that significantly higher future inflation in South Africa may result in an increase
in our future operational costs in rand, without a concurrent devaluation of the rand against the dollar or an increase in the dollar
price of gold. This could have a material adverse effect upon our results of operations and our financial condition. Significantly
higher and sustained inflation in the future, with a consequent increase in operational costs, could result in operations being
discontinued or reduced or rationalized at higher cost mines.
8
We have incurred losses in the past as well as in the current year and may incur losses in the future.
We had a net loss of R415.4 million for fiscal 2011, and achieved net profits of R203.4 million and R110.7 million for fiscal
2010 and 2009, respectively. The loss in fiscal 2011 related to an impairment of R546.6 million against the property, plant and
equipment of Blyvooruitzicht Gold Mining Company Limited, or Blyvoor, due to the uncertainties surrounding the business rescue
proceedings they are undergoing and other factors.
Our profits and cash flows of our operations are directly exposed to the strength of the rand and higher input costs as we do
not hedge. Blyvoor’s underground mine is also regarded as an older, higher cost and lower grade gold producer. In addition, our
ability to identify Ore Reserves that have reasonable prospects for economic extraction while maintaining sufficient controls on
production and other costs, will have a material influence on the future viability of our operations.
We may not be able to meet our cash requirements because of a number of factors, many of which are beyond our
control.
Management’s estimates on future cash flows are subject to risks and uncertainties, such as the gold price, production
volumes, recovered grades, costs and seismicity. If we are unable to meet our cash requirements out of cash flows generated from our
operations, we would need to fund our cash requirements from alternative financing and we cannot guarantee that any such financing
would be on acceptable terms, or would be permitted under the terms of our existing financing arrangements, or would be available at
any terms. In the absence of sufficient cash flows or adequate financing, our ability to respond to changing business and economic
conditions, make future acquisitions, react to adverse operating results, meet our debt service obligations and fund required capital
expenditures or increased working capital requirements may be adversely affected.
The failure to discover or acquire new Ore Reserves could negatively affect our cash flow, results of operations and
financial condition.
Our future cash flow, results of operations and financial condition are directly related to the success of our exploration
and acquisition efforts in the regions in which we operate and any new regions that we identify for future growth opportunities.
Our Ore Reserves for fiscal 2011 increased by 5% due to the higher rand gold price used in the Ore Reserve calculation. Our Ore
Reserves for fiscal 2010 increased by 15% as a result of the higher rand gold price used in the Ore Reserve calculation together
with the expected increase in Crown’s deposition capacity as a consequence of the construction of the Crown/Ergo pipeline
linking Crown Gold Recoveries (Pty) Limited, or Crown, to Ergo’s Brakpan deposition site. Ergo collectively refers to Ergo
Mining (Pty) Limited, or the Ergo JV, and ErgoGold. Our Ore Reserves for fiscal 2009 increased by 16%, primarily due to the
inclusion of the Elsburg tailings owned by East Rand Proprietary Mines Limited, or ERPM. Mining higher grade reserves in our
underground mine is likely to be more difficult in the future, due to the age of this mine and safety concerns, and could result in
increased production costs and reduced profitability. We are currently also conducting exploration activities in Zimbabwe. We can
make no assurances that any new or ongoing exploration programs will result in new mineral producing operations that will
sustain or increase our Ore Reserves. A failure to discover or acquire new Ore Reserves in sufficient quantities to maintain or
grow the current level of our reserves will negatively affect our future cash flow, results of operations and financial condition.
We may need to improve our internal controls over financial reporting and our independent auditors may not be able to
attest to their effectiveness because of inherent limitations.
We have evaluated our internal controls over financial reporting for the current fiscal period so that management can attest
to the effectiveness of these controls, as required by Section 404 of the United States Sarbanes-Oxley Act of 2002. Management has
determined that these controls are effective for the 2011, 2010 and 2009 fiscal years respectively and did not identify any material
weaknesses within our internal controls surrounding the financial reporting process. These internal controls over financial reporting
may not be sufficient to prevent significant deficiencies or material weaknesses in the future, and we may also identify other
conditions that could result in significant deficiencies or material weaknesses. In this event, we could experience a negative reaction
in the financial markets and incur additional costs in improving the condition of our internal controls. For a detailed discussion of
controls and procedures, see Item 15.: “Controls and Procedures.”
9
Increased production costs could have an adverse effect
on our results of operations.
Our historical production costs have varied significantly and we may not be able to accurately predict and adequately
provide for an increase in our production costs. Production costs are affected by, among other things:
• labor stability, lack of productivity and increases in labor costs;
• increases in crude oil, steel, electricity and water prices;
• unforeseen changes in ore grades and recoveries;
• unexpected changes in the quality or quantity of reserves;
• unstable or unexpected ground conditions and seismic activity;
• technical production issues;
• environmental and industrial accidents;
• gold theft;
• environmental factors; and
• pollution.
The majority of our production costs consist of labor, steel, electricity, water, fuels, lubricants and other oil and petroleum
based products. The production costs incurred at our operations have, and could in the future, increase at rates in excess of our annual
expected inflationary increase and result in the restructuring of these operations at substantial cost. The majority of our South African
labor force is unionized and their wage increase demands are usually above the then prevailing rates of inflation. As at September 30,
2011, we were still engaged in wage negotiations at all of our operations for the fiscal 2012 and 2013 wage increases. In October
2011, Blyvoor signed a three-year wage settlement agreement with the National Union of Mineworkers (NUM) and the United
Association of South Africa (UASA). In terms of the settlement, employees in Categories 4 and 5 miners would receive a 7%
increase and employees in Categories 6 - 8, miners, artisans and officials would receive a 6% increase in each year, with the third
year being the greater of these percentages or CPI as at 1 July 2013. In addition, employees in both recognition units will
participate in a gold price/profit linked profit share bonus scheme, in terms of which their overall increases can rise to a total of
15%. In addition, in the past, we have been impacted by large price increases imposed by our South African steel suppliers and
parastatal entities which supply us with electricity and water. These, combined with the increases in labor costs, could result in our
costs of production increasing above the gold price received. Discussions with steel suppliers and parastatal entities to moderate price
increases have been unsuccessful in the past.
The costs of fuels, lubricants and other oil and petroleum based products have increased in fiscal 2011 as a result of the
general increase in the cost of crude oil in global markets. During fiscal 2010, the average brent crude oil price was approximately
$75 per barrel and in fiscal 2011, the average brent crude oil price was approximately $97 per barrel. In the event that crude oil prices
continue increasing, this could have a significant impact on our production costs.
Our initiatives to reduce costs, such as reducing our labor force, negotiating lower price increases for consumables and
stringent cost controls such as comparing whether actual costs stay within budget parameters, may not be sufficient to offset the
increases imposed on our operations and could negatively affect our business, operating results and financial condition.
Our operations are subject to extensive environmental regulations which could impose significant costs and liabilities.
Our operations are subject to increasingly extensive laws and regulations governing the protection of the environment, under
various state, provincial and local laws, which regulate air and water quality, hazardous waste management and environmental
rehabilitation and reclamation. Our mining and related activities impact the environment, including land, habitat, streams and
environment near the mining sites. Delays in obtaining, or failures to obtain government permits and approvals may adversely
impact our operations. In addition, the regulatory environment in which we operate could change in ways that could substantially
increase costs to achieve compliance, therefore having a material adverse effect on our profitability.
We have made, and expect to make in the future, expenditures to comply with these environmental laws and regulations. We
have estimated our aggregate Group Rehabilitation, Reclamation and Closure cost provision at R490.2 million included on our
statement of financial position as at June 30, 2011. However, the ultimate amount of rehabilitation costs may in the future exceed the
current estimates due to influences beyond our control, such as changing legislation, higher than expected cost increases, or
unidentified rehabilitation costs. We have funded these environmental rehabilitation costs by making contributions over the life of the
mine to environmental trust funds established for our operations. If any of the operations are prematurely closed, the rehabilitation
funds may be insufficient to meet all the rehabilitation obligations of those operations. The closure of mining operations, without
sufficient financial provision for the funding of rehabilitation liabilities, or unacceptable damage to the environment, including
pollution or environmental degradation, may expose us and our directors to litigation and potentially significant liabilities.
10
Seismicity and other natural disasters could impact the going concern of our operations.
We run the inherent risk that seismic activity and/or other natural disasters could cripple our operations and affect their
ability to continue production. Seismic activity has had, and may continue to have, a harmful effect on our business, operating results
and financial condition. For example, on May 29, 2009, the Blyvoor operations suffered the effects of a seismic event which knocked
out a number of its high grade panels in the 38/29 section at No. 5 Shaft. This resulted in gold production being approximately 151kg
lower than expected for the four month period ended October 31, 2009 (this excludes the impact of the strike action by our NUM
employees during the months of September and October 2009).
Flooding at our operations may cause us to incur liabilities for environmental damage.
Flooding of underground mining areas is an inherent risk at our underground operations. If the rate of rise of water is not
controlled, water from underground mining areas could potentially rise to the surface or decant into surrounding underground mining
areas or natural underground water sources. Due to the withdrawal of government pumping subsidies at Durban Deep and West Wits,
we have ceased active pumping of underground water at these mines. We also stopped pumping of underground water at our ERPM
underground operation on August 20, 2009. Progressive flooding where these operations and operations from other mining
companies are located could eventually cause the discharge of polluted water to the surface and to local water sources.
Estimates of the probable rate of rise of water in those mines are contradictory and lack scientific support, however, should
underground water levels not reach a natural subterranean equilibrium, and in the event that underground water rises to the surface,
we may face, together with all other mining companies in those areas, claims relating to environmental damage as a result of
pollution of ground water, streams and wetlands. These claims may have a material adverse effect on our business, operating results
and financial condition.
We have ageing assets, which exposes us to greater risk of our infrastructure failing, higher maintenance costs and
potentially greater health, safety and environmental liabilities.
Some of our assets, especially at our underground mine, are mature assets, which we acquired after they had reached the end
of the planned production cycle under their previous owners, and our strategy has been to revive these assets through specialist
planning and mining techniques. The ageing infrastructure and installations typical of these operations require constant maintenance
and continuing capital expenditure. This materially increases our operational expenditure. In addition, the technology applied in many
of our installations was not regularly updated by the previous owners and accordingly has become obsolete compared to the
technology used in more modern mines. As a result, the risk of technology failure is high, and the maintenance of these installations,
costly. Due to the nature of the business and because our marginal underground mine predominantly comprises of aged
infrastructures, we inherently run the risk of exposure to greater health, safety and environmental liabilities which we closely monitor,
but are unable to fully mitigate.
Limited tailings dam capacity at Crown exposes us to greater risk of financial loss due to lower production and health,
safety and environmental liabilities.
Our ageing tailings facilities at Crown are exposed to numerous risks and events, the occurrence of which may result in the
failure or breach of such a facility. These may include sabotage, failure by our employees to adhere to the codes of practice and
natural disasters such as excessive rainfall and seismicity. In the event that we are limited on how much treated ore, sand or slime we
can deposit at Crown’s deposition sites and deposition capacity created by the Ergo/Crown pipeline project, we could be forced to
stop or limit operations, the dams could overflow and the health and safety of our employees and communities living around these
dams could be jeopardized. In the event that this occurs, our Crown operations will be adversely affected and this in turn could have a
material adverse effect on our business, operating results and financial condition.
Ergo also have tailings facilities that are exposed to the same risks as described above.
Due to the nature of our business, our Operations face extensive health and safety risks.
Regrettably one person died in a work-related incident during fiscal 2011, compared to two fatalities in fiscal 2010. The
employee succumbed to suspected heat stroke during a reconnaissance exercise at Blyvoor's No. 5 shaft and died in hospital the next
day. On September 20, 2011, Blyvoor had a seismic event at their No 5 shaft where five people had been injured. According to
section 54 of the Mine, Health and Safety Act of 1996, if an inspector believes that any occurrence, practice or condition at a mine
endangers or may endanger the health or safety of any person at the mine, the inspector may give any instruction necessary to protect
the health or safety of persons at the mine. These instructions could include the suspension of operations at the whole or part of the
mine. While seismic monitoring continues to be an invaluable tool in the management of seismicity, there is still a risk of seismic
induced fatalities occurring which we may not be able to prevent. These incidents could lead to mine operations being halted and that
will increase our unit production costs, due to loss of production. This could have a material adverse effect on our business, operating
results and financial condition.
11
Events may occur for which we are not insured which could affect our cash flows and profitability.
Because of the nature of our business, we may become subject to liability for pollution or other hazards against which we
are unable to insure, including those in respect of past mining activities. Our existing property, business interruption and other
insurance contains certain exclusions and limitations on coverage. We have insured property, including loss of profits due to business
interruption in the amount of about R8.2 billion. Claims for each and every event are limited by the insurers to R500 million.
Business interruption is only covered from the time the loss actually occurs and is subject to time and amount deductibles that vary
between categories. General liability, fidelity, directors and officers, and other insurance cover are also in place.
Future insurance coverage may not cover the extent of claims brought against us, including claims for environmental,
industrial or pollution related accidents, for which coverage is not available. If we are required to meet the costs of claims which
exceed our insurance coverage, our costs may increase which could have a material adverse effect on our business, operating results
and financial condition.
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 our Chief Executive Officer and our Chief Financial Officer. 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,
equity participation 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. 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.
The Crown/Ergo pipeline is a start-up project and forecasts may not be achieved.
Implementation of the Crown/Ergo pipeline project commenced during June 2010 and is scheduled for completion by
December 2011. The pipeline will provide two of Crown’s plants with access to Ergo’s Brakpan deposition site, allowing Crown to
restore its maximum deposition capacity to 600 000tpm. Crown’s deposition capacity was reduced to 400 000tpm in fiscal 2009 due
to capacity constraints at its deposition site. Restored deposition capacity allowed Crown to account for new Ore Reserves on the
Western and Central Witwatersrand, thus increasing production and extending its life-of-mine. The Crown/Ergo pipeline project is
exposed to numerous risks associated with similar projects, including delays in completion, total abandonment of the project, higher
operating costs or lower production than forecasted which could have a material adverse effect on our business, operating results and
financial condition.
Blyvoor is under business rescue proceedings and the outcome of these proceedings could negatively affect our
business, results of operations and financial condition.
On June 23, 2011, we announced that our Board of Directors had decided to suspend financial assistance to our 74%-owned
subsidiary, Blyvoor, and on July 7, 2011, the Registrar of Companies agreed to appoint the nominated business rescue practitioner to
produce a business rescue plan for Blyvoor. The decision followed the promulgation of the new Companies Act of South Africa,
effective from May 1, 2011, which requires directors of parent companies to seek the consent of the parent company shareholders and
then to consider the effects on the solvency and liquidity of the parent company as conditions precedent to the provision of financial
assistance to subsidiaries. Blyvoor’s production had been trending down in the last quarter of fiscal 2011, as a result of a drop in
grade, public holiday interruptions and seismicity-related work stoppages, while costs had increased mainly because of higher
electricity charges, and particularly power utility Eskom’s winter tariff which had added R11.0 million a month to overhead costs.
On July 29, 2011, DRDGOLD's shareholders approved the appointment of a business rescue practitioner for Blyvoor. The
practitioner has been granted extension until November 1, 2011, to publish a business rescue plan and until December 2, 2011, for
the business rescue process in terms of section 132(3) of the Companies Act, 2008. Further extension may however be granted. Should
the outcome of the business rescue proceedings not have a successful impact on the sustainability of Blyvoor, then our business, financial
condition and results of operations could be materially, adversely affected.
12
We may need to improve our cyber security controls which our cyber security strategy, internal controls over cyber
security and our independent auditors may not be able to attest to their effectiveness because of inherent limitations.
We have implemented a cyber security strategy and internal controls which involves the prevention, detection, correction
and recovery of data in the event of cyber security breaches. Our internal auditors also perform regular effectiveness of control
reviews and an annual external review of the effectiveness of our network security is also performed. Management has determined
that these controls are effective for the 2011, 2010 and 2009 fiscal years respectively and did not identify any material weaknesses
within our internal controls surrounding cyber security. These internal controls over cyber security may not be sufficient to prevent
significant deficiencies or material weaknesses in the future, and we may also identify other conditions that could result in significant
deficiencies or material weaknesses. In this event, we could experience the corruption or loss of data, misappropriation of assets or
sensitive information or operational disruption and incur additional costs to replace assets and improving our internal controls.
To the extent that we seek to expand and grow through acquisitions we may experience difficulty in managing these
acquisitions and integrating them with our existing operations.
Our objective is to grow our business by improving efficiency at our existing operations as well as through acquisitions.
From time to time we consider the acquisition of mining assets including ore reserves, development properties, operating mines or
mining companies. Our expansion through acquisitions of new gold mining operations involves a number of risks including:
• maintaining our financial and strategic focus while integrating the acquired business;
• implementing uniform standards, controls, procedures and policies at the acquired business;
• assimilating the operations of an acquired business in a timely and efficient manner;
• unifying our periodic and year-end financial audit processes;
• increasing pressures on existing management to oversee an expanding company;
• to the extent that we make an acquisition outside of markets in which we have previously operated, conducting and
managing operations in a new operating environment;
• the market for acquisitions is competitive and we may not always be successful in identifying and purchasing assets that
fit our strategy;
• the ability to conduct a comprehensive due diligence analysis could be restricted due to unavailable information;
• we may need to use a combination of historical and projected data in order to evaluate the financial and operational
feasibility of the target assets. These analyses are based on a variety of factors including historical operating results,
estimates of and assumptions about future reserves, cash and other operating costs, metal prices and projected economic
returns and evaluations of existing or potential liabilities associated with the property and its operations. Other than
historical operating results, all of these parameters could differ significantly from the estimates and assumptions used in
the evaluation process, which could result in an incorrect evaluation of the quality of the assets to be acquired;
• our inability to make suitable acquisitions at an appropriate price could adversely affect our ongoing business and
financial condition, particularly if the rand strengthens against the dollar;
• we may experience difficulty in negotiating acceptable terms with the seller of the business to be acquired;
• we may not be able to obtain the financing necessary to complete future acquisitions;
• we may not be able to obtain necessary approvals from regulatory authorities;
• acquisitions financed through the issue of shares may result in a dilution in the value of our shares if the value of the
business acquired is not realized; and
• we could experience financial loss through costs incurred in evaluating and pursuing failed acquisitions or overpaying for
an acquisition.
Any problems experienced in achieving successful integration or in connection with an acquisition as a result of one or more
of these factors could have an adverse effect on our business, operating results and financial condition.
13
Risks related to the gold mining industry
A change in the 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:
• 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.
Our profitability may be negatively impacted if revenue from gold sales drops below the cost of production for an extended
period
Current economic conditions may adversely affect the profitability of the Group’s operations.
The global economy is currently undergoing a period of prolonged recession and, despite recent signs of stabilization, the
future economic environment is likely to be less favorable than that of recent years. Since September 2008, the global financial
system has experienced difficult credit and liquidity conditions and disruptions resulting in major financial institutions consolidating
or going out of business, tightened credit markets, reduced liquidity, and extreme volatility in fixed income, credit, currency and
equity markets. These conditions may adversely affect the Group’s business. For example, tightening credit conditions may make it
more difficult for the Group to obtain financing on commercially acceptable terms or make it more likely that one or more of our key
suppliers may become insolvent and lead to a supply chain breakdown. In addition, general economic indicators have deteriorated,
including declining consumer sentiment, increased unemployment, declining economic growth and uncertainty regarding corporate
earnings. To the extent the current economic downturn worsens or the economic environment in which the Group operates does not
recover, the Group could experience a material adverse effect on its business, results of operations and financial condition.
The exploration of mineral properties is highly speculative in nature, involves substantial expenditures, and is frequently
unproductive.
We must continually replace Ore Reserves that are depleted by production. Notably, underground operations at ERPM
have been halted since October 2008 and a decision was reached at the end of August 2009 to suspend underground production at
ERPM. Our future growth and profitability will depend, in part, on our ability to identify and acquire additional mineral rights, and
on the costs and results of our continued exploration and development programs. Gold mining companies may undertake
exploration activities to discover gold mineralization, which in turn may give rise to new gold bearing ore bodies. Exploration is
highly speculative in nature and requires substantial expenditure for drilling, sampling and analysis of ore bodies in order to
quantify the extent of the gold reserve. Many 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 or not the deposit contains economically recoverable mineralization. Uncertainties as to the metallurgical recovery of any
gold discovered may not warrant mining on the basis of available technology. As a result of these uncertainties, we may not
successfully acquire additional mineral rights, or identify new Proven and Probable Ore Reserves in sufficient quantities to justify
commercial operations in any of our mines. Our mineral exploration rights may also not contain commercially exploitable
reserves of gold. The costs incurred on unsuccessful exploration activities are, as a result, not likely to be recovered and we could
incur a write-down on our investment in that interest or the irrecoverable loss of funds spent.
14
There is uncertainty with our Ore Reserve estimates.
Our Ore Reserve 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 Industry Guide 7 of the SEC. These estimates may be imprecise
and may not reflect actual reserves 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 results of operations and financial condition to decline. Moreover, if the price of gold declines, or stabilizes at a price that is
lower than recent levels, or if our production costs, and in particular our labor, water, steel and electricity costs, increase or recovery
rates decrease, it may become uneconomical to recover Ore Reserves containing relatively lower grades of mineralization. Under
these circumstances, we would be required to re-evaluate our Ore Reserves. Short-term operating factors relating to the Ore Reserves,
such as the need for sequential development of ore bodies and the processing of new or different grades, may increase our production
costs and decrease our profitability during any given period. These factors have and could result in reductions in our Ore Reserve
estimates, which could in turn adversely impact upon the total value of our mining asset base and our business, operating results
and financial condition.
Gold mining is susceptible to numerous events that could have an adverse impact on a gold mining business.
The business of gold mining takes place in underground mines, open pit mines and surface operations for the retreatment of
rock dumps and tailings dams. These operations are 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 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, but are not limited to:
• environmental hazards and pollution, including the discharge of gases, toxic chemicals, pollutants, radioactive materials and
other hazardous material into the air and water;
• seismic activity which could lead to rock bursts, cave-ins, pit slope failures or, in the event of a significant event, total
closure of sections or an entire underground mine;
• unexpected geological formations which reduce or prevent mining from taking place;
• flooding, landslides, sinkhole formation, ground subsidence, ground and surface water pollution, and waterway
contamination;
• underground fires and explosions, including those caused by flammable gas;
• accidents caused from and related to drilling, blasting, removing, transporting and processing material, and the collapse of
pit walls and tailings dams; and
• a decrease in labor productivity due to labor disruptions, work stoppages, disease, slowdowns or labor strikes.
In addition, deep level underground mines in South Africa, as compared to other gold mining countries, involve
significant risks and hazards not associated with open pit or surface rock dump and tailings dam retreatment operations. These
risks and hazards include underground fires, encountering unexpected geological formations, unanticipated ground and water
conditions, fall-of-ground accidents and seismic activity. The level of seismic activity in a deep level gold mine varies based on
the rock formation and geological structures in the mine. The occurrence of any of these hazards could delay production, increase
production costs and may result in significant legal claims.
Risks related to doing business in South Africa
Political or economic instability in South Africa may reduce our production and profitability.
We are incorporated and own operations in South Africa. As a result, political and economic risks relating to South Africa
could reduce 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 the majority of citizens under previous governments may increase our costs and reduce
our profitability. In recent years, South Africa has experienced high levels of crime. These problems have impeded fixed inward
investment into South Africa and have prompted emigration of skilled workers. As a result, we may have difficulties attracting and
retaining qualified employees.
15
Recently, the South African economy has been growing at a relatively slow rate, inflation and unemployment have been
high by comparison with developed countries, and foreign currency reserves have been low relative to other emerging market
countries. In the late 1980s and early 1990s, inflation in South Africa reached highs of 20.6%. This increase in inflation resulted in
considerable year on year increases in operational costs. The inflation rate in South Africa still remains relatively high compared to
first world countries. As of June 2011, the Consumer Price Inflation Index, or CPI, stood at 5.3%, up from 4.2% in June 2010, and
down from 6.9% in June 2009. The relatively high inflation rate continued at 5.7% as at September 30, 2011. Continuing high levels
of inflation in South Africa for prolonged periods, without a concurrent devaluation of the rand or increase in the price of gold, could
result in an increase in our costs which could reduce our profitability. In January 2009, the South African Reserve Bank changed the
way inflation is measured by expanding the range of consumer goods used and changing the benchmark measure from CPIX (CPI
minus mortgage costs) to CPI. Mortgage costs have been replaced by owners’ equivalent rental (OER) to capture housing costs,
making CPIX redundant. The closest measure to CPIX is CPI minus OER.
Power stoppages or increases in the cost of power could negatively affect our results and financial condition.
Our mining operations are dependent on electrical power supplied by Eskom, South Africa’s state owned utility company.
As a result of a substantial increasing demand and insufficient generating capacity, Eskom has warned that the country could face
significant disruptions in electrical power supply in the foreseeable future. The available generating capacity of electricity was
constrained mainly as a result of unplanned maintenance at some of Eskom’s power stations, insufficient supply of coal to the coal
fired plants and skills shortages. On January 25, 2008, Eskom announced that they could no longer guarantee the supply of electricity
to the South African mining industry. Eskom subsequently cut off power supply to the mining industry for five days in fiscal 2008
and a number of power outages followed over several months thereafter. Eskom did manage to contain electricity stoppages but the
fact remains that the country’s current reserve capacity is insufficient and the risk of electricity stoppages is expected to continue
through 2013. Apart from the five-day closure, our production has not been affected, however further power supply stoppages or
power cost increases could have an adverse effect on our operating results and financial condition. Eskom have indicated that they do
not have sufficient funding required for planned infrastructure development, and have imposed the following average tariff increases:
from July 1, 2009 an average tariff increase of 31.3%, from April 1, 2010 an average tariff increase of 24.8%, from April 1, 2011 an
average tariff increase of 25.8% and from April 1, 2012 an average tariff increase of 25.9%. These increases have had an adverse
affect on our production costs particularly at our Blyvoor operation and could have a material adverse effect on our business,
operating results and financial condition.
AIDS poses risks to us in terms of productivity and costs.
Acquired Immune Deficiency Syndrome, or AIDS, and tuberculosis which is closely associated with the onset of the disease
and is exacerbated in the presence of HIV/AIDS, represents a very serious health care challenge in the mining industry. Human
Immunodeficiency Virus, or HIV, is the virus that causes AIDS and South Africa has one of the highest HIV infection rates in the
world. It is estimated that approximately 30% - 35% of the mining industry workforce in South Africa are HIV positive. The exact
extent to which our mining workforce within South Africa is infected with HIV/AIDS is unknown at this stage. The existence of the
disease poses a risk to us in terms of the potential reduction in productivity and increase in health and safety costs brought about by
the Company’s social responsibility.
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.
The primary area of focus in respect of occupational health within our operations is noise-induced hearing loss (NIHL),
occupational lung diseases (OLD) and tuberculosis (TB). We provide occupational health services to our employees at our
occupational health centers and continue to improve preventive occupational hygiene initiatives. If the costs associated with
providing such occupational health services increase significantly, such increase could have an adverse effect on the results of our
operations and our financial condition.
Increased theft at our work sites, particularly of copper, may result in greater risks to employees or interruptions in
production.
Crime statistics available in South Africa indicate an increase in theft. This together with price increases for copper as a
commodity has resulted in the increased theft of copper cable. All of our operations experience high incidents of copper cable theft
despite the implementation of security measures. 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.
16
Possible scarcity of water may negatively affect our results and financial condition.
National studies conducted by the Water Research Commission, released during September 2009, found that water resources
were 4% lower than estimated in 1995 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 in the
future. Such changes would adversely impact all of our operations, which require water to operate. In particular 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, would be adversely impacted. 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. We
are currently considering a project which envisages the pumping of underground water at ERPM for use by our surface retreatment
operations.
Government policies in South Africa may adversely impact our operations and profits.
Government Regulation
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, the mining and exploration of minerals,
and managing the impact of mining operations on the environment. A variety of permits and authorities are required to mine lawfully,
and the government enforces its regulations through the various government departments. The formulation or implementation of
government policies may be unpredictable on certain issues, including changes in laws relating to mineral rights, ownership of
mining assets and the rights to prospect and mine and in extreme cases, nationalization.
The African National Congress, or ANC, which is the ruling political party in South Africa has appointed a task force
team to investigate the feasibility of, and potential policies for, nationalization of the mining industry. The results from this task
force investigation are only expected after the ANC conference during 2012. Should any of our mines be nationalized it will
adversely affect our operations and our shareholders’ investment in our Company.
The Mineral and Petroleum Resources Development Act, 2002
On May 1, 2004, the new Minerals and Petroleum Resources Development Act, or the MPRD Act, came into effect, which
places all mineral and petroleum resources under the custodianship of the state. Private title and ownership in minerals, or the “old
order rights,” are to be converted to “new order rights,” essentially the right to mine.
Where new order rights are obtained under the MPRD Act, these rights will not be equivalent to our existing property rights.
The area covered by the new order rights may be reduced by the Department of Mineral Resources, or DMR, if it finds that the
prospecting or mining work program submitted by an applicant does not substantiate the need to retain the area covered by the old
order rights. The duration of the new order rights will no longer be perpetual but rather, in the case of new order mining rights, for a
maximum of 30 years with renewals of up to 30 years each and, in the case of prospecting rights, up to five years with one renewal of
up to three years. In addition, the new order rights will only be transferable subject to the approval of the Minister of Mineral
Resources. Mining or prospecting must commence within one year or 120 days, respectively, of the mining right or prospecting right
becoming effective, and must be conducted continuously and actively thereafter. The new rights can be suspended or cancelled by the
Minister of Mineral Resources in the event of a breach or, in the case of mining rights, non-optimal mining in accordance with the
mining work program.
The implementation of the MPRD Act will result in significant adjustments to our property ownership structure. We have
lodged applications to convert all of our old order rights, however, to the extent that we are unable to convert some of our old order
rights to new order rights, and that the exclusive rights to minerals we enjoyed under the previous statutory regime are diminished,
the operations of the MPRD Act may result in significant adjustments to our property ownership structure, which in turn could have a
material adverse effect on the underlying value of our operations. In addition, to the extent that we are unable to convert some of our
old order rights, we may have a claim for compensation based on expropriation. It is not possible to forecast with any degree of
certainty whether a claim will be enforceable against the DMR, and if enforceable, the level of compensation we will receive, if any.
As at September 30, 2011, a substantial portion of our old order mining rights are yet to be converted into new order mining rights.
The MPRD Act states that the conversions must be granted by the minister if all requirements are completed but it does not stipulate
any time frame. The MPRD Act also provides for holders of old order rights to continue to operate under the terms and conditions of
such rights until conversions under the MPRD Act have been completed. See Item 4B. “Business Overview”.
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Mining royalties and other taxation reform
The Mineral and Petroleum Resources Royalty Act, No.28 of 2008 was enacted on November 21, 2008 and was published
in the South African Government Gazette on November 24, 2008. The Mineral and Petroleum Resources Royalty Act
(Administration), No.29 of 2008, published on November 26, 2008, became effective from March 1, 2010. These acts provide for the
payment of a royalty, calculated through a royalty rate formula (using rates of between 0.5% and 5.0%) applied against gross revenue
per year, payable half yearly with a third and final payment thereafter. The royalty is tax deductible and the cost after tax amounts to a
rate of between 0.33% and 3.3% at the prevailing marginal tax rates applicable to the group. The royalty is payable on old
unconverted mining rights and new converted mining rights. Introduction of further revenue based royalties or any adverse future tax
reforms would have an adverse effect on the business, operating results and financial condition of our operations.
On February 21, 2007, the South African Government announced a proposal to replace Secondary Tax on Companies
(currently 10%) with a 10% withholding tax on dividends and other distributions payable to shareholders. Although this may reduce
the tax payable by the company or our subsidiaries, the withholding tax could reduce the amount of dividends or other distributions
received by its shareholders. The proposal was expected to be implemented in 2010, but its implementation has been delayed to
April 1, 2012.
Climate change
Climate change is a global problem that requires both a concentrated international response and national efforts to reduce
greenhouse gas, or GHG, emissions. The United Nations Framework Convention on Climate Change is the main global response to
climate change. The associated Kyoto Protocol is an international agreement that classifies countries by their level of industrialization
and commits certain countries to GHG emission reduction targets. Although South Africa is not one of the developing countries
identified, it ranked among the top 20 countries measured by absolute carbon dioxide emissions. During the 2009 Copenhagen
climate change negotiations, South Africa voluntarily announced that it would act to reduce domestic GHG emissions by 34% by
2020 and 42% by 2025, subject to the availability of adequate financial, technological and other support. The two main economic
policy instruments available for setting a price on carbon and curbing GHG emissions are carbon taxation and emissions trading
schemes. In a discussions paper on carbon taxation by the South African Government released in December 2010 different methods
of carbon taxation were discussed. Should these methods be implemented, they might have a direct or indirect negative cost impact
on our operations which could have an adverse effect on the business, operating results and financial condition of our operations.
The Broad Based Socio-Economic Empowerment Charter
The Broad Based Socio-Economic Empowerment Charter for the South African Mining Industry, or Mining Charter
(effective from May 1, 2004), established certain numerical goals and timeframes to transform equity participation in the mining
industry in South Africa. The goals set by the Mining Charter include that each mining company must achieve 15 percent ownership
by historically disadvantaged South Africans, or HDSA, of its South African mining assets within five years and 26 percent
ownership within ten years from May 1, 2004. This is to be achieved by, among other methods, the sale of assets to historically
disadvantaged persons on a willing seller/willing buyer basis at market value.
In September 2010, the DMR released amendments to the Mining Charter. The intention behind the amendments to the
Mining Charter was to clarify certain ambiguities and uncertainties which existed under the Mining Charter and to provide more
specific targets. However, there are a number of matters that still require clarification and discussions in respect of interpretations of
the requirements are in progress with the DMR. The goals set by the amendments to the Mining Charter include: minimum 26%
HDSA ownership by March 2015; procurement of a minimum 40% of capital goods, 50% of consumer goods and 70% of services
from Black Economic Empowerment, or BEE, entities by March 2015; minimum 40% HDSA representation at each of executive
management level, senior management level, middle management level, junior management level and core and critical skills levels;
minimum 3% investment of annual payroll in skills training; investment in community development; and attain an occupancy rate of
one person per room in on-site accommodation.
When considering applications for the conversion of existing rights, the State will take a “scorecard” approach,
evaluating the commitments of each company to the different facets of promoting the objectives of the Mining Charter. Failure on
our part to comply with the requirements of the Mining Charter and the “scorecard” could subject us to negative consequences.
We may incur expenses in giving additional effect to the Mining Charter and the “scorecard”, including costs which we may incur
in facilitating the financing of initiatives towards ownership by historically disadvantaged persons. There is also no guarantee that
any steps we might take to comply with the Mining Charter would ensure that we could successfully acquire new order mining
rights in place of our existing rights. In addition, the terms of such new order rights may not be as favorable to us as the terms
applicable to our existing rights. We run the risk of losing our mining rights if we do not comply with the requirements stipulated
in the Mining Charter. This could have an adverse affect on our business, operating results and financial condition.
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Land claims
Our privately held land and mineral rights in South Africa could be subject to land restitution claims under the Restitution of
Land Rights Act, 1994 (as amended), or Land Rights Act. Under the Land Rights Act, any person who was dispossessed of rights to
land in South Africa as a result of past racially discriminatory laws or practices is granted certain remedies, including the restoration
of the land. The initial deadline for such claims was December 31, 1998. We have not been notified of any land claims, but it is
possible that administrative delays in the processing of claims could have delayed such notification. Any claims of which we are
notified in the future could have a material adverse effect on our right to the properties to which the claims relate and prevent us using
that land and exploiting any Ore Reserves located there. This could have an adverse affect on our business, operating results and
financial condition.
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 constitute 35% of our production costs for fiscal 2011, 34% for fiscal 2010 and 39% for fiscal 2009. As of
June 30, 2011, we employ and contract 6,875 people, of whom approximately 86% are members of trade unions or employee
associations. We have entered into various agreements regulating wages and working conditions at our mines. 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. In addition, we are subject to strikes by workers from time to time, which result in disruptions to our
mining operations. For example, from September 15, 2009 until October 11, 2009, a strike by members of the NUM union in
connection with a dispute over new wage agreements resulted in an average daily gold production loss of 320 ounces, almost entirely
from Blyvoor’s deep-level underground 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.
Labor unrest and xenophobia could affect production.
We may experience labor unrest at our operations. In particular, during October and November 2002, ERPM experienced
some labor unrest during which several striking contract workers were wounded and two workers were killed by employees of a
private security company. Furthermore, during fiscal 2008, South Africa fell victim to a slew of xenophobic attacks when a series of
riots started in the township of Alexandra. This violence of locals attacking migrants from other African countries had a direct impact
on our operations at ERPM. Three employees died and attendance was down at the operation for several days. Although these attacks
have been contained, the challenge for the South African Government is to come up with a long-term and judicious immigration
policy.
A repeat of such events could have an adverse effect on our business, operating results and financial condition.
Our financial flexibility could be materially constrained by South African currency restrictions.
South African law provides for exchange control regulations, which restrict the export of capital from the Common
Monetary Area, including South Africa. The Exchange Control Department of the South African Reserve Bank, or SARB, is
responsible for the administration of exchange control regulations. In particular, South African companies:
• are generally not permitted to export capital from South Africa or to hold foreign currency without the approval of SARB;
• are generally required to repatriate, to South Africa, profits of foreign operations; and
• are limited in their ability to utilize profits of one foreign business to finance operations of a different foreign business.
While the South African Government has relaxed exchange controls in recent years, it is difficult to predict whether or
how it will further relax or abolish exchange control measures in the future. For further information see Item 10D.: “Exchange
Controls.”
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Risks related to ownership of our ordinary shares or ADSs
Your ability to sell a substantial number of ordinary shares may be restricted by the limited liquidity of ordinary
shares traded on JSE Limited, or JSE.
Our primary listing for our ordinary shares is the JSE and the principal trading market for our ADSs is the Nasdaq
Capital Market, or Nasdaq. On a historical basis, the trading volumes and liquidity of shares listed on the JSE have been low in
comparison with the Nasdaq. For the 12 months ended June 30, 2011, only 33% of our ordinary shares publicly traded were traded
on the JSE. The limited liquidity of the ordinary shares traded on the JSE could limit your ability to sell a substantial number of
ordinary shares on the JSE in a timely manner, especially by means of a large block trade.
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.
The market price of our ordinary shares or ADSs could fall if substantial amounts of ordinary shares or ADSs are sold by
our stockholders, or there is the perception in the marketplace that such sales could occur. Current holders of our ordinary shares
or ADSs may decide to sell them at any time. Sales of our ordinary shares or ADSs, if substantial, or the perception that these
sales may occur to be substantial, could exert downward pressure on the prevailing market prices for our ordinary shares or ADSs,
causing their market prices to decline. Trading activity of hedge funds and the ability to borrow script in the market place will
increase trading volumes and may place our share price under pressure.
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
and articles of association 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.
We may be subject to an increase in compliance costs with our continued efforts to increase the transparency of our
reporting requirements and changing corporate governance initiatives.
As a result of our listings on Nasdaq and JSE, we are required to comply with new and changing reporting requirements
that have over recent years emphasized an increase in the transparency of public disclosure. The associated regulatory standards
set forth by the exchanges’ governing bodies may change over time and may be subject to interpretation. As a result we may not
execute the application of these standards properly and will congruently experience an increase in the cost of our compliance
efforts. For example, management’s required assessment of our internal controls over the financial reporting process stipulated by
Section 404 of the Sarbanes-Oxley Act of 2002 commands the need for resources from management in addition to our external
auditors who are required to attest to our internal control over financial reporting. Maintaining high standards of corporate
governance and public disclosure is highly prioritized in our organization and with our continued efforts to comply with these
laws currently effective and any future legislative introductions or changes, we will continue to incur the related costs.
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.
Our Company, certain members of our board of directors and executive officers are residents of South Africa. In
addition, our cash producing assets are located outside the United States and a major portion of the assets of members of our board
of directors and executive officers are either wholly or substantially located outside the United States. As a result, it may not be
possible for you to effect service of legal process, within the United States or elsewhere outside South Africa, upon most of our
directors or officers, including matters arising under United States federal securities laws or applicable United States state
securities laws.
20
Moreover, it may not be possible for you to enforce against us or the members of our board of directors and executive
officers judgments obtained in courts outside South Africa, including the United States, based on the civil liability provisions of
the securities laws of those countries, including those of the United States. A foreign judgment is not directly enforceable in South
Africa, but constitutes a cause of action which will be enforced by South African courts provided that:
• the court which pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by
South African law with reference to the jurisdiction of foreign courts;
• the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it);
• the judgment has not lapsed;
• the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including
observance of the rules of natural justice which require that no award is enforceable unless the defendant was duly served
with documents initiating proceedings, that he was given a fair opportunity to be heard and that he enjoyed the right to be
legally represented in a free and fair trial before an impartial tribunal;
• the judgment was not obtained by fraudulent means;
• the judgment does not involve the enforcement of a penal or revenue law; and
• the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Business Act, 1978 (as
amended), of South Africa.
It is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to
whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system
that does not mean that such awards are necessarily contrary to public policy. Whether a judgment was contrary to public policy
depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South
African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court.
South African courts will usually implement their own procedural laws and, where an action based on an international contract is
brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South
African law. It is doubtful whether an original action based on United States federal securities laws may be brought before South
African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of
proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents
executed outside South Africa must be authenticated for the purpose of use in South African courts. It is not possible therefore for an
investor to seek to impose criminal liability on us in a South African court arising from a violation of United States federal
securities laws.
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ITEM 4. INFORMATION ON THE COMPANY
4A. HISTORY AND DEVELOPMENT OF THE COMPANY
Introduction
DRDGOLD Limited is a South African gold mining company engaged in underground and surface gold mining including
exploration, extraction, processing and smelting. Our black economic empowerment partners are Khumo Gold SPV (Pty) Limited, or
Khumo Gold and an employee trust (known as the DRDSA Empowerment Trust), which hold 20% and 6% respectively in our
operating subsidiaries, Ergo Mining Operations (Pty) Limited, or Ergo Mining Operations, previously known as DRDGOLD South
African Operations (Pty) Limited, or DRDGOLD SA, and Blyvooruitzicht Gold Mining Company Limited, or Blyvoor. We have a
74% interest in Ergo Mining Operations and Blyvoor.
Ergo Mining Operations wholly owns and operates Crown Gold Recoveries (Pty) Limited, or Crown, Ergo Mining (Pty)
Limited, or the Ergo JV, and East Rand Proprietary Mines Limited, or ERPM. Ergo Mining Operations also owns 65% of ErgoGold
(unincorporated entity), with DRDGOLD holding the remaining 35%. The Ergo JV and ErgoGold are collectively referred to as
Ergo.
DRDGOLD is also a 50% partner in Chizim Gold (Pvt) Limited, or Chizim Gold, an early-stage gold exploration project on
Zimbabwe’s Greenstone Belt.
We are a public limited liability company, incorporated on February 16, 1895, as Durban Roodepoort Deep, Limited, and
our shares were listed on the JSE in that same year. In 1898, our milling operations commenced with 30 stamp mills and in that year
we treated 38,728 tons of ore and produced 22,958 ounces of gold. On December 3, 2004, the company changed its name from
Durban Roodepoort Deep, Limited to DRDGOLD Limited. Our operations have focused on South Africa's West Witwatersrand
Basin, which has been a gold producing region for over 100 years.
To facilitate access to global capital markets our shares and/or related instruments trade on the JSE, Nasdaq, the Marche
Libre on the Paris Bourse, the Brussels Bourse in the form of International Depository Receipts, the Over The Counter, or OTC,
market in Berlin and Stuttgart and the Regulated Unofficial Market on the Frankfurt Stock Exchange.
Our registered office and business address is 1
st
Floor, Building 1, Quadrum Office Park, 50 Constantia Boulevard,
Constantia Kloof Ext. 28, Roodepoort, South Africa. The postal address is P.O. Box 390, Maraisburg 1700, South Africa. Our
telephone number is (+27 11) 470-2600 and our facsimile number is (+27 11) 470-2618. We are registered under the South African
Companies Act, 1973 (as amended) under registration number 1895/000926/06. The South African Companies Act, 1973 has been
superseded by the South African Companies Act 71, 2008 which had been promulgated as from May 1, 2011. For our ADSs, The
Bank of New York, at 101 Barclay Street, New York, NY 10286, United States, has been appointed as agent.
South Africa
• Blyvoor, acquired on September 15, 1997, in exchange for 12,693,279 of our ordinary shares, is a predominantly
underground operating mine located within the Witwatersrand Basin, exploiting gently to moderately dipping gold bearing
quartz pebble conglomerates in addition to certain surface sources.
• Crown, acquired on September 14, 1998, in exchange for 5,925,139 of our ordinary shares, also located within the
Witwatersrand Basin, exploits various surface sources, including sand and slime tailings deposited as part of previous
mining operations.
• ERPM, which consists of the original underground mine, the Cason Dump surface retreatment operation and ERPM
Extension 1 and 2 exploration tenements, was acquired on October 10, 2002. Underground mining at ERPM was halted in
October 2008.
• Ergo was formed in June 2007, primarily to recover and treat – over a period of 12 years – some 186Mt of surface tailings
contained in the Elsburg Tailings Complex for gold. In the longer term, Ergo’s network of surface rights provide access to a
further 600Mt of surface tailings deposited across the western, central and eastern Witwatersrand. As a second-phase
development, in conjunction with a new pipeline linking Ergo with Crown, the Ergo plant’s second carbon-in-leach (CIL)
circuit is being refurbished to increase capacity from 1.2Mtpm to 1.8Mtpm. Ergo is licensed to produce uranium and
sulphuric acid, and a feasibility study to assess the potential of these by-products from the Ergo resource is ongoing.
Zimbabwe
• Chizim Gold was established, on December 9, 2009 as a 50:50 joint venture agreement entered into with Chizim
Investments (Pvt) Limited, or Chizim Investments, to conduct feasibility studies on certain gold exploration tenements in
Zimbabwe’s Greenstone Belt extending over an area of more than 21,000 hectares.
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Important Events in Our Development Generally and in the Current Year
Funding raised for the Crown/Ergo pipeline project
On September 30, 2010, DRDGOLD's subsidiary, Ergo Mining Operations, established a R500 million Domestic
Medium Term Note Programme, or DMTN Programme, under which it may from time to time issue notes. Ergo Mining
Operations successfully issued R108 million under the DMTN Programme and the different notes issued mature 12 and 24 months
from the date of issue and bear interest at the three month Johannesburg Inter-bank Acceptance Rate plus a margin ranging from
4% to 5% per annum.
The proceeds from this first issue have been applied towards the capital requirements of the Crown/Ergo pipeline project.
The new 50-kilometre pipeline, which is currently under construction and scheduled for completion by December 2011, will link
two of Crown's plants with Ergo. This will provide Crown with increased tailings deposition capacity, which has been a constraint
in recent times, and thus the potential to extend Crown’s life by bringing to account potential additional surface tailings reserves
on the western and central Witwatersrand.
As part of the pipeline project, the Ergo plant’s second carbon in leach (CIL) circuit will be refurbished to increase
capacity from 1.2Mtpm to 1.8Mtpm.
Restructuring of separate surface treatment and underground mining interests
On January 14, 2011, DRDGOLD announced a change in its group structure in order to better distinguish between its
surface retreatment and underground operations. In terms of this restructuring operating subsidiary DRDGOLD SA, changed its
name to Ergo Mining Operations. Ergo Mining Operations controls Ergo, Crown and ERPM, which are all surface retreatment
operations. In addition, Blyvoor, primarily an underground mining operation previously held 100% by DRDGOLD SA, is now
directly held by DRDGOLD (74%), Khumo Gold (20%) and the DRDSA Empowerment Trust (6%). Due to the fundamental
differences between our surface and underground operations, the Company can maximize shareholder value through the
development of separate investment opportunities.
Anglogold Ashanti offer to sell Savuka mining area to Blyvoor
On July 14, 2011, Blyvoor received an indicative offer from AngloGold Ashanti Limited (AngloGold Ashanti), which
was subject to the finalization of a definitive agreement. The AngloGold Ashanti offer involves the sale to Blyvoor of some 390
000 square meters of its neighboring Savuka mining area for R35 million. The area is not within AngloGold Ashanti’s current
mine planning. Pending the necessary regulatory approvals and subject to the finalization of a binding agreement, Blyvoor will
mine the area under contract.
Gold exploration project in Zimbabwe
On December 9, 2009, DRDGOLD together with a local Zimbabwean company, Chizim Investments, formed a company
called Chizim Gold to explore certain gold exploration tenements in Zimbabwe’s Greenstone Belt, extending over an area of more
than 21,000 hectares. Chizim Investments had the necessary mining leases for prospecting and mining and transferred these
mining leases to Chizim Gold in exchange for a 50% stake in Chizim Gold.
Ergo (includes the Ergo JV and ErgoGold)
Ergo Mining Operations, which initially owned 50% of ErgoGold, acquired a further 15% interest from Mintails SA (Pty)
Limited, or Mintails SA, on September 29, 2008. This resulted in Ergo Mining Operations, which holds its interest through its
subsidiary, ERPM, holding a 65% interest and Mintails SA a 35% interest in the joint venture.
On December 8, 2008, DRDGOLD agreed to acquire Mintails SA's remaining interest in ErgoGold, as well as all of the
shareholder’s loans owed by ErgoGold to the Mintails group. The acquisition, which was completed on March 31, 2009, resulted
in the Group acquiring 100% of ErgoGold. The purchase consideration was paid in cash and amounted to R100 million for the
15% interest and R177 million for the 35% interest.
On January 21, 2010, Ergo Mining Operations through its subsidiary ERPM, acquired the remaining 50% interest in the
Ergo JV from Mintails SA for a total consideration of R82.1 million, consisting of R62.1 million in cash and payment of the
balance of R20 million with DRDGOLD’s shares in Witfontein Mining (Pty) Limited, or Witfontein. The transaction was
completed April 15, 2010 and recorded in the financial statements effective May 1, 2010.
23
DRDGOLD treats ErgoGold and the Ergo JV as one operating segment, called Ergo, and includes their respective
financial results within its Annual Report in accordance with IFRS 8 (Operating Segments). Furthermore, our management
believes it is appropriate to present ErgoGold and the Ergo JV together in our financial statements as they share the same
infrastructure, human resources and mineable material, with ErgoGold being focused on the extraction of gold from the re-
treatment of the Elsburg and Benoni deposition sites, and the Ergo JV being an exploration project focused on the extraction of
uranium and further gold from a range of deposition sites (including the Elsburg and Benoni sites).
Blyvoor
On November 9, 2009, we announced that, in a bid to save our Blyvoor mine from liquidation, we intended applying to the
High Court of South Africa for a provisional judicial management order over the operation. A provisional judicial management order
was granted by the High Court of South Africa on November 10, 2009.
The application, in terms of the provisions of Section 427 of the South African Companies Act, 1973, was prompted by
Blyvoor’s inability to continue to sustain losses incurred since April 2009, which were brought about by the following circumstances:
• a drop in the rand gold price received between April 1, 2009 and September 30, 2009, due to the strengthening of the
Rand against the US dollar;
• extensive damage caused during May 2009 to higher-grade underground production areas at Blyvoor’s No. 5 Shaft by
seismic activity, restoration of which was expected to take until March 2010 to complete;
• power utility Eskom’s higher winter tariffs, compounded by a 32% price increase effective from July 1, 2009, and the
likelihood of further increases in coming months; and
• the wage strike by the National Union of Mineworkers, which lasted for almost a month and resulted in the loss of
approximately 8,000 ounces of production.
In terms of a provisional judicial management order, the court appointed a judicial manager who had a wide range of powers
at his disposal to take such actions he deemed necessary to save the business. These could include giving certain creditors temporary
preference over others and agreeing compromises with creditors without the risk of committing an act of insolvency and thereby
exposing the mine to liquidation.
On April 13, 2010, DRDGOLD announced that the High Court of South Africa had agreed to lift, with immediate effect,
the provisional judicial management order in place since November 10, 2009. The Company’s application to the court for the
lifting of the provisional judicial management order, pointed out that for the period from November 2009 to February 2010,
Blyvoor had traded at an unaudited profit of R33.6 million, the amount owed to trade creditors at the time when the provisional
judicial management order was granted had been reduced from R39 million to R2.17 million, monthly production of gold had
increased from 8,745 ounces to 10,127 ounces and the gold price had increased from R240,000/kg to R265,000/kg.
On December 2, 2009, DRDGOLD announced a proposed transaction to sell 60% of Blyvoor to Aurora Empowerment
Systems (Pty) Limited, or Aurora, for R295 million. On April 1, 2010, the proposed transaction was cancelled by mutual
agreement between DRDGOLD and Aurora.
On June 23, 2011, DRDGOLD announced that it had suspended financial assistance to Blyvoor. The decision followed
the promulgation of the new South African Companies Act, 2008, which requires directors of parent companies to seek the
consent of the parent company shareholders and then to consider the effects on the solvency and liquidity of the parent company
as conditions precedent to the provision of financial assistance to subsidiaries. Blyvoor’s production had been trending down as a
result of a drop in grade, public holiday interruptions and seismicity-related work stoppages, while costs had increased due mainly
to higher electricity charges, and particularly power utility Eskom’s winter tariff which added R11 million a month to overhead
costs.
The Board of Directors of Blyvoor had, in response to DRDGOLD’s decision, resolved to begin business rescue
proceedings for Blyvoor in terms of Chapter 6 of the Companies Act, 2008. The business rescue process provided for in Chapter 6
replaces the judicial management process in the previous Companies Act, 1973. DRDGOLD supported the decision of the
Blyvoor Board of Directors.
24
On September 27, 2011, DRDGOLD announced that the Business Rescue Practitioner overseeing business rescue
proceedings at Blyvoor has given notice of Blyvoor’s intention to enter a 60-day consensus-seeking process in terms of Section
189 (3) of the Labour Relations Act with the National Union of Mineworkers, or NUM and the United Association of South
Africa, or UASA – the Union, to consider reducing employee numbers by approximately 500 employees. The reason for the need
to consider the reduction is that Blyvoor – under business rescue proceedings in terms of Chapter 6 of the Companies Act, 2008,
since June this year – has been unable to meet production and financial targets, a situation exacerbated by higher utility costs.
Blyvoor is proposing voluntary separation and application of the principle of “last in, first out” as among the mechanisms to be
applied to effect the required reduction in employee numbers. Measures currently under consideration to achieve a targeted 30%
improvement in the cost of production in R/kg terms, and thus to avoid employee reduction, include:
• a reduction in overtime expenditure;
• an increase in available work time and subsequent re-organisation of shifts;
• a re-evaluation of the profitability of 6 Shaft, 4 Shaft and the Reef Picking Project;
• a reduction of departmental costs by 10%; and
• revised mining plans.
ERPM
On October 6, 2008 we ceased pumping at ERPM’s South West Vertical Shaft for safety reasons following the death of two
employees underground. Post mortems suggested that the two men, who had been conducting routine water level measurements, died
of asphyxiation. The South West Vertical Shaft had been used only for water pumping purposes for several years.
The Department of Mineral Resources issued a Section 54 notice under the Mine Health and Safety Act, subjecting access
into the area to certain restrictions and conditions relating to ventilation. On October 23, 2008, drilling and blasting operations were
suspended in all shafts after the cessation of pumping of underground water at South West Vertical shaft on October 6, 2008 for
safety reasons.
On November 19, 2008, we announced our intention to place on care and maintenance the underground operations of
ERPM, and to proceed with a consultation process in terms of Section 189A of the Labor Relations Act to determine the future of
the mine’s 1,700 employees. The consultation process was completed on January 20, 2009 and 1,335 employees were retrenched.
On August 20, 2009, we discontinued care and maintenance and closed the underground operations.
Other
On September 17, 2008, our wholly-owned subsidiary, DRD (Offshore) Limited, sold all of its shares in G.M. Network
Limited, or GoldMoney, to other GoldMoney shareholders. The cash consideration in respect of the disposal amounted to
R23.8 million ($2.9 million). GoldMoney is a company that holds the rights, patents and other intellectual property of
GoldMoney.com, which is a product specializing in digital gold currency. We previously held a 50.25% shareholding in Net-Gold
Services Limited, which was converted on March 30, 2008, into a 12.3% shareholding in GoldMoney.
In January 2009 we completed the acquisition of 28.33% of the shares in West Wits SA (Pty) Limited a subsidiary of
West Wits Mining Limited, an Australian based listed company. The formation of the company was to explore, evaluate and
potentially extract gold and uranium from the West Rand Goldfield of South Africa's Witwatersrand Basin.
On December 9, 2008, Argonaut Financial Services (Pty) Ltd, or Argonaut, Mintails SA and Witfontein, entered into a
share purchase agreement (SPA) which resulted in Argonaut (a wholly owned subsidiary of DRDGOLD) and Mintails SA each
owning 50% of the shareholding of Witfontein as well as being authorized to each appoint 50% of the board. Previously Mintails
SA owned 100% of the issued share capital of Witfontein. Witfontein is to be used as a future deposition establishment facility
(i.e. slime deposition). On January 21, 2010, the Company entered into an agreement to sell its interest in Witfontein to Mintails
SA for R20 million and regulatory approval was obtained on April 15, 2010. The R20 million consideration was set off against the
acquisition price payable to Mintails SA for ERPM’s acquisition of the remaining 50% in the Ergo JV.
On July 22, 2009, the Company announced the rejection by the Mintails board of the offer by Ergo Mining Operations to
purchase the South African business assets of Mintails after its announcement dated June 29, 2009, which set out information
relating to Mintails having conditionally accepted an offer by Ergo Mining Operations, to acquire all of its South African business
assets, excluding its interest in West Wits Mining Limited.
On June 30, 2010, DRDGOLD signed a heads of agreement with the JSE listed White Water Resources Limited, or
White Water, according to which White Water would acquire from ERPM, for the amount of R18.5 million, the prospecting right
over ERPM Extensions 1 and 2 and the mining right over ERPM Extension 1. On September 7, 2010 negotiations were terminated
due to the non-fulfillment of conditions precedent.
25
For further information on other capital investments, divestures, capital expenditure and capital commitments, see Item 4D.:
“Property, Plant and Equipment,” and Item 5B.: “Liquidity and Capital Resources.”
4B. BUSINESS OVERVIEW
Description of Our Mining Business
Exploration
Exploration activities are focused on the extension of existing ore bodies and identification of new ore bodies both at
existing sites and at undeveloped sites. Once a potential ore body has been discovered, exploration is extended and intensified in
order to enable clearer definition of the ore body and the portions with the potential to be mined. Geological techniques are constantly
refined to improve the economic viability of exploration and exploitation.
Mining
Our operations comprise relatively mature assets and the principal mining method used is the extraction of previously
abandoned Ore Reserves, which require a high degree of opening up and retreatment of these previously abandoned Ore Reserves.
Our Metallurgical Plants and Processes
A detailed review of the metallurgical plants and processes for each of the mining operations is provided under Item 4D:
“Property, Plant and Equipment.”
Market
The gold market is relatively liquid compared to other commodity markets, with the price of gold generally quoted in
dollars. Physical demand for gold is primarily for manufacturing purposes, and gold is traded on a world-wide basis. Refined gold has
a variety of uses, including jewelry, electronics, dentistry, decorations, medals and official coins. In addition, central banks, financial
institutions and private individuals buy, sell and hold gold bullion as an investment and as a store of value (due to the tendency of
gold to retain its value in relative terms against basic goods and in times of inflation and monetary crises).
The use of gold as a store of value and the large quantities of gold held for this purpose in relation to annual mine production
have meant that historically the potential total supply of gold has been far greater than demand. Thus, while current supply and
demand play some part in determining the price of gold, this does not occur to the same extent as in the case of other commodities.
Instead, the gold price has from time to time been significantly affected by macro-economic factors such as expectations of inflation,
interest rates, exchange rates, changes in reserve policy by central banks, and global or regional political and economic crises. In
times of inflation and currency devaluation, gold is often seen as a safe haven, leading to increased purchases of gold and support for
its price.
The gold market was strong but remained volatile in fiscal 2011, trading between a low of $1,157 per ounce and a high of
$1,553 per ounce. The average spot price was 26% higher than in the previous fiscal year, at $1,369 per ounce. Amid continuing
global economic uncertainty, investors turned once more to gold (notably to safe-haven products such as Exchange Traded Funds)
and this, together with more de-hedging activity and a slowdown in new mine supply, particularly from South Africa, saw demand
exceed supply. The average gold price received by us for the year was R308,220 per kilogram which was 15% higher than the
previous year at R267,292 per kilogram.
Looking ahead, we believe that the global economic environment, including economic uncertainty and other factors, will
continue to make gold attractive to investors. The supply side shortfall is likely to continue because of circumstances including
operational challenges and delays in opening new mines and the challenge, particularly to South African producers such as ourselves,
of maintaining profitable production in the face of increasing mining depths and rising costs.
Our total revenue by geographic market was as follows:
Year ended June 30,
2011 2010 2009
R’000 R’000 R’000
South Africa ..........................................................................................
2,565,319 1,990,522 1,910,738
2,565,319 1,990,522 1,910,738
26
All gold produced by our South African Operations is sold on our behalf by Rand Refinery Limited, or RRL, in accordance
with a refining agreement entered into in October 2001. At our various operations the gold bars which are produced consist of
approximately 85% gold, 7-8% silver and the balance comprises copper and other common elements. The gold bars are sent to RRL
for assaying and final refining where the gold is purified to 99.9% and cast into troy ounce bars of varying weights. RRL then usually
sells the gold on the same day as delivery, for the London afternoon fixed Dollar price, with the proceeds remitted to us in rand
within two days. In exchange for this service, we pay RRL a variable refining fee plus fixed marketing, loan and administration fees.
We currently own 4% (Fiscal 2010: 4%) of RRL (which is jointly owned by South African mining companies), which is disclosed in
our financial statements, however the Company believes it has the right to a further 6.22% in RRL which is currently being brought
to RRL’s attention and the Company will contest if this additional interest is not awarded. Mr. T.J. Gwebu our Executive Officer
Compliance, is a director of RRL and Mr. D.J. Pretorius, our Chief Executive Officer, is an alternate director of RRL.
Ore Reserves
The tables below set out the Proven and Probable Ore Reserves that are the Group’s Ore Reserves as of June 30, 2011,
and 2010, in both imperial and metric units. Our Ore Reserves are comprised of our attributable Ore Reserves.
Ore Reserve estimates in this Annual Report are reported in accordance with the requirements of the SEC’s Industry
Guide 7. Accordingly, as of the date of reporting, all reserves are planned to be mined out under the life of mine business plans
within the period of our existing rights to mine, or within the time period of assured renewal periods of our rights to mine. In
addition, as of the date of reporting, all reserves are covered by required permits and governmental approvals. See Item 4D.:
“Property, Plant and Equipment” for a description of the rights in relation to each mine.
In South Africa, we are legally required to publicly report Ore Reserves and Mineral Resources in compliance with the
South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, or SAMREC Code. The
SEC’s Industry Guide 7 does not recognize Mineral Resources. Accordingly, we do not include estimates of Mineral Resources in
this Annual Report.
Ore Reserve calculations are subject to a review conducted in accordance with SEC Industry Guide 7. Components of the
calculations included in the geological models and input parameters of the reserve estimation procedures, were checked. In
addition, visual inspection of the planning to deliver an individual block to the metallurgical plant, and the recovery, and
deposition of the tailings, took place. A check is also made of the financial input into the costs and revenue to affirm that they are
within reasonable limits.
The Ore Reserves are inclusive of diluting materials and allow for losses that may occur when the material is mined. Ore
Reserve tons, grade and content are quoted as delivered to the gold plant. There are two types of methods available to select ore for
mining. The first is pay-limit, which includes cash costs, including overhead costs, to calculate the pay-limit grade. The second is the
cut-off grade which includes cash costs, excluding fixed overhead costs, to calculate the cut-off grade, resulting in a lower figure than
the full pay-limit grade. The cut-off grade is based upon direct costs from the mining plan, taking into consideration production
levels, production efficiencies and the expected costs. We use the pay-limit to determine which areas to mine, as an overhead
inclusive amount that is indicative of the break-even position, especially for marginal mining operations.
The pay-limit approach is based on the minimum in-situ grade of ore blocks, for which the production costs, which includes
all overhead costs, including head office charges, are equal to a three-year historical average gold price per ounce for that year. This
calculation also considers the previous three years’ mining and milling efficiencies, which includes metallurgical and other mining
factors and the production plan for the next twelve months. Only blocks above the pay-limit grade are considered for mining. The
pay-limit grade is higher than the cut-off grade, because this includes overhead costs, which indicates the break-even position of the
operation, especially significant for marginal mines.
When delineating the economic limits to the ore bodies, we adhere to the following guidelines:
• The potential ore to be mined is well defined by an externally verified and approved geological model created using our
mining software;
• The potential ore, which is legally allowed to be mined, is also confined by the mine's lease boundaries; and
• A full life of mine business plan (physical 5 year plan) is constructed to mine the ore from existing infrastructure.
Our Ore Reserves figures are estimates, which may not reflect actual reserves or future production. We have prepared these
figures in accordance with industry practice, converting mineral deposits to an Ore Reserve through the preparation of a mining plan.
The Ore Reserve estimates contained herein inherently include a degree of uncertainty and depend to some extent on statistical
inferences which may ultimately prove to have been unreliable.
27
Reserve estimates require revisions based on actual production experience or new information. 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 adversely affect our operations. Moreover, if
the price of gold declines, or stabilizes at a price that is lower than recent levels, or if our production costs increase or recovery rates
decrease, it may become uneconomical to recover Ore Reserves containing relatively lower grades of mineralization.
Our Ore Reserves are prepared using three year average gold prices at the time of reserve determination. In light of the
significant increase in gold prices, since fiscal 2006 the Company prepares its life of mine business plans using the prevailing gold
price at the time of the reserve determination, which is at the end of the fiscal year.
Gold prices and exchange rates used for Ore Reserves and for our business plan are outlined in the following table.
2011 2010
Three-year average Business Plan Three-year average Business Plan
Reserve gold price –$/oz
1,121
1,536
926
1,244
Reserve gold price –R/kg
276,753
328,155
236,752
306,081
Exchange
rate
–R/$
7.68 6.65 7.95 7.65
In fiscal 2011, our attributable Ore Reserves increased by 5% from 6.0 million ounces at June 30, 2010, to 6.3 million
ounces at June 30, 2011, primarily as a consequence of the higher gold price.
Based on the life of mine business plans, the life of mine for each of our operations at June 30, 2011, are set out in the
table below. The decrease in the life of mine of Crown is due to the redistribution of the throughput of volumes between the
Crown and City plants from 400 tonnes and 200 tonnes per month, respectively, in fiscal 2010 to 300 tonnes and 300 tonnes,
respectively, in fiscal 2011.
Underground Surface
Mine 2011 2010 2011 2010
Blyvoor ....................................................
20 years
20 years
1 years
3 years
Crown .......................................................
Not applicable
Not applicable
11 years
14 years
Ergo..........................................................
Not applicable
Not applicable
11 years
12 years
Our Ore Reserves as of June 30, 2011 and 2010 are set forth in the table below.
28
Ore Reserves: Imperial
At June 30, 2011
At June 30, 2010
Proven Ore Reserves
Probable Ore Reserves
Proven Ore Reserves
Probable Ore Reserves
Tons
Grade
Gold
Content
Tons
Grade
Gold
Content
Tons
Grade
Gold
Content
Tons
Grade
Gold
Content
(mill)
(oz/ton)
('000 ozs)
(mill)
(oz/ton)
('000 ozs)
(mill)
(oz/ton) ('000 ozs)
(mill)
(oz/ton)
('000 ozs)
Blyvoor
1
Underground
.................................................
18.44
0.16
2,913 9.06
0.15
1,352
16.83
0.18
3,075
4.40
0.17
769
Surface
..........................................................
2.18
0.03
74
-
-
-
4.98
0.03
129
-
-
-
Total Blyvoor ..................................................
20.62 0.14 2,987
9.06 0.15 1,352 21.81 0.15
3,204 4.40
0.17 769
Crown
1 2
Surface
.............................................................
14.95
0.01
220 54.90 0.01 589
18.74 0.02
293
50.64 0.01
565
Total Crown
....................................................
14.95 0.01
220 54.90
0.01
589 18.74
0.02
293
50.64
0.01
565
Ergo
1
3
Surface
.............................................................
132.51
0.01
1,188
-
-
- 139.44
0.01
1,196
-
-
-
Total Ergo .......................................................
132.51 0.01 1,188 -
-
-
139.44
0.01 1,196
-
-
-
Total
Group
Underground
....................................................
18.44
0.16
2,913 9.06
0.15
1,352
16.83
0.18
3,075
4.40
0.17
769
Surface
.............................................................
149.64
0.01
1,482 54.90 0.01 589
163.16 0.01 1,618
50.64 0.01
565
Total
4
..................................................................
168.08 0.03 4,395
63.96 0.03 1,941
179.99
0.03 4,693
55.04 0.02 1,334
1
Proven and Probable Ore reserves for fiscal 2011 and 2010 reflect our attributable 74% interest in Blyvoor, Crown and Ergo.
2
Crown’s Ore Reserves include the Cason Dump which is being processed by Crown, however the mining right for the Cason Dump is owned by ERPM.
3
Ergo’s Ore Reserves include the Elsburg and Benoni tailings complexes which are being processed by Ergo, however the mining rights for these tailings are owned by ERPM.
4
The Ore Reserves listed in the above table are estimates of what can be legally and economically recovered from operations, and, as stated, are estimates of mill delivered in tons.
29
Ore Reserves: Metric
At June 30, 2011
At June 30, 2010
Proven Ore Reserves
Probable Ore Reserves
Proven Ore Reserves
Probable Ore Reserves
Tonnes Grade
Gold
Content Tonnes Grade
Gold
Content Tonnes Grade
Gold
Content
Tonnes
Grade
Gold
Content
(mill) (g/tonne) (tonnes) (mill) (g/tonne) (tonnes) (mill)
(g/tonne)
(tonnes)
(mill)
(g/tonne)
(tonnes)
Blyvoor
1
Underground
...............................................
16.73 5.42 90.61
8.22 5.12 42.06
15.27 6.26
95.63
3.99 5.99
23.91
Surface..............................................................
1.98 1.16
2.29 -
-
-
4.52 0.88 4.00 -
-
-
Total Blyvoor ................................................
18.71 4.97 92.90
8.22 5.12 42.06
19.79 5.03
99.63
3.99 5.99
23.91
Crown
1
2
Surface
.............................................................
13.57 0.50
6.83
49.81 0.37 18.32
17.00 0.54 9.11
45.94 0.38
17.56
Total Crown
....................................................
13.57 0.50
6.83
49.81 0.37 18.32 17.00
0.54 9.11 45.94 0.38 17.56
Ergo
1
3
Underground
.....................................................
- -
-
- - -
- - -
- - -
Surface
.............................................................
120.21 0.31 36.96 -
-
-
126.50 0.29
37.19 -
-
-
Total Ergo
........................................................
120.21 0.31 36.96 -
-
-
126.50 0.29
37.19 -
-
-
Total
Group
Underground
...................................................
16.73 5.42 90.61
8.22 5.12 42.06
15.27 6.26
95.63
3.99 5.99
23.91
Surface..............................................................
135.76 0.34 46.08
49.81 0.37 18.32
148.02 0.34
50.30
45.94 0.38
17.56
Total
4
.................................................................
152.49 0.90 136.69
58.03 1.04 60.38
163.29 0.89
145.93
49.93 0.83
41.47
1
Proven and Probable Ore Reserves for fiscal 2011 and 2010 reflect our attributable 74% interest in Blyvoor, Crown and Ergo.
2
Crown’s Ore Reserves include the Cason Dump which is being processed by Crown, however the mining right for the Cason Dump is owned by ERPM.
3
Ergo’s Ore Reserves include the Elsburg and Benoni tailings complexes which are being processed by Ergo, however the mining rights for these tailings are owned by ERPM.
4
The Ore Reserves listed in the above table are estimates of what can be legally and economically recovered from operations, and, as stated, are estimates of mill delivered in tons.
30
The measurement and classification of our Proven and Probable Ore Reserves are sensitive to the fluctuation of the gold
price. If we had used different gold prices than the three-year average prices at the time of reserve determination as of June 30, 2011,
2010 and 2009 respectively, we would have had significantly different reserves as of those dates. Using the same methodology and
assumptions as were used to estimate Ore Reserves but with different gold prices, our attributable Ore Reserves as of June 30, 2011,
2010 and 2009 would be as follows:
Year ended June 30, 2011
Three-year
average price
Business Plan
at prevailing
price
10% Below
prevailing
price
10% Above
prevailing
price
Rand gold price per kilogram .......................................
276,753 328,155 295,340 360,971
Dollar gold price per ounce ..........................................
1,121 1,536 1,382 1,690
Attributable ore reserves (million ounces) ...............
6.3
7.3
6.7
7.8
Year ended June 30, 2010
Three-year
average price
Business Plan
at prevailing
price
10% Below
prevailing
price
10% Above
prevailing
price
Rand gold price per kilogram .......................................
236,752 306,081 275,473 336,689
Dollar gold price per ounce ..........................................
926 1,244 1,120 1,368
Attributable ore reserves (million ounces) ...............
6.0
7.3
6.8
7.8
Year ended June 30, 2009
Three-year
average price
Business Plan
at prevailing
price
10% Below
prevailing
price
10% Above
prevailing
price
Rand gold price per kilogram .......................................
199,331 241,834 217,651 266,017
Dollar gold price per ounce ..........................................
778 885 796 973
Attributable ore reserves (million ounces) ...............
5.2
6.1
5.6
6.4
The approximate mining recovery factors for the 2011 ore reserves shown in the above table are as follows:
Underground Surface
Mine
Dilution
(Sundries,
Shortfall and
Development)
(%)
Mine Call Factor
(%)
Metallurgical and
recovery factor
(%)
Mine Call Factor
(%)
Metallurgical and
recovery factor
(%)
Blyvoor ...................
23.2 81.0 92.3
100.0 40.6
Crown .......................
Not applicable
Not applicable
Not applicable
100.0
59.3
Ergo ..........................
Not applicable
Not applicable
Not applicable
100.0
39.3
The approximate mining recovery factors for the 2010 ore reserves shown in the above table are as follows:
Underground Surface
Mine
Dilution
(Sundries,
Shortfall and
Development)
(%)
Mine Call Factor
(%)
Metallurgical and
recovery factor
(%)
Mine Call Factor
(%)
Metallurgical and
recovery factor
(%)
Blyvoor ...................
23.8 81.9 93.2
100.0 44.4
Crown .......................
Not applicable
Not applicable
Not applicable
100.0
64.0
Ergo ..........................
Not applicable
Not applicable
Not applicable
100.0
43.0
The following table shows the average drill/sample spacing (rounded to the nearest foot), as at June 30, 2011 and 2010, for
each category of Ore Reserves at our mines calculated based on a three year average dollar price of gold.
Mine
Proven
Reserves
Probable
Reserves
Blyvoor .......................................................................................................
16 ft. by 24 ft.
20 ft. by 20 ft.
Crown ..........................................................................................................
328 ft. by 328 ft.
328 ft. by 328 ft.
Ergo .............................................................................................................
328 ft. by 328 ft.
Not applicable
31
The pay-limit grades based on the three year average dollar price for gold and costs used to determine reserves as of
June 30, 2011, are as follows:
Underground Surface
Mine
Pay-limit grade
(g/t)
Costs used to
determine pay-
limit grade
(R/t)
Pay-limit grade
(g/t)
Costs used to
determine pay-
limit grade (R/t)
Blyvoor ................................................................
7.94 1,284.34
0.27
30.04
Crown ..................................................................
Not applicable
Not applicable
0.52
84.86
Ergo .....................................................................
Not applicable
Not applicable
0.24
25.60
The pay-limit grades and costs used to determine reserves as of June 30, 2010, are as follows:
Underground Surface
Mine
Pay-limit grade
(g/t)
Costs used to
determine pay-
limit grade
(R/t)
Pay-limit grade
(g/t)
Costs used to
determine pay-
limit grade (R/t)
Blyvoor ................................................................
9.26 1,298.59
0.24
25.10
Crown ..................................................................
Not applicable
Not applicable
0.32
55.00
Ergo .....................................................................
Not applicable
Not applicable
0.19
23.14
We apply the pay-limit approach to the mineralized material database of our various shafts or business units in order to
determine the tonnage and grade available for mining.
Governmental regulations and their effects on our business
South Africa
Common Law Mineral Rights and Statutory Mining Rights
Prior to the introduction of the Minerals and Petroleum Resources Development Act, or MPRD Act, in 2002, private
ownership in mineral rights and statutory mining rights in South Africa could be acquired through the common law or by statute.
Under the old regime, the term freehold title refers to a right of ownership of land and the surface thereof and the term “mining title”
refers to a right of ownership of the minerals below the surface or the right to mine such minerals. With effect from May 1, 2004, all
minerals have been placed under the custodianship of the South African government under the provisions of the MPRD Act, and old
order proprietary rights need to be converted to new order rights of use within certain prescribed periods, as dealt with in more detail
below.
Old Order Rights - Mining Authorizations
Holders of mining authorizations issued under the previous regime were given an opportunity to apply for conversion
thereof until May 1, 2009. No person or mining entity may prospect or mine for minerals without being granted a prospecting or
mining authorization. Prior to granting a prospecting or mining authorization, two requirements had to be fulfilled. First, the mining
entity must either be the registered holder of the mineral rights or have obtained the written consent of the registered holder of the
mineral rights to mine the minerals concerned for its own account. Second, the Department of Mineral Resources, or the DMR, must
be satisfied with the scale, manner and duration of the intended prospecting or mining operations and must approve an Environmental
Management Program, or EMP. A prospecting permit was issued for a limited period but could be renewed on application. A mining
license was generally issued until such time that the minerals could no longer be mined in an economically viable manner. The rights
enjoyed under these authorities will endure until they are converted within the period of time prescribed in the MPRD Act.
Thereafter, such rights will lapse.
Conversion of Rights under the Mineral and Petroleum Resources Development Act, 2002
Existing common law prospecting, mining and mineral rights, or old order rights, need to be converted into new order rights
in order to ensure exclusive access to the mineral for which rights existed at the time of the enactment of the MPRD Act.
32
In respect of used old order mining rights, the DMR is obliged to convert the rights if the applicant complies with certain
statutory criteria. These include the submission of a mining works program, demonstrable technical and financial capability to give
effect to the program, provision for environmental management and rehabilitation, and compliance with certain black economic
empowerment criteria and the social and labor plan. These applications had to be submitted within five years after the promulgation
of the MPRD Act on May 1, 2004. Similar procedures apply where we hold prospecting rights and a prospecting permit and conduct
prospecting operations. Where we hold unused old order rights however, the application for conversion to mining or prospecting
rights had to be submitted within one year from May 1, 2004. The requirements for unused old order rights are more stringent than
for used old order rights, particularly insofar as the percentage of ownership from historically disadvantaged groups is concerned.
Under the MRPD Act, mining rights are not perpetual, but endure for a maximum of thirty years, after which they may be renewed
for a further thirty years. Prospecting rights are limited to five years, with one renewal of three years. Applications for conversion of
our mining rights have been submitted to the DMR and approval is awaited. During this period, we are permitted to continue to
operate under the terms and conditions of the old order rights which we hold.
If any of our applications for conversion are refused, a claim for compensation, based on expropriation may be lodged
against the State. The DMR may attach specific conditions and limitations to the exercise of new order rights. It may, for example,
reduce the area over which the new order right applies, if it is of the view that the prospecting or mining works programs submitted
by an applicant do not justify the extent of the area covered by the old order right. They may also be suspended or cancelled by the
Minister of Mineral Resources in the event of a breach or, in the case of mining rights, of non-optimal mining in accordance with the
mining works program.
Mining royalties
Royalties from mining activities became payable to the state, as from March 1, 2010, under provisions contained in the
Mineral and Petroleum Resources Royalty Act, or the Royalty Act. The most significant feature of the Royalty Act is that the
royalty is to be determined in accordance with a formula based system and no longer to be a predetermined specific rate for the
different types of minerals. The royalty is deductible for normal income tax purposes.
The Royalty Act defines the tax base as gross sales excluding the transportation and handling costs of the final product.
The final product can be either the “refined” or “unrefined” mineral depending on the nature of the mineral in question. There has
been general consensus that a formula derived mineral royalty rate regime is more equitable and provides the necessary relief for
mines during times of difficulties, e.g. low commodity prices and mines that become marginal due to low grades. The formula-
based mineral royalty rate regime also ensures that the State shares in the benefits of higher commodity prices. The State thus
shares in the downside risks, when mines become marginal, and in the upside benefits during times of high commodity prices.
Based on comments received the formulae were adjusted to take into account the capital intensive nature of certain mining
operations, especially Gold mining and Oil and Gas. The formulae use earnings before income tax, or EBIT, with 100 percent
capital expensing. Given that a distinction is drawn between refined and unrefined minerals, the mineral royalty percentage rates
(Y%) is based on the following formulae:
For refined minerals: Y (%) = 0.5 + [(EBIT divided by (Gross Sales multiplied by 12.5)) multiplied by 100]. This rate is
capped at a maximum of 5.0%.
For unrefined minerals: Y (%) = 0.5 + [(EBIT divided by (Gross Sales multiplied by 9.0)) multiplied by 100]. This rate is
capped at a maximum of 7.0%.
For the purpose of calculating the royalty percentage rates a negative EBIT will be set equal to zero.
The Broad Based Socio-Economic Empowerment Charter
In order to promote broader based participation in mining revenue, the MPRD Act provides for a Mining Charter to be
developed by the Minister within six months of commencement of the MPRD Act, beginning May 1, 2004. The Mining Charter
came into effect in August 2004 and its objectives include:
• increased direct and indirect ownership of mining entities by qualifying parties as defined in the Mining Charter;
• expansion of opportunities for persons disadvantaged by unfair discrimination under the previous political dispensation;
• expansion of the skills base of such persons, the promotion of employment and advancement of the social and economic
welfare of mining communities; and
• promotion of beneficiation.
33
The Mining Charter sets certain numerical and timeframe goals on equity participation by historically disadvantaged South
Africans of South African mining assets. It recommends that these are achieved by, among other methods, disposal of assets by
mining companies to historically disadvantaged persons on a willing seller, willing buyer basis at fair market value. The goals set by
the Mining Charter require each mining company to achieve 15 percent ownership by historically disadvantaged South Africans of its
South African mining assets within five years and 26 percent ownership within ten years from May 1, 2004. It also sets out guidelines
and goals in respect of employment equity at management level with a view to achieving 40 percent participation by historically
disadvantaged persons in management and ten percent participation by women in the mining industry, each within five years from
May 1, 2004. Compliance with these objectives is measured on the weighted average “scorecard” approach in accordance with a
scorecard which was first published by the government.
We are unable to identify any permits, rights or investments which we may lose as a result of any non-compliance. The
provisions of the Mining Charter apply to each mining company individually. As transactions, to comply with the Mining Charter,
are to be at market value, we do not anticipate incurring any loss in continuing to fulfill our obligations provided that we are able to
identify suitable partners that are able to obtain adequate funding.
We have achieved our commitment to ownership compliance with the MPRD Act through our existing black economic
empowerment structure with Khumo Gold and the DRDSA Empowerment Trust. Our black economic empowerment partners,
Khumo Gold and the DRDSA Empowerment Trust, hold 20% and 6% respectively in each of our operating subsidiaries, Ergo
Mining Operations and Blyvoor. (See Item 4A.: “History and Development of the Company”).
Mine Health and Safety Regulation
The South African Mine Health and Safety Act, 1996 (as amended), or the Mine Health and Safety Act, came into effect in
January 1997. The principal object of the Mine Health and Safety Act is to improve health and safety at South African mines and to
this end, imposes various duties on us at our mines, and grants the authorities broad powers to, among other things, close unsafe
mines and order corrective action relating to health and safety matters. In the event of any future accidents at any of our mines,
regulatory authorities could take steps which could increase our costs and/or reduce our production capacity. There are amendments
to the act currently before parliament to ratify the stopping of production and increase punitive measures including increased financial
fines and legal liability of mine management. Some of the more important new provisions in the bill as approved by the Portfolio
Committee are a new section 50(7A) that obliges an inspector to impose a prohibition on the further functioning of a site where a
person’s death, serious injury or illness to a person, or a health threatening occurrence has occurred; a new section 86A(1) creating
a new offence for any person who contravenes or fails to comply with the provisions of the Mine Health and Safety Act thereby
causing a person’s death or serious injury or illness to a person. Subsection (3) further provides that (a) the “fact that the person
issued instructions prohibiting the performance or an omission is not in itself sufficient proof that all reasonable steps were taken
to prevent the performance or omission”; and that (b) “the defense of ignorance or mistake by any person accused cannot be
permitted”; or that (c) “the defense that the death of a person, injury, illness or endangerment was caused by the performance or an
omission of any individual within the employ of the employer may not be admitted”; a new section 86A(2) creating an offence of
vicarious liability for the employer where a Chief Executive Officer, manager, agent or employee of the employer committed an
offence and the employer either connived at or permitted the performance or an omission by the Chief Executive Officer,
manager, agent or employee concerned; or did not take all reasonable steps to prevent the performance or an omission. The
maximum fines have also been increased. Any owner convicted in terms of section 86 or 86A may be sentenced to “withdrawal or
suspension of the permit” or to a fine of R3 million or a period of imprisonment not exceeding five years or to both such fine and
imprisonment, while the maximum fine for other offences and for administrative fines have all been increased, with the highest
being R1 million.
Under the South African Compensation for Occupational Injuries and Diseases Act, 1993 (as amended), or COID Act,
employers are required to contribute to a fund specifically created for the purpose of compensating employees or their dependants for
disability or death arising in the course of their work. Employees who are incapacitated in the course of their work have no claim for
compensation directly from the employer and must claim compensation from the COID Act fund. Employees are entitled to
compensation without having to prove that the injury or disease was caused by negligence on the part of the employer, although if
negligence is involved, increased compensation may be payable by this fund. The COID Act relieves employers from the prospect of
costly damages, but does not relieve employers from liability for negligent acts caused to third parties outside the scope of
employment. In fiscal 2011, we contributed approximately R12.6 million under the COID Act to a multi-employer industry fund
administered by Rand Mutual Assurance Limited.
Under the Occupational Diseases in Mines and Works Act, 1973 (as amended), or the Occupational Diseases Act, the multi-
employer fund pays compensation to employees of mines performing “risk work,” usually in circumstances where the employee is
exposed to dust, gases, vapors, chemical substances or other working conditions which are potentially harmful, or if the employee
contracts a “compensatable disease,” which includes pneumoconiosis, tuberculosis, or a permanent obstruction of the airways. No
employee is entitled to benefits under the Occupational Diseases Act for any disease for which compensation has been received or is
still to be received under the COID Act. Currently the Group is compliant with these payment requirements, which are based on a
combination of the employee costs and claims made during the fiscal year.
34
Uranium and radon are often encountered during the ordinary course of gold mining operations in South Africa, and present
potential risks for radiation exposure of workers at those operations and the public to radiation in the nearby vicinity. We monitor our
uranium and radon emissions and believe that we are currently in compliance with all local laws and regulations pertaining to
uranium and radon management and that we are within the current legislative exposure limits prescribed for workers and the public,
under the Nuclear Energy Act, 1999 (as amended) and Regulations from the National Nuclear Regulator.
Environmental Regulation
Managing the impact of mining on the environment is extensively regulated by statute in South Africa. Recent statutory
enactments set compliance standards both generally, in the case of the National Environmental Management Act, and in respect of
specific areas of environment impact, as in the case of the Air Quality Act 2004, the National Water Act (managing effluent), and the
Nuclear Regulator Act 1999. Liability for environmental damage is also extended beyond the corporate veil to impose personal
liability on managers and directors of mining corporations that are found to have violated applicable laws.
The impact on the environment by mining operations is extensively regulated by the MPRD Act. The MPRD Act has
onerous provisions for personal liability of directors of companies whose mining operations have an unacceptable impact on the
environment.
Under the MPRD Act, new order mining rights are not issued unless a complete environmental impact assessment is
conducted and all potentially affected parties have been given an opportunity to comment on the proposed mining. Mining companies
are also required to demonstrate both the technical and financial ability to sustain an ongoing environmental management program, or
EMP, and achieve ultimate rehabilitation, the particulars of which are to be incorporated in an EMP. This program is required to be
submitted and approved by the DMR as a prerequisite for the issue of a new order mining right. Various funding mechanisms are in
place, including trust funds and concurrent rehabilitation budgets, to fund the rehabilitation liability.
The MPRD Act imposes specific, ongoing environmental monitoring and financial reporting obligations on the holders of
mining rights.
Because of the diverse nature of our operations, ranging from underground mining to surface reclamation activities,
environmental risks vary from site to site. These risks have been addressed in EMPs which have been submitted to the DMR for
approval. In November 2006, amended EMPs to conform to the required format of the MPRD Act were submitted for all operations
in South Africa for approval. Additionally, the key environmental issues have been prioritized and are being addressed through active
management input and support as well as progress measured in terms of activity schedules and timescales determined for each
activity. Two environmental compliance assessments have been conducted at Blyvoor and Crown, which both show that these mines
are in substantial compliance with the conditions of their EMPs.
Our existing reporting and controls framework is consistent with the additional reporting and assessment requirements of the
MPRD Act.
Financial Provision for Rehabilitation
We are required to make financial provision for the cost of mine closure and post-closure rehabilitation, including
monitoring once the mining operations cease. We have funded these environmental rehabilitation costs by making contributions over
the life of the mine to environmental trust funds established for each operation. Funds are irrevocably contributed to trusts that
function under the authority of trustees that have been appointed by, and who owe a statutory duty of trust, to the Master of the High
Court of South Africa. The funds held in these trusts are invested primarily in interest bearing debt securities. As of June 30, 2011, we
held a total of R134.2 million (2010: R126.1 million) in trust, the balance held in each fund being R33.5 million (2010:
R31.9 million) for Blyvoor, R23.0 million (2010: R21.8 million) for Durban Deep, R56.5 million (2010: R52.3 million) for Crown,
R21.2 million (20109: R20.1 million) for ERPM. Trustee meetings are held as required, and quarterly reports on the financial status
of the funds, are submitted to our board of directors.
The financial provisions for West Wits and Durban Deep have been consolidated into a single rehabilitation trust. The West
Wits financial provision has been impaired as at June 30, 2010 and 2011, because it will be transferred along with the rehabilitation
liability over the West Wits mining rights which have been disposed of.
We address shortfalls in the funds by accruing trust investment income for the benefit of the funds by replenishing it with
the proceeds from the sale of redundant mining equipment at the end of the life of the mine and gold from mine cleanup. If any of the
operations are prematurely closed, the rehabilitation funds may be insufficient to meet all the rehabilitation obligations of those
operations.
35
Whereas the old Minerals Act allowed for the establishment of a fully funded rehabilitation fund over the life of mine, the
MPRD Act assumes a fully compliant fund at any given time in the production life of a mine. The DMR appears to have taken a
practical approach in dealing with this change, and has indicated that the traditional ring fencing of funds may, for investment
purposes be relaxed, and that insurance instruments may also be received subject to the DMR’s consent, to make up the shortfall in
available cash funds. The Company has subsequently made use of approved insurance products for a portion of its rehabilitation
liabilities.
The aggregate group rehabilitation, reclamation and closure cost provision was R490.2 million at June 30, 2011, compared
to R420.6 million at June 30, 2010. This has been included in the provision for environmental rehabilitation, restoration and closure
in our financial statements as at June 30, 2011.
4C. ORGANIZATIONAL STRUCTURE
The following chart shows our principal subsidiaries and joint venture as of September 30, 2011. All of our subsidiaries are
incorporated in South Africa. We hold the majority of the investments directly or indirectly as indicated below. Refer to Exhibit 8.1
for a list of our significant subsidiaries. In addition, DRDGOLD holds a 50% joint venture interest in Chizim Gold which is
incorporated in Zimbabwe.
36
4D. PROPERTY, PLANT AND EQUIPMENT
DRDGOLD OPERATIONS
SEPTEMBER 30, 2011
37
Description of Significant Subsidiaries, Properties and Mining Operations
Witwatersrand Basin Geology
Blyvoor is predominantly an underground operating mine located within a geographical region known as the Witwatersrand
Basin, exploiting gold bearing reefs in addition to certain surface sources. Crown, ERPM and Ergo are also located within the
Witwatersrand Basin. Crown exploits various surface sources, including sand and slime tailings deposited as part of historical mining
operations. ERPM, which halted its underground mining operation in October 2008, continues as a surface operation processing sand
from the Cason Dump as part of the Crown operating segment. Ergo is a surface retreatment operation which is currently processing
slime tailings from the Elsburg tailings facility, which were historically deposited by ERPM’s underground mining operation. Our
underground operation is typical of the many gold mining operations in the area which together have produced approximately
1.5 billion ounces of gold over a period of more than 100 years.
The Witwatersrand Basin comprises a 4 mile (6 kilometers) vertical thickness of sedimentary rocks situated within the
Kaapvaal Craton, extending laterally for approximately 186 miles (299 kilometers) East-Northeast and 62 miles (100 kilometers)
South-Southeast. The sedimentary rocks generally dip at shallow angles towards the center of the basin, though locally this may vary.
The Witwatersrand Basin is Achaean in age and the sedimentary rocks are considered to be approximately 2.7 to 2.8 billion years old.
Gold mineralization in the Witwatersrand Basin occurs within horizons termed reefs. These occur within seven separate
goldfields located along the eastern, northern and western margins of the basin. These goldfields are known as the Evander Goldfield,
the East Rand Goldfield, the West Rand Goldfield, the Far West Rand Goldfield, the Central Rand Goldfield, the Klerksdorp
Goldfield and the Free State Goldfield. As a result of faulting and other primary controls of mineralization, the goldfields are not
continuous and are characterized by the presence or dominance of different reef units. The reefs are generally less than 6 feet (2
meters) thick but, in certain instances, these deposits form stacked clastic wedges which are hundreds of feet thick.
The gold generally occurs in native form within the various reefs, often associated with pyrite and carbon.
Blyvoor
Overview
We own 74% of the Blyvooruitzicht Gold Mining Company Limited, which in turn owns 100% of the Doornfontein Gold
Mining Company Limited. The consolidated mining operation, referred to as Blyvoor, consists of the adjacent mines of
Blyvooruitzicht and Doornfontein which are located within the Far West Rand Goldfield on the northwestern edge of the
Witwatersrand Basin. Blyvoor was the first mine in the “West Wits” line. Together, these two operations have produced over
38 million ounces of gold since inception in 1937 of which over 2.4 million ounces were produced since Blyvoor had been acquired
by the DRDGOLD group.
At June 30, 2011, Blyvoor had 4,779 employees, including contractors.
Property
Blyvoor is located on the West Wits line within the Far West Rand Goldfield on the northwestern rim of the Witwatersrand
Basin, near the town of Carletonville, Gauteng Province, about 50.0 miles (80.5 kilometers) south-west of Johannesburg and is
reached via the R528 road to Carletonville on the N12 Johannesburg-Potchefstroom-Kimberly highway.
The climate of the Highveld area (at an elevation of 5,249 feet (1,600 meters) above mean sea level), where the mine is
situated, is humid continental with warm summers and cold winters. Temperatures range from a minimum of 23 degrees
Fahrenheit (-5 degrees Celsius) in June and July, to a maximum of 93 degrees Fahrenheit (34 degrees Celsius) in December and
January.
The operating facilities are all situated on property belonging to Blyvoor, and include the shaft complexes, administrative
offices for the managerial, administrative, financial and technical disciplines, extensive workshops and consumable stores, the
metallurgical plants, tailings dams and waste rock dumps. Blyvoor also houses the majority of its employees in Blyvoor-owned
houses on the property and in the town of Carletonville. The normal support structures, including training, security, sport and
recreational facilities, schools and churches are situated on the property. Blyvoor has mining title to 16,242 acres (6,573 hectares) and
owns 5,138 acres (2,079 hectares) of freehold property.
Blyvoor consists of one mining license, ML46/99, in respect of statutory mining rights and mineral rights held by Blyvoor.
We are in the process of converting these old order mining rights to new order rights under the MPRD Act. The net book value of the
mining assets at Blyvoor is R26.0 million at June 30, 2011 (2010: R510.9 million), with 4.3 million attributable ounces of Ore
Reserves.
38
History
1937
Blyvooruitzicht Gold Mining Company Limited was incorporated and registered as a public company in South Africa
on June 10, 1937.
1942
Gold production commenced.
1995
Blyvoor acquired the Doornfontein Gold Mining Company Limited in November 1995.
1996
Blyvoor acquired the mineral rights representing the Western Deep Levels tribute area.
1997
We acquired the entire share capital of Blyvoor on September 15, 1997.
2001
Implementation of the Blyvoor expansion project.
2003
Commissioning of No. 4 and 5 Slimes Dam retreatment facility at a cost of R48.0 million.
2004
On June 28, 2004, we entered into a 60-day review period on Blyvoor. The 60-day review was extended to September 13,
2004. By October 5, 2004, 1,619 employees had been retrenched at a cost of approximately R19.0 million.
2005
In August 2005, our Board of Directors approved No. 2 Sub-Shaft Project (now called the WAP Project) and the Slimes
Dam Project to establish mining operations from the No. 2 Shaft and expansion to further improve plant efficiency,
respectively.
On July 6, 2005, we signed a Memorandum of Understanding with Khumo Bathong Holding (Pty) Limited, or KBH,
regarding the acquisition by Khumo Gold SPV (Pty) Limited, or Khumo Gold, of a 15% stake in our South African
Operations.
On October 27, 2005, our Board of Directors approved the transaction with Khumo Gold. The new structure resulted in
Khumo Gold acquiring a 15% interest in a newly created vehicle, Ergo Mining Operations, which owns ERPM, Crown
and Blyvoor. We owned an 85% interest in Ergo Mining Operations.
2006
On December 11, 2006, Khumo Gold, on behalf of itself and an employee trust, exercised the option granted by us
pursuant to the option agreement concluded between us and Khumo Gold in October 2005 to acquire a further 11% in
Ergo Mining Operations.
2007
After completion of a drilling program to define the uranium resource in Blyvoor’s slimes dam material, a 17.5 million
pound uranium and 0.8 million ton sulphur resource was declared in November 2007.
2008
In January 2008, electricity supply to the mine was interrupted by Eskom which is government owned and production
suspended for a week due to safety concerns.
2009
In January 2009, a direct lightning strike to No. 5 shaft Eskom sub-station interrupted production at No. 5 shaft and other
areas drawing power from this supply. Employees underground at the time remained in the underground refuge bays until
hoisted to safety once the shaft feeder power had been restored. No injuries were recorded.
In May and June 2009, three seismic events in excess of 3.5 magnitude took place at No. 5 shaft. As these events affected
the highest grade carbon leader mining area, production from these areas was expected to resume in the third quarter of the
2010 fiscal year and was back in full production since May 2010.
On November 9, 2009, we announced that, in a bid to save our Blyvoor mine from liquidation, we intended applying to the
High Court of South Africa for a provisional judicial management order over the operation. A provisional judicial
management order was granted by the High Court of South Africa on November 10, 2009.
In December 2009, Aurora Empowerment Systems (Pty) Limited proposed a transaction to purchase 60% of Blyvoor
for R295 million.
2010
In April 2010, the High Court of South Africa agreed to lift, with immediate effect, the provisional judicial management
order in place since November 10, 2009. By mutual agreement between DRDGOLD and Aurora, Aurora’s offer to
purchase 60% of Blyvoor was withdrawn.
2011
In June 2011, DRDGOLD's Board of Directors decided to suspend financial assistance to Blyvoor.
The Blyvoor Board of Directors, in response to the DRDGOLD Board’s decision, resolved to begin business rescue
proceedings for Blyvoor in terms of Chapter 6 of the South African Companies Act.
Geology and Mineralization
Blyvoor exploits the two gold-bearing pebble horizons in the Central Rand Goldfields, the Carbon Leader, which is one
of the principal ore bodies in the goldfield, and the Middelvlei Reef horizons which occur in discrete channels over parts of the
lease area approximately 246 feet (75 meters) vertically above the Carbon Leader Reef horizon. The Carbon Leader Reef is the
principal economic horizon across the lease area and is a planar single sheet conglomerate. The Carbon Leader Reef typically
comprises basal carbon seam, overlain by a thin, small pebble conglomerate, enriched in carbon in the lower portion. The grade of
the Carbon Leader Reef is higher than the Middelvlei Reef. The Middelvlei Reef consists of a variable number of polymictic
quartz conglomerate bands, inter-bedded with coarse grain quartzite. The grade of the Middelvlei Reef is more erratic, with
distinctive pay shoots forming as southward-orientated linear zones.
Blyvoor was established in 1937 to exploit the rich Carbon Leader Reef but by the late 1980s had reached a position where
continued existence of mining operations was dependent upon the mining of scattered Carbon Leader Reef remnants and limited
sections of the lower grade Middelvlei Reef.
39
Mining and Processing
Access from the surface to the current underground workings of the mines is through a system of vertical and incline shafts
situated at the Blyvoor and Doornfontein mines. Doornfontein was previously a separate mine adjacent to the Blyvoor mine but has
since been merged to form Blyvoor. The shaft system consists of four vertical shafts from the surface, thirteen sub-incline shafts and
two sub-vertical shafts underground. Of the thirteen sub-incline shafts, only nine are in operation and are used for the conveyance of
personnel, pumping and hoisting of mined ore and waste.
Two levels have been holed between the previous Doornfontein mine and workings within the Blyvoor lease extension
(purchased in 1996 from Western Deep Levels Limited) to allow ore from the bottom of the Blyvoor workings to be trammed across
and hoisted up via the Blyvoor No. 5 Shaft, from where it is trucked to the gold plant. The average mining depth at Blyvoor is 10,541
feet (3,213 meters), 5,292 feet (1,613 meters) below mean sea level.
Mining of the reef takes place in stope panels. Holes are drilled into the solid rock and are charged with explosives and
blasted. The loosened rock is removed from the stope panels and is conveyed to the shaft, tipped into the ore-pass systems, hoisted to
the surface and transported to the metallurgical plant for gold extraction.
Metallurgical processing facilities at Blyvoor are comprised of a single metallurgical plant. The process route is based on a
conventional flow sheet comprising multi-stage crushing, open circuit primary and closed circuit secondary milling with hydro
cyclones, thickening and cyanide leaching in a Carbon-in-Pulp, or CIP, carousel arrangement. The gold is recovered through electro-
winning followed by smelting to doré. The circuit was recently modified by the closure of the filtration system and the
commissioning of a modern carbon Kemix pumpcell plant. As at June 30, 2011, the overall plant utilization was 90%.
Electricity for South Africa is provided by Eskom, which is government owned. Eskom is the largest producer of electricity
in Africa. In South Africa, Eskom operates a national power supply grid consisting of 24 power stations across the country.
Electricity to Blyvoor is provided from the West Wits substation outside Carletonville at 44,000 volts. Further substations, located on
mine site, transform the power to 6,600 volts or 22,000 volts for direct supply to the shaft winder and air compressors. The power
supply is further reduced to 525 volts for smaller devices and equipment used on the mine. The average annual power consumption is
about 432 GWHr and the maximum demand is about 66 MW.
In fiscal 2008, electricity supply to the mine was interrupted by Eskom, as a result of which production suspended for a
week due to safety concerns. The situation did improve during March 2008, the operation is however still on a six hour standby
notice, in the event that power supply becomes unstable in the area. Eskom has requested all of its “Key Customers” to reduce power
consumption by 10%, Blyvoor has managed to adhere to this request and has continued during fiscal 2009, 2010 and 2011 to save the
maximum amount of energy possible.
In fiscal 2009, seventeen production days were lost because of Section 54 closures imposed by the Department of
Mineral Resources following fatalities suffered after seismic events occurring and a further six production shifts were lost at No. 5
Shaft following a lightning strike at the shaft’s electrical substation. In May and June 2009, three seismic events in excess of 3.5
magnitude took place at No. 5 shaft. As these events affected the highest grade carbon leader mining area, production from these
areas was expected to resume in the third quarter of the 2010 fiscal year and was back to full production since May 2010.
During fiscal 2010, mining ramp-up continued towards the 2,500m
2
per month targeted at the WAP Project, and by fiscal
year-end had reached some 1,750 m
2
per month. On August 26, 2009, DRDGOLD announced that it had advised unions of its
intention to right-size the Blyvoor operation. Blyvoor proceeded with a 60-day facilitated consultation process in terms of Section
189A of the South African Labor Relations Act to determine the future of affected employees. The consultation process was
completed on October 26, 2009 and 330 employees were retrenched. Furthermore, on November 9, 2009, in a bid to save our
Blyvoor mine from liquidation, we applied to the High Court of South Africa for a provisional judicial management order over the
operation. A provisional judicial management order was granted by the High Court of South Africa on November 10, 2009. In April
2010, after Blyvoor had returned to profitability, the High Court of South Africa agreed to lift the provisional judicial
management order in place since November 10, 2009. See Item 4A.: “History and Development of the Company - Blyvoor”.
In fiscal 2011, efforts were directed mainly towards the opening and development of mining areas to ensure more
flexibility. On June 23, 2011, DRDGOLD announced that it had suspended financial assistance to Blyvoor. The decision followed
the promulgation of the new South African Companies Act which requires directors of parent companies to seek the consent of the
parent company’s shareholders and then to consider the effects on the solvency and liquidity of the parent company as conditions
precedent to the provision of financial assistance to subsidiaries. Blyvoor’s production had been trending down in the last quarter
of fiscal 2011 as a result of a drop in grade, attributable to a substitute explosive used for the fourth quarter of fiscal 2011, due to
major overhaul repairs at our regular explosive supplier’s manufacturing plant, public holiday interruptions and seismicity-related
work stoppages, while costs had increased due mainly to higher electricity charges, and particularly power utility Eskom’s winter
tariff, which added R11 million a month to overhead costs. The Board of Directors of Blyvoor had, in response to DRDGOLD’s
decision, resolved to begin business rescue proceedings for Blyvoor in terms of Chapter 6 of the Companies Act. The business
rescue process provided for in Chapter 6 replaces the judicial management process in the previous Act.
40
In fiscal 2010, Blyvoor accounted for 106,452 ounces, or 44% of our total production and in fiscal 2011 it accounted for
121,114 ounces, or 46% of our total production. Under the terms of business rescue proceedings, the applicant must select a business
rescue practitioner, or practitioner, from a list of approved business rescue practitioners. The practitioner has a wide range of powers
at his disposal to take such actions he deems necessary to rescue the business. The practitioner needs to implement a business rescue
plan which requires the approval of affected parties within a specified period, or if he is of the opinion that the business cannot be
rescued, he can apply to the court for liquidation of the company. The practitioner's powers could include giving certain creditors
temporary preference over others and agreeing compromises with creditors without the risk of committing an act of insolvency and
thereby exposing the mine to liquidation. The practitioner has been granted relief until November 1, 2011, to publish the business resuce
plan and until December 2, 2011 for the business rescue process in terms of section 1323(3) of the Companies Act, 2008; further extensions
may, however be granted.
The following capital expenditure was incurred at Blyvoor in fiscal 2011, 2010 and 2009:
Year ended June 30,
2011 2010 2009
R’000 R’000 R’000
Raise boreholes ......................................................................................................
- 3,356 6,067
WAP Project .........................................................................................................
- 1,916
10,084
Slimes pump stations and residue deposition ..........................................................
3,080 3,193 8,252
15/29 incline shaft equipping .................................................................................
119 -
1,013
Ice plant retrofit and upgrade .................................................................................
1,649 5,212
-
Washing plant upgrade ...........................................................................................
-
-
1,462
Symons crusher ......................................................................................................
- 3,482
-
Mobile cooling units ..............................................................................................
- 340
1,700
Safety related equipment and expansion of seismic monitoring network ................
28 162
8,451
Compressed air columns .......................................................................................
- -
189
Opening up and development .................................................................................
57,248 48,935 41,406
Mining and engineering equipment.........................................................................
25,277 10,317 16,509
Other .....................................................................................................................
8,282 2,639 2,404
95,683 79,552 97,537
Exploration and Development
In November 2007 encouraging results had been obtained from a drilling program to define the uranium resource in
Blyvoor’s slimes dam material and a uranium and sulphur resource was declared. In fiscal 2009, Blyvoor began an exploration
drilling program linked to opening up and development to evaluate the south-west down-dip extension of the Blyvoor ore body south
of the Boulder Dyke. Exploration into the south-west block was delayed due to a fire which temporarily cut off services into this
area. In fiscal 2011, we continued with exploration and cover drilling with reconnaissance visits made to the Carbon Leader areas
at No 5 Shaft. Normal stope face sampling and geological mapping is ongoing.
Environmental and Closure Aspects
The predominantly dolomitic geology of the area in and around Blyvoor, and the resultant occasional occurrence of
sinkholes and subsidences, exposes Blyvoor to relatively unique environmental risks and costs associated with the remediation and
filling of these sinkholes.
Blyvoor has to maintain a rate of pumping of fissure water sufficient to keep the rate of rise of underground water below the
level of underground workings. The required rate is in the order of 2 million gallons (8 million liters) per day. Water not used in the
operations is discharged into the Wonderfontein Spruit (a stream adjacent to the Blyvoor mine). In order to address the risk of
contamination of ground water, streams and wetlands, water is sampled and the level of contaminants monitored in accordance with
Blyvoor’s water management plan. Fissure water at Blyvoor is generally of a good quality, therefore we believe that the contribution
of this water to pollution of water in the area is minimal.
Blyvoor is a member of the Mining Interest Group consisting of all mines operating in the Wonderfontein Spruit
catchment area. This group was formed to coordinate efforts and studies in the Wonderfontein Spruit and to liaise with
government departments to determine what action if any is required in cleaning the stream. The government has also established a
specialist task team to determine what needs to be done. At this stage there is no clear solution. The Mining Interest Group is also
represented on the various catchment forums where Non-Governmental Organizations, or NGO’s and other interested and affected
parties are present. Blyvoor continues to meet with the Potchefstroom municipality on a monthly basis where the quality of
Blyvoor’s discharge water is assessed. Blyvoor remains in compliance with the Potchefstroom agreement.
41
Sinkholes are caused by ground water seeping into the underground dolomitic structures, which dissolve and weaken
causing a collapse in the rock structure. Dolomitic rock could be dissolved, resulting in an increased risk of sinkholes and possible
pollution of fresh water resources stored in the dolomitic formations. The occurrence of sinkholes is limited to a particular area of
Blyvoor, which requires an active program in water management and control. Water from leaking pipes is reported to a monitoring
committee and the necessary repairs are undertaken promptly. Ground subsidence surveys are undertaken to timely identify any
possible sinkholes. Sinkholes that do occur are filled to prevent further inflow of surface water and potential enlargement of the hole.
Sinkholes which form outside of our property are repaired by the Far West Rand Dolomitic Water Association.
Pollution from slime dams is controlled by dust suppression and water management programs. Short-term dust control is
accomplished through ridge ploughing the top surface of dormant tailings dams. Environmentally friendly dust suppressants, such as
molasses, are also applied when deemed necessary. In the long-term, dust suppression and water pollution is managed through a
program of progressive vegetation of the tailings complexes followed by the application of lime, to neutralize the natural acidic
conditions, and fertilizer as the organic growth medium.
Blyvoor has updated its EMP to meet the new requirements of the MPRD Act. The EMP has been submitted to the DMR
for approval. Blyvoor is currently demolishing and rehabilitating redundant surface infrastructures. Blyvoor completed their uranium
plant in fiscal 2011.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, we have estimated that the total
cost for Blyvoor, in current monetary terms as at June 30, 2011, is R45.1 million. This has been included in the provision for
environmental rehabilitation, restoration and closure costs in our statement of financial position. A total of R33.5 million has been
contributed to a Rehabilitation Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated
and who are appointed as trustees by the Master of the High Court of South Africa.
Ore Reserves and Life of Mine
As at June 30, 2011 the attributable Proven and Probable Ore Reserves of Blyvoor were 4.3 million ounces. At
June 30, 2010, the attributable Proven and Probable Ore Reserves of Blyvoor were 4.0 million ounces. A Mineral Resource
competent person is appointed at each operation to review our Ore Reserve calculations for accuracy. For Blyvoor, Mr. Ryno Botha
(SACNASP) is the appointed Mineral Resource competent person.
As a result of the implementation of the WAP Project and the higher gold price, Blyvoor’s life-of-mine business plan
remains at 20 years, as at June 30, 2011.
Current Production
Blyvoor produced a total of 121,114 ounces of gold in fiscal 2011, with 91,469 ounces from underground areas and
29,645 ounces from surface areas. This represented 46% of our total production from operations for fiscal 2011 of 265,179 ounces.
Underground gold production has increased from 77,226 ounces in fiscal 2010 to 91,469 ounces in fiscal 2011. Increased
underground production reflects the impact of increased flexibility, through additional face length available, together with an
increase in the grade recovered, however there was a 20% drop quarter on quarter in the grade recovered during the last quarter of
fiscal 2011 as a result of the temporary use of an alternative explosive. Surface gold production increased from 29,226 ounces in
fiscal 2010 to 29,645 ounces in fiscal 2011, reflecting the impact of additional gold recovered from surface clean-up operations,
together with an increase in volumes from the current surface slimes reserves.
Cash costs of $1,290 per ounce in fiscal 2011 increased from $1,085 per ounce in fiscal 2010. The increase in cash costs per
ounce of gold produced was primarily attributable to the 28.2% effective increase in electricity prices and the stronger R/$ exchange
rate.
42
The following table details the operating and production results from Blyvoor for the past three fiscal years.
Year ended June 30,
2011 2010 2009
Production
Surface Operations
Ore
mined ('000
tons)
..........................................................................
3,448 3,272 3,785
Recovered
grade
(oz/ton)
.....................................................................
0.009
0.009
0.011
Gold produced (ounces)........................................................................
29,645
29,226
40,575
Underground Operations
Ore
mined ('000
tons)
..........................................................................
807
698
664
Recovered
grade
(oz/ton)
.....................................................................
0.113 0.111 0.134
Gold produced (ounces)........................................................................
91,469 77,226 88,898
Total ounces produced ..........................................................................
121,114 106,452 129,473
Results of Operations (R)
Revenue ('000).......................................................................................
1,185,860 861,409 1,018,527
Operating costs ('000) ............................................................................
1,115,820 845,122 839,781
Cash operating cost ('000)
1
.....................................................................
1,091,941 878,888 830,336
Cash cost per ounce of gold ($)
¹
.............................................................
1,290 1,085
709
Total cost per ounce of gold ($)¹ ............................................................
1,988 1,086
739
Crown
Overview
We own 74% of Ergo Mining Operations, which in turn owns 100% of Crown. Crown has a surface retreatment operation
consisting of the Crown Central, City Deep and Knights business units, collectively referred to as Crown. ERPM’s Cason Dump
surface re-treatment operation is expected to continue to operate until 2014 under the management of Crown based on the current
rate of retreatment of approximately 186,000 tpm. Crown undertakes the retreatment of surface sources deposited as tailing from
non-operating mining sites across central Johannesburg.
At June 30, 2011, Crown had 1,304 employees, including contractors.
Property
Crown is situated on the outskirts of Johannesburg, South Africa and consists of three separate locations. It has mining
rights to 5,787 acres (2,342 hectares) and has the right to occupy 1,490 acres (603 hectares) of freehold property. Crown is in the
process of converting these old order rights to new order rights under the MPRD Act. At Crown, the Lycaste dump prospecting right
has been approved, the Top Star dump, City Deep, Crown Mines, Consolidated Main Reef and Knights mining rights have been
approved. An application has been submitted to the DMR for the Crown mining rights to be consolidated.
The Crown Central operation is located on the West Wits line within the Central Goldfield of the Witwatersrand Basin,
approximately 6 miles (10 kilometers) west of the Johannesburg central business district in the province of Gauteng. Access is via
Xavier Road on the M1 Johannesburg-Kimberley-Bloemfontein highway. The City Deep operation is located on the West Wits line
within the Central Goldfields of the Witwatersrand Basin, approximately 3 miles (5 kilometers) south-east of the Johannesburg
central business district in the province of Gauteng. Access is via the Heidelberg Road on the M2 Johannesburg-Germiston
motorway. The Knights operation is located at Stanley and Knights Road Germiston off the R29 Main Reef Road.
As of June 30, 2011, the net book value of Crown’s mining assets was R311.9 million (excluding ERPM’s Cason mining
assets which amounts to R18.3 million) with 0.8 million attributable ounces of Ore Reserves.
1
Cash operating costs, cash cost per ounce and total cost per ounce of gold are financial measures of performance that we use to determine cash
generating capacities of the mines and to monitor performance of our mining operations.
43
History
1979
Rand Mines Limited directors approved the formation of the company Rand Mines Milling and Mining Limited (RM3)
to treat the surface gold tailings created from the underground section of the original Crown Mines, which had been in
operation since the start of gold mining on the Witwatersrand in the late 1800's.
1982
First plant commissioned at Crown Mines to process surface material.
1986
Second plant commissioned at City Deep to process surface material.
1997
Randgold Exploration Limited and Continental Goldfields of Australia entered into a joint venture with the intention to
establish a company that would acquire dump retreatment operations on the Witwatersrand. This resulted in the
formation of Crown Consolidated Gold Recoveries Limited, or CCGR, which was incorporated as a public company in
South Africa in May 1997. Crown was a wholly owned subsidiary of CCGR and consists of the surface retreatment
operations of Crown Central, City Deep and Knights.
1998
We purchased 100% of CCGR.
2002
KBH purchased 60% of Crown. We were appointed as joint manager of the operation with KBH.
2005
On July 6, 2005 we signed a Memorandum of Understanding with KBH regarding the acquisition by Khumo Gold of a
15% stake in our South African Operations.
On October 27, 2005, our board of directors approved the transaction with Khumo Gold. The new structure resulted in
Khumo Gold acquiring a 15% interest in a newly created vehicle, Ergo Mining Operations, which includes 100% of
ERPM, Crown and Blyvoor. We owned an 85% interest in Ergo Mining Operations.
2006
On December 11, 2006, Khumo Gold, on behalf of itself and an employee trust, exercised the option granted by us
pursuant to the option agreement concluded between us and Khumo Gold in October 2005 to acquire a further 11% in
Ergo Mining Operations.
On August 28, 2006, we concluded an agreement with AngloGold Ashanti to purchase the Top Star Dump.
2008
The Department of Mineral Resources issued in favour of Crown a mining right for gold recovery over the Top Star
Dump.
2009
The reclamation of the Top Star Dump commenced in December 2008. Crown also commenced with the reduction of
volumes to 400,000 tpm to implement the planned Crown Tailings Deposition Facility closure plan.
2010
The surface circuit of ERPM was incorporated into Crown for reporting purposes. Crown’s operating and financial
results for fiscal 2009 and fiscal 2008 were restated for comparative reporting purposes.
Board approval was obtained to construct a pipeline to the Ergo tailings deposition site to enable Crown to restore its
deposition capacity to 600 000tpm. Restored deposition capacity provides the operation with the opportunity to bring to
account potential new ore reserves.
2011
Construction of the pipeline to the Ergo tailings deposition site continued and 88% of the steel pipes and 60% of the
HDPE lining of the pipeline were completed. The pipeline is scheduled for completion in December 2011.
Mining and Processing
Crown undertakes the retreatment of surface sources deposited as tailings from non-operational mining sites across
central Johannesburg.
Material processed by Crown is sourced from numerous secondary surface sources namely, sand and slime. The surface
sources have generally undergone a complex depositional history resulting in grade variations associated with improvements in
plant recovery over the period of time the material was deposited. Archive material is a secondary source of gold bearing material.
This material is generally made up of old gold metallurgical plant sites as well as “river bed” material.
The three metallurgical plants, known as Crown Mines, City Deep and Knights, have an installed capacity to treat
approximately 11.0 million tons of material per year. Up to fiscal 2003, Crown also operated the West Wits gold plant for the
processing of sand and slime. Crown also operates the ERPM surface operations with ore being treated at the Knights plant. All of
the plants have undergone various modifications during recent years resulting in significant changes to the processing circuits.
Electricity to Crown is supplied to the Crown Central and City Deep business units from separate substations referred to
as Jupiter and No. 15 Shaft Crown Mines, and for Knights by the Ekhurhuleni Town Council. Electricity is supplied directly from
the national power grid to the substation and town council at 44,000 volts. Substations, located on mine sites, transform the power
to 6,600 volts for direct supply to the plants. The power supply is further reduced to 525 volts for smaller devices and equipment.
For Crown Central and City Deep, the average annual power consumption is about 72 GWHr and the maximum demand
is about 8.0 MW. For Knights the average annual power consumption is about 36 GWHr and the maximum demand is about 7.0
MW.
44
Crown operates three plants with slight variations in design in each plant, with a processing capacity of approximately 1 million tpm, yielding approximately 0.01 oz/t (0.4 g/t). The feed stock is made up of sand and slime which are reclaimed
separately. Sand is reclaimed using mechanical front-end loaders, re-pulped with water and pumped to the plant. Slime is
reclaimed using high pressure water monitoring guns. The re-pulped slime is pumped to the plant and the reclaimed material is
treated using screens, cyclones, ball mills and Carbon-in-Leach, or CIL, technology to extract the gold. As at June 30, 2010, the
overall plant utilization was 83% as a result of the planned reduction in tonnage throughput and as at June 30, 2011 68%.
City Deep Plant: Commissioned in 1987, this surface/underground plant comprises a circuit including screening, primary,
secondary and tertiary cycloning in closed circuit milling, thickening, oxygen preconditioning, CIL, elution and zinc precipitation
followed by calcining and smelting to doré. In 1998, the plant was converted to a slimes only operation. However, due to operational
difficulties caused by the particulate nature of the slimes, the milling circuit has subsequently been re-commissioned to facilitate the
treatment of sand.
Crown Mines Plant: Commissioned in 1982, this surface/underground plant has already been modified and comprises a
circuit including screening, primary cycloning, open circuit milling, thickening, oxygen preconditioning, CIP and CIL, elution, zinc
precipitation followed by calcining and smelting to doré.
Knights
Plant: Commissioned in 1988, this surface/underground plant comprises a circuit including screening, primary
cycloning, milling in closed circuit with hydrocyclones, thickening, oxygen preconditioning, CIL, elution, electro-winning and
smelting to doré.
During fiscal 2011, capital expenditure was mainly directed towards the Crown/Ergo pipeline project. This 50 kilometer
pipeline will link the Crown Mines and City Deep plants to Ergo's Brakpan tailings facility.
The following capital expenditure was incurred at Crown in fiscal 2011, 2010 and 2009:
Year ended June 30,
2011 2010 2009
R’000 R’000 R’000
Crown/Ergo Pipeline Project .............................................................
119,731
29,564
-
Top Star Dump .................................................................................
-
-
14,369
Residue pipelines ..............................................................................
-
-
5,460
CMR dump .......................................................................................
2,069
-
-
4A11 dump .......................................................................................
10,232
-
-
Vehicles and equipment ....................................................................
439
1,414
272
Tailings management ........................................................................
15,567
13,823
21,910
Other ................................................................................................
154
1,148
1,104
148,192 45,949 43,115
Exploration and Development
Exploration and development activity at Crown involves the drilling of existing surface dumps and evaluating the potential
gold bearing surface material owned by third parties that could be processed on a full treatment basis or purchased outright by Crown.
Additional exploration drilling previously planned for the current fiscal year to define the uranium and sulphur potential of
all Crown’s current deposition sites, has been put on hold. A feasibility study regarding the deposition of the Crown tailings on the
Brakpan tailings complex was completed in fiscal 2010 and R43 million was approved for the extension of the Brakpan tailings
complex to accommodate the Crown tailings. The estimated completion date is December 2011.
Environmental and Closure Aspects
Crown operates at sites located in close proximity to significant municipal infrastructure, commercial and residential
development. The major environmental risks are associated with dust from various recovery sites, and effective management of
relocated process material on certain tailings dams. The impact of windblown dust on the surrounding environment and community is
addressed through a scientific monitoring and evaluation process, with active input from the University of Witwatersrand and
appropriate community involvement. Environmental management programs, addressing a wide range of environmental issues, have
been prepared by specialist environmental consultants and applied specifically to each dust sample recovery monitoring site and
integrated into Crown’s internal environmental assessment process. Although Crown completed a project for thickening re-processed
tailings, there also remains a risk of localized sloughing which can result in that section of the tailings dam required to be closed
temporarily, with repair work being done to the dam wall. Water pollution is controlled by means of a comprehensive system of
return water dams which allow for used water to be recycled for use in Crown’s metallurgical plant. Overflows of return water dams
may, depending on their location, pollute surrounding streams and wetlands. Crown has an ongoing monitoring program to ensure
that its water balances (in its reticulation system, on its tailings and its return water dams) are maintained at levels that are sensitive to
that capacity of return water dams
45
Dust pollution is controlled through an active environmental management program for the residue disposal sites and
chemical and organic dust suppression on recovery sites. Short-term dust control is accomplished through ridge ploughing the top
surface of dormant tailings dams. Additionally, environmentally friendly dust suppressants, such as molasses, are applied. Dust fall-
out is also monitored. In the long-term, dust suppression and water pollution is managed through a program of progressive vegetation
of the tailings followed by the application of lime, to reduce the natural acidic conditions, and fertilizer to assist in the growth of
vegetation planted on the tailings dam.
A program of environmental restoration that provides for the rehabilitation of areas affected by mining operations during the
life of the mine is in place. The surface reclamation process at Crown has several environmental merits as it has removed a potential
pollution source and opens up land for development. Crown has conducted its environmental management program performance
assessment, which was submitted to and approved by the DMR during fiscal 2005. Crown has updated its EMP in compliance with
the MPRD Act and submitted it to the DMR for approval.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, we estimate that the total cost for
Crown, in current monetary terms as at June 30, 2011, is approximately R206.5 million. A total of R56.5 million has been contributed
to the Crown Rehabilitation Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and
who are appointed as trustees by the Master of the High Court of South Africa.
Ore Reserves and Life of Mine
As at June 30, 2011, our 74% share of the Proven and Probable Ore Reserves of Crown was 0.8 million ounces. In fiscal
2010, our 74% share of Proven and Probable Ore Reserves of Crown was 0.9 million ounces. A Mineral Resource competent person
is appointed at each operation to review our Ore Reserve calculations for accuracy. For Crown, Mr. Vivian Labuschage is the
appointed Mineral Resource competent person. The current life of mine business plan is estimated to be eleven years. The decrease
in the life of mine of Crown is due to the redistribution of the throughput of volumes between the Crown and City plants from 400
tonnes and 200 tonnes per month, respectively, in fiscal 2010 to 300 tonnes and 300 tonnes, respectively, in fiscal 2011.
Current Production
Gold production for Crown was 95,713 ounces in fiscal 2011 compared to gold production of 99,410 ounces in fiscal 2010.
The decrease in gold production in fiscal 2011 was mainly as a result of a 2% decline in the average grade from 0.43g/t to 0.42g/t.
In fiscal 2011, cash costs increased to $1,005 per ounce of gold from $814 per ounce of gold in fiscal 2010, reflecting lower
gold production, the effect of electricity price increases and the stronger R/$ exchange rate and to a lesser extend lower average grade
recovered.
The following table details our attributable share of the production results from Crown for the past three fiscal years:
Year ended June 30,
2011 2010 2009
Production
Surface operations
Ore mined ('000 tons) ..............................................................................
7,848
7,850
8,826
Recovered grade
(oz/ton)
.........................................................................
0.012
0.013
0.011
Gold produced (ounces)
...........................................................................
95,713
99,410
95,616
Results of Operations (R)
Revenues (‘000) .......................................................................................
910,867
834,788
733,990
Operating costs (‘000) ..............................................................................
662,306
624,766
520,285
Cash operating cost (‘000)
1
........................................................................
671,770 615,726 525,516
Cash cost per ounce of gold ($)¹ .................................................................
1,005
814
607
Total cost per ounce of gold ($)¹ ................................................................
1,082
895
860
1
Cash operating cost, cash cost per ounce and total cost per ounce of gold are financial measures of performance that we use to determine cash
generating capacities of the mines and to monitor performance of our mining operations.
46
Ergo (comprising of the Ergo JV and ErgoGold)
Overview
Ergo currently consists of one operating CIL circuit at the Brakpan plant, the Brakpan/Withok deposition complex
purchased from AngloGold Ashanti and the Elsburg tailings complex, comprising approximately 180 Mt of tailings. Since 1987,
AngloGold Ashanti treated surface material at the Ergo JV until the operation was closed in 2005.
Ergo Mining Operations, through its subsidiaries, initially owned 50% of the Ergo JV and ErgoGold. On
September 29, 2008, Ergo Mining Operations acquired a further 15% interest in ErgoGold from Mintails SA, thereby increasing its
holding to 65% through its subsidiary, ERPM. On December 8, 2008, DRDGOLD acquired the remaining 35% of ErgoGold for a
purchase consideration of R177.0 million. The transaction was completed on March 31, 2009.
On January 21, 2010, Ergo Mining Operations acquired the remaining 50% of the Ergo JV from Mintails for a purchase
consideration of R82.1 million. The transaction was completed on April 15, 2010 and recorded in the financial statements
effective May 1, 2010. Ergo currently operates for its own account, under the AngloGold Ashanti old order mining rights, until new
order mining rights have been obtained. These assets comprise servitudes, or access agreements, infrastructure, piping, equipment
and old order mining rights.
At June 30, 2011, Ergo had 656 employees, including contractors.
Property
Ergo's operations are located approximately 43 miles (70 kilometers) east of the Johannesburg’s central business district in
the province of Gauteng. Access to the Brakpan plant is via the Ergo Road on the N17 Johannesburg-Springs motorway.
The acquisition of the Brakpan/Withok deposition site provides Ergo with extensive additional deposition capacity
commensurate with the substantial increases in tailings material and processing capacity.
The refurbishment of the first CIL circuit at the Brakpan plant now has the capacity to treat an estimated 15Mt of tailings a
year. Phase 2 envisages, firstly, the expansion of the gold plant by refurbishing the second CIL circuit and, secondly, developing
uranium and acid plants. The pre-feasibility study for developing uranium and acid plants has been placed temporarily on hold
because of the current economic environment and the current low prices of these commodities.
As of June 30, 2011, the net book value of Ergo’s mining assets was R1,125.2 million.
History
2007
Ergo was founded as a Ergo Mining Operations and Mintails SA joint venture.
On August 6, 2007, the joint venture parties entered into a sale of assets agreement with AngloGold Ashanti pursuant to
which it acquired the remaining moveable and immovable assets of the Ergo plant for a consideration of R42.8 million.
Additional agreements were concluded with AngloGold Ashanti on November 14, 2007 for the acquisition by Ergo of
additional tailings properties and the Withok deposition complex for a payment of R45.0 million.
2008
Ergo Phase 1 was launched comprising the refurbishment and recomissioning of the Ergo plant’s first CIL circuit and
the retreatment of the Elsburg and Benoni tailings complexes.
DRDGOLD acquires Mintails SA’s stake in ErgoGold for R277.0 million.
2009
Ergo Phase 1 commissioning continues; first feeder line to the Ergo Plant from Elsburg tailings complex comes into
operation.
Ergo Phase 2 exploration drilling for gold, uranium and acid completed.
2010
DRDGOLD acquires control of the Ergo JV through the acquisition of Mintails SA’s 50% in the Ergo JV for
R82.1 million.
Ergo Phase 1 production ramp-up nears completion with the installation of the second Elsburg tailings complex feeder
line to the Ergo plant. Construction of the Crown/Ergo pipeline commences.
2011
Construction of the Crown/Ergo pipeline continues and 70% of the second CIL circuit of the Ergo plant has been
refurbished as part of the Crown/Ergo pipeline project.
47
Mining and Processing
Ergo undertakes the re-treatment of surface sources deposited as tailings from non-operational mining sites east of
Johannesburg.
Material processed by Ergo is sourced from secondary surface sources, namely slime. The surface sources have generally
undergone a complex depositional history resulting in grade variations associated with improvements in plant recovery over the
period of time the material was deposited. Archive material is a secondary source of gold bearing material; however, no archive
material was treated up until September 30, 2011. The metallurgical plant has a current installed capacity to treat approximately
15.0 million tonne of material per year.
The feed stock is made up of slime and is reclaimed using high pressure water monitoring guns. The re-pulped slime is
pumped to the plant and the reclaimed material is treated using screens, cyclones and CIL technology to extract the gold. As at
June 30, 2011, the overall plant utilization was 92%.
Electricity to Ergo is supplied from various Eskom supply points for the reclamation units and the tailings storage
facilities. The plant is supplied from the national power grid via a secured source from the Ekurhuleni Council of 11,000 volts.
Plant sub stations are stepped down to 6,600 volts before being further reduced to 525 volts for the motor control purposes.
The following capital expenditure was incurred at Ergo in fiscal 2011, 2010 and 2009:
Year ended June 30,
2011 2010 2009
R’000 R’000 R’000
Purchase of Anglogold Ashanti assets .............................................................
- 33
2,577
Refurbishment of the Ergo plant .....................................................................
29,379 8,167
10,427
Reclamation stations, pipeline and pumps .......................................................
- 38,432
126,129
Reinstatement of the Brakpan tailings facility ................................................
- 197
5,584
Extension of the Brakpan tailings facility........................................................
27,705 19,709 13,884
Vehicles and equipment .................................................................................
50 221
1,355
IT Infrastructure .............................................................................................
- 41
388
Uranium and acid pre-feasibility study ...........................................................
- -
1,636
Ekurhuleni Business Development Academy (EBDA) training facility ............
- 397 835
Other .............................................................................................................
7 1,387
11,339
57,141 68,584
174,154
Exploration and Development
Exploration and development activity at Ergo involves the drilling of existing surface dumps and evaluating the potential
gold bearing surface material owned by third parties that could be processed on a full treatment basis or purchased outright by Ergo.
Exploration drilling has been done to define the uranium potential of the Elsburg complex. Independent competent person reports
on uranium, sulphur and gold for the Elsburg resources and reserves have been compiled.
Environmental and Closure Aspects
Ergo is located in close proximity to significant municipal infrastructure, commercial and residential development.
Environmental management programs, addressing a wide range of environmental issues, have been prepared by specialist
environmental consultants and integrated into the internal environmental assessment process.
Dust pollution is controlled through an active environmental management program for the residue disposal sites and
chemical and organic dust suppression on recovery sites. Short-term dust control is accomplished through ridge ploughing the top
surface of dormant tailings dams. Additionally, environmentally friendly dust suppressants, such as molasses, are applied. Dust fall-
out is also monitored. In the long-term, dust suppression and water pollution is managed through a program of progressive vegetation
of the tailings followed by the application of lime, to reduce the natural acidic conditions, and fertilizer to assist in the growth of
vegetation planted on the tailings dam.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, we estimate that the total cost for
Ergo, in current monetary terms as at June 30, 2011, is approximately R161.7 million.
48
Ore Reserves and Life of Mine
Ergo processes the Proven and Probable ore reserves at the Elsburg and Benoni tailings complexes. As at June 30, 2011, our
74% share of the Proven and Probable Ore Reserves of Ergo was 1.2 million ounces. In fiscal 2010, our 74% share of Proven and
Probable Ore Reserves of Ergo was 1.2 million ounces. A Mineral Resource competent person is appointed at each operation to
review our Ore Reserve calculations for accuracy. For Ergo, Mr. Vivian Labuschage is the appointed Mineral Resource competent
person. The current life-of-mine business plan is estimated to be eleven years.
Current Production
In fiscal 2011, production increased to 48,352 ounces from 35,332 ounces in fiscal 2010 as a result of the continued build up
of slimes recovery reflected by an 11% rise in throughput from 11,867,000 tonnes to 13,206,000 tonnes and a 22% rise in average
grade from 0.09g/t to 0.11g/t.
Cash costs in fiscal 2011 decreased to $915 per ounce from $945 per ounce in fiscal 2010, due mainly to the marked
increase in production.
The following table details our attributable share of the production results from Ergo for the past fiscal year:
2011 2010 2009
Production
Surface operations
Ore mined ('000 tons) ............................................................................
14,557 13,081 2,296
Recovered grade
(oz/ton)
......................................................................
0.003 0.003 0.002
Gold produced (ounces) .........................................................................
48,352 35,332 3,666
Results of Operations (R)
Revenue (‘000) .......................................................................................
468,592 294,325 24,178
Operating costs (‘000) ............................................................................
310,173 248,977 55,210
Cash operating cost (‘000)
1
.....................................................................
308,976 254,192 66,442
Cash cost per ounce of gold ($)¹ ...............................................................
915 945
2,003
Total cost per ounce of gold ($)¹ ..............................................................
1,255 1,330 2,873
ERPM
Overview
We own 74% of ERPM, which is consolidated as a subsidiary, through our 74% holding in Ergo Mining Operations. ERPM
consists of an underground section and the Cason Dump surface retreatment operation. Underground mining at ERPM was halted in
October 2008 and is included in ‘Corporate head-office and all other expenses’ in the financial statements for segmental reporting
purposes. The Cason Dump surface retreatment operation will continue to operate until 2015 under the management of Crown based
on the current rate of production of approximately 186,000tpm and has been included under Crown in the financial statements for
segmental reporting purposes.
At June 30, 2011, ERPM had 110 employees, including contractors.
Property
ERPM is situated on the Central Rand Goldfield located within and near the northern margin of the Witwatersrand Basin
in the town of Boksburg, 20 miles (32 kilometers) east of Johannesburg. Access is via Jet Park Road on the N12 Boksburg-
Benoni highway. Historically underground mining and recovery operations comprised relatively shallow remnant pillar mining in
the central area and conventional longwall mining in the south-eastern area. Surface reclamation operations including the
treatment of sand from the Cason Dump, is conducted through the Knights metallurgical plant, tailings deposition facilities and
associated facilities. Until underground mining was halted in October 2008, the mine exploited the conglomeratic South Reef,
Main Reef Leader and Main Reef in the central area and the Composite Reef in the south-eastern area. ERPM operates under
mining license ML5/1997 in respect of statutory mining and mineral rights.
At June 30, 2011, the net book value of ERPM’s mining assets was R18.3 million.
1
Cash operating cost, cash cost per ounce and total cost per ounce of gold are financial measures of performance that we use to determine cash
generating capacities of the mines and to monitor performance of our mining operations.
49
History
1895
Formation of East Rand Proprietary Mines Limited.
1991
The FEV shaft was commissioned.
1999
East Rand Proprietary Mines Limited was liquidated in August 1999. The mine was run by a small number of
employees during liquidation. Underground flooding continued during liquidation.
2000
KBH took over control of the mine in January 2000. Operating as Enderbrooke Investments (Pty) Limited, or
Enderbrooke, and employing an outside contractor, the mine re-commenced mining operations in February 2000.
2002
Crown purchased 100% of ERPM, from Enderbrooke.
2003
An underground fire occurred at FEV Shaft, in February 2003. There was also the loss of Hercules Shaft in June 2003
and the loss of a secondary outlet at the FEV shaft in November 2003.
2004
In July 2004 it was determined that the underground section would undergo a controlled closure program ending March
2005. The closure program was prevented by a reduction in costs and improved productivity at the mine.
2005
Central Shaft placed on care and maintenance. On July 6, 2005, we signed a Memorandum of Understanding with KBH
regarding the acquisition by Khumo Gold of a 15% stake in our South African operations. On October 27, 2005, our
board of directors approved the transaction with Khumo Gold. The new structure resulted in Khumo Gold acquiring a
15% interest in a newly created vehicle, Ergo Mining Operations, which includes 100% of ERPM, Crown and Blyvoor.
We owned an 85% interest in Ergo Mining Operations.
2006
On December 11, 2006, Khumo Gold, on behalf of itself and an employee trust, exercised the option granted by us
pursuant to the option agreement concluded between us and Khumo Gold in October 2005 to acquire a further 11% in
Ergo Mining Operations.
A prospecting right covering an area of 1,252 hectares (3,093 acres) of the neighboring Sallies lease area, referred to as
ERPM Extension 1 was granted by the DMR.
2007
A prospecting right, incorporating the southern section of the old Van Dyk mining lease area and a small portion of
Sallies, was granted by the DMR. Known as ERPM Extension 2, the additional area is 5,500ha (13,590 acres).
2008
On April 25, 2008, ERPM gave notice of intention to restructure the work force due to operational requirements and 239
employees were retrenched during June 2008.
On October 23, 2008, ERPM announced the suspension of drilling and blasting operations underground, following the
cessation of pumping of underground water at the South West Vertical shaft on October 6, 2008 for safety reasons
following the deaths of two employees.
On November 19, 2008, we announced our intention to place on care and maintenance the underground operations of
ERPM, and to proceed with a consultation process in terms of Section 189A of the Labor Relations Act to determine the
future of the mine’s 1,700 employees.
2009
In January 2009, consultations in terms of Section 189A of the Labor Relations Act regarding the future of employees
affected by the placing on care and maintenance of the underground operations were concluded and 1,335 employees
were retrenched. In August 2009 the care and maintenance of the underground operations was discontinued.
2010
ERPM’s surface operation, the Cason Dump, was incorporated into Crown for reporting purposes.
Mining and Processing
Underground mining operations at ERPM comprised of two vertical shafts known as FEV Shaft and the Central Shaft.
There were also three additional shafts namely the South East Vertical Shaft, or SEV Shaft, used for the transport of employees and
materials and the hoisting of rock, the South West Vertical, or SWV, Shaft and the Hercules Shaft that were used for water pumping
only. The Cason Dump was used for the retreatment of surface material mined from the defunct Cason shaft.
On October 23, 2008, drilling and blasting operations were suspended after the cessation of pumping of underground water
at SWV Shaft on October 6, 2008 for safety reasons following the deaths of two employees at the shaft on September 19, 2008.
Although the FEV Shaft where production was taking place was sealed off from water ingress from the SWV Shaft, the pumps at
FEV Shaft were no longer able to cope with rising water, which included the water resulting from the ice sent underground every day
to cool down the underground working places. Without being able to continue to supply ice underground for this purpose, the
underground temperature would become unacceptably high and it would not have been safe for employees to continue work
underground at the FEV shaft.
On November 19, 2008, we announced our intention to place on care and maintenance the underground operations of
ERPM, and to proceed with a consultation process in terms of Section 189A of the Labor Relations Act to determine the future of
the mine’s 1,700 employees. In January 2009, the consultations were concluded and 1,335 employees were retrenched. On August
20, 2009, care and maintenance of the underground operations was stopped.
50
Electricity to ERPM is provided to the Cason Dump, SEV and FEV Shafts from the Bremmer substation, located in close
proximity to the mine in Boksburg. Transmission is at the rate of 88,000 volts. The Simmer Pan substation, located approximately
10 miles (16 kilometers) away from the mine site in Germiston, supplies the SWV and Hercules Shafts. Transmission is at the rate
of 44,000 volts. The two substations, located on mine site, transform the power to 6,600 volts for direct supply to the shaft winder
and air compressors. The power supply is further reduced to 525 volts for smaller devices and equipment used on the mine. The
average annual power consumption has reduced to about 105 GWHr and the maximum demand to about 24 MW. The on-mine
substations are older in nature and undergo annual infrared testing to identify hot connections which are potential fire hazards and
are subject to regular maintenance which includes the inspection of the settings, blades and changing the transformer oil in the
circuit breakers.
Exploration and Development
The necessity to extend the FEV decline from 75 to 78 levels to replace face length was stopped due to the cessation of
drilling and blasting operations in October 2008. The pre-feasibility study, conducted by an external mining consulting company, to
investigate the possibility of exploiting these reserves by means of a trackless decline system, and significantly increasing the life of
the underground operations, was also stopped.
ERPM has a prospecting right covering an area of 1,252ha (3,094 acres) of the adjacent Sallies mine, referred to as ERPM
Extension 1. The regional geology of the area indicates that there will be a strike change due to faulting associated with an East-West
trending sinistral tear fault. In order to confirm the anticipated change in the geological structure and hence payshoot orientation, it is
envisaged that prospecting will take place through development situated 50m in the footwall. Owing to high induced stress
experienced at depth, there will be concurrent over-stoping (that is stoping taking place concurrently with development) on the reef
plane for safety reasons.
An additional application to extend ERPM’s existing prospecting right eastwards into the Rooikraal/Withok area,
incorporating the southern section of the old Van Dyk mining lease area and a small portion of Sallies, was granted by the DMR in
fiscal 2007. Known as ERPM Extension 2, the additional area is 5,500ha (13,590 acres).
Environmental and Closure Aspects
There is a regular ingress of water into the underground workings of ERPM, which was contained by continuous pumping
from the underground section. On May 31, 2004, ERPM stopped continuous pumping of water from the underground section for
financial reasons due to the withdrawal of the State pumping subsidy and the low rand gold price making the cost of full time
pumping unaffordable, with occasional pumping to surface conducted on weekends. In December 2004, the mine received the
pumping subsidy funds and continuous pumping was reinstated. Studies on the estimates of the probable rate of rise of water have
been inconsistent, with certain theories suggesting that the underground water might reach a natural subterranean equilibrium, whilst
other theories maintain that the water could decant or surface. A program is in place to routinely monitor the rise in water level in the
various underground compartments and there has been a substantial increase in the subsurface water levels. ERPM’s SWV Shaft has
been used for some time to manage the rising water level on the Central Witwatersrand Basin. Some 60 megalitres of water were
pumped daily from a depth of approximately 1,000 meters.
In fiscal 2007, ERPM updated its EMP to meet MPRD Act requirements and submitted it to the DMR for approval. The
concurrent rehabilitation of redundant structures and holdings continued throughout fiscal 2007. The pumping infrastructure was
upgraded at the South West Vertical Shaft in anticipation of the additional water from the Hercules basin. Pumping continued during
fiscal 2007 and 2008 at the South West Vertical Shaft.
On October 6, 2008, pumping of underground water at the South West Vertical Shaft was stopped for safety reasons
following the death of two employees at the shaft on September 19, 2008. Management concluded that the project to upgrade the total
pumping capacity at South West Vertical Shaft with a more efficient system as part of an Eskom-funded demand-side management
project was not economically viable.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, we have estimated that the total
cost for ERPM, in current monetary terms as at June 30, 2011, is R57.8 million. A total of R21.2 million has been contributed to the
ERPM Rehabilitation Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and who
are appointed as trustees by the Master of the High Court of South Africa.
Ore Reserves and Life of Mine
As at June 30, 2011, our 74% share of Proven and Probable Ore Reserves of ERPM are included under Crown and Ergo.
The total surface Ore Reserves comprise of 0.1 million ounces from the Cason Dump and 1.2 million ounces from the Elsburg and
Benoni tailings complexes, which will be processed over the next three and eleven years, respectively. A Mineral Resource
competent person is appointed at each operation to review our Ore Reserve calculations for accuracy. For ERPM, Mr. Ryno Botha
(SACNASP) is the appointed Mineral Resource competent person.
51
Current Production
ERPM underground section produced no gold during fiscal 2011 and 2010. Production from the surface retreatment section
Cason Dump is now reported under Crown.
The following table details our attributable share of the production results from ERPM for the past three fiscal years:
Year ended June 30,
2011 2010 2009
Production
Underground Operations
Ore mined ('000 tons) .................................................................................................
-
-
202
Recovered grade
(oz/ton)
..........................................................................................
- -
0.094
Gold produced (ounces) ..............................................................................................
- -
18,935
Results of Underground Operations (R)
Revenues ('000)............................................................................................................
- -
134,043
Cash operating cost ('000)¹ ...........................................................................................
- -
212,712
Cash cost per ounce of gold ($)
1
....................................................................................
- -
1,242
Total cost per ounce of gold ($)¹ ...................................................................................
- -
1,646
Durban Deep
Overview
The Durban Deep mine was the original gold mine of the Group. Durban Deep is situated on the northern edge of the
Witwatersrand Basin immediately to the west of Johannesburg. Mining took place within the lease area since the discovery of the
Witwatersrand Goldfield in 1886 at nearby Langlaagte.
As of August 2000, we ceased all underground and open pit mining operations at Durban Deep. Following the withdrawal
of our underground pumping subsidy, the deeper sections of the mine were flooded. On a combined basis, Durban Deep produced
more than 37 million ounces of gold prior to the cessation of operations.
We concluded an agreement with M5 on July 21, 2005, in terms of which M5, against payment of a non-refundable fee of
R1.5 million, was granted an option to acquire Durban Deep’s mine village for R15.0 million. The option lapsed on November 19,
2005. On the exercising of the option the option fee would be deemed part payment of the purchase consideration. If not, the option
fee would be forfeited to us.
On November 18, 2005, M5 exercised the option and provided a guarantee for payment. Prior to the registration of the
transfer occurring, we were notified by Rand Leases Properties Limited (formerly JCI Properties Limited) of an alleged pre-
emptive right in respect of the property in terms of an agreement dated December 1996, pursuant to which the property should be
sold to them on similar terms. We subsequently repudiated our agreement with M5 and notified Rand Leases Properties Limited
that we did not intend offering the property to them. Both parties indicated to us their intentions to institute legal proceedings for
the sale and transfer of the property. On December 12, 2006, Rand Leases Properties Limited issued a summons against us and we
filed an Appearance to Defend. A trial date was allocated by the High Court of South Africa for April 25, 2008, but the case was
postponed. A new date has not yet been set. Dino Properties (Pty) Ltd (previously called M5) has instituted action against the
Company seeking to enforce an agreement of sale of the DRD Village entered into on July 21, 2005 alternatively payment of
R195 million which is alleged to represent the market value of the property. The Company is defending this action; however, the
parties have suspended the pleadings with the possibility of pursuing a settlement of the case. See “Legal Proceedings- Legal
proceedings relating to an agreement to sell Durban Deep’s mine village”.
Property
Durban Deep is located within the Central Witwatersrand Basin which stretches from Durban Deep in the west to ERPM in
the east. Durban Deep is situated 9.3 miles (15 kilometers) west of Johannesburg and contains mining title to 14,262 acres (5,772
hectares) and owns 3,667 acres (1,484 hectares) of freehold property. These include administrative buildings, hospital, recreation
complexes, housing in both hostel and free-standing houses and a security complex. We have title to substantial land tracts on the
outskirts of the City of Roodepoort, which is located in this section. We do not intend to convert our rights under the MPRD Act.
1
Cash operating cost, cash cost per ounce and total cost per ounce of gold are financial measures of performance that we use to determine cash
generating capacities of the mines and to monitor performance of our mining operations.
52
Mining and Processing
Five different ore bodies have been mined at Durban Deep. Ore was mined from outcrops at the surface down to a
maximum depth of 9,200 feet (2,804 meters) and the reefs are known to persist to 13,000 feet (3,962.4 meters) below the surface
within the lease area.
Environmental and Closure Aspects
Rehabilitation and other responsibilities like the National Nuclear Regulator Certificate of Registration requirements
have been taken over by DRD (Pty) Ltd, which is owned by Mintails. An official liability transfer in terms of section 58 of the
MRPDA Act has been submitted to the DMR. DRDGOLD retains only the village that has no assessed liability associated with it.
The legal transfer of the liability would be dependent on the DMR's assessment of Mintails' financial capability. DRDGOLD
therefore still has a contingent liability until such legal transfer is affected.
In fiscal 2011, the environmental rehabilitation liabilities reduced from R19.5 million in fiscal 2010 to R19.0 million in
fiscal 2011.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, we have estimated that the
remaining cost for Durban Deep, in current monetary terms as at June 30, 2011, is R19.0 million. This has been included in the
provision for environmental rehabilitation, restoration and closure costs on the statement of financial position. A total of R23.0
million has been contributed to the Environmental Trust Fund. This is an irrevocable trust, managed by specific responsible people
who we nominated and who are appointed as trustees by the Master of the High Court of South Africa.
West Wits
Overview
We own 100% of West Witwatersrand Gold Holdings Limited, or WWGH, which holds West Witwatersrand Gold
Mines Limited, or West Wits. We acquired the entire share capital of WWGH, as well as Consolidated Mining Corporation Limited's
loan to WWGH, on April 1, 1996. We also acquired the entire issued share capital and the shareholders' claim and loan account of
East Champ d'Or Gold Mine Limited, a gold mining company with mining title in the West Rand. The mining assets were sold to
Bophelo Trading (Pty) Limited, subsequently renamed, Mogale Gold (Pty) Limited, or Mogale, during fiscal 2004, effectively
leading to the closure of the mining operation.
West Wits is situated on the northern edge of the Witwatersrand Basin near the town of Krugersdorp to the west of
Johannesburg.
Property
West Wits was formed out of the northern section of Randfontein Estates located in the West Rand Goldfields, about 22
miles (35 kilometers) west of Johannesburg, Gauteng Province. The mine was reached via the R28 Johannesburg-Krugersdorp
highway.
West Wits also had rights to mine on three adjacent mining leases, namely, East Champ d'Or, West Rand Consolidated and
Luipaardsvlei. West Wits had mining title to 8,364 acres (3,790 hectares) and owned 72 acres (29 hectares) of freehold property on
which all of its mining operations were situated. These rights were sold to Mogale during fiscal 2004.
Mining and Processing
In August 2000, we decided to cease all operations at both the underground and open pit operations at West Wits. This
decision was taken after the South African government withdrew the water pumping subsidy. Without the subsidy, mining at West
Wits became prohibitively expensive. The mining operation is an agglomeration of old mines on the Randfontein Basin separated
from the main part of the Witwatersrand Basin by a geological structure known as the Witpoortjie Horst. Over fifteen different gold-
bearing pebble horizons have been mined. Ore has been mined from outcrops at the surface down to a maximum depth of 5,900 feet
(1,798.3 meters).
West Wits mined the Livingston Reef package, locally known as the East Reef. It comprises a 100-foot thick package of
conglomerates and quartzites dipping at an average of 18 degrees. The combined West Wits produced more than 1.0 million ounces
of gold since the mine’s inception, before the cessation of underground and open-pit operations at the end of August 2000.
Subsequent to the cessation of mining operations, the metallurgical plant at West Wits was taken over by Crown for the processing of
sand dumps only.
53
Environmental and Closure Aspects
Responsibility for the mine, including the environmental rehabilitation liability, has been taken over contractually by
Mintails although the legal transfer thereof would be dependent on the DMR's assessment of Mintails' financial capability.
DRDGOLD therefore still has a contingent liability until such legal transfer is affected. Management of the West Rand Consolidated
Mines' tailings dams have been taken over by Mintails which plans to reprocess them. An EMP for the balance of the area has been
submitted to the DMR as part of the conversion process of ML9/2000. The execution of the conversion is imminent.
In terms of Acid Mine Drainage (AMD) from the Western Basin, a proposal has been submitted to the regulators for an
interim solution whereby the Western Basin water is pumped into the Central Basin. Water from the Central Basin is then pumped
from 400m below surface and partly treated in the ERPM High Density Separation (HDS) plant before being released. The proposal
is based on a Public Private Partnership and will prevent untreated water from polluting the environment until the final sustainable
solution is put in place. In terms of this proposal, DRDGOLD will contribute approximately R13.4 million towards the R218 million
capital required. Final approval is awaited. The DMR and affected mining companies are involved in the development of a ‘Regional
Mine Closure Strategy’ in the gold fields’ area. The government has appointed Trans-Calendon Tunnel Authority to propose
solutions for the various basins. They have also provided funding for the interim solution in the Western and Central Basins. In view
of the limitation of current information for the accurate estimation of a liability, no reliable estimate can be made for the obligation.
In fiscal 2010, the Company transferred the environmental rehabilitation liabilities in respect of mining rights over the West
Wits mining license area which was disposed of. A total of R19.9 million previously contributed to the Environmental Trust Fund has
been impaired as a result of the transfer of the liability.
Legal Proceedings
Litigation regarding environmental issues
On August 2, 2006 and September 4, 2006, two applications were brought against DRDGOLD and its directors for relief
under the MPRD Act by the Legal Resources Centre on behalf of the residents of two communities, Davidsonville and Kagiso, who
reside adjacent to tailings deposition sites of the now dormant Durban Roodepoort Deep mine and the West Witwatersrand mine,
respectively. While no financial compensation is sought, the communities are seeking orders for the revision of the environmental
management programmes of both sites, and for the sites to be rehabilitated and closed in accordance with the standards of the MPRD
Act. DRDGOLD has filed its Appearance to Defend and Answering Affidavits in respect of both matters in the High Court of South
Africa. The responsibility rests with the respondent's attorneys to either apply to the High Court for a date of hearing or file replying
affidavits.
Application to reverse the granting of a mining right
In June 2008, DRDGOLD and Durban Roodepoort Deep (Pty) Limited (“DRD”) brought an application in the High Court
of South Africa against Main Reef Crushers CC (MRC) and the Minister of Mineral Resources because inter alia the latter granted
MRC a mining right:
• in respect of an old waste rock dump which is not regulated by the MPRD Act and therefore the right was unlawfully
granted;
• over an area on which DRD had already been granted a prospecting right which gives DRD the exclusive right to apply for a
mining right in terms of the MPRD Act; and
• in respect of which the Environmental Impact Assessment and the Environmental Management Programme submitted by
MRC are fatally defective.
This case has been settled.
Lawsuit by French shareholders
In August 2008, the Company received by post a summons issued in the Tribunal De Grande Instance District Court of Paris
by the Association for the Defense of the Shareholders of East Rand (the association) against Ergo Mining Operations.
The claim is based on the following allegations:
• that the members of the association were shareholders of ERPM;
• that the non-audited ERPM results of the six-month period from July to December 1998 were misleading regarding the
'healthiness' of ERPM prior to its winding up in 1999;
• that the 1999 liquidation of ERPM was fraudulently approved by 15% of shareholders who were representatives of the
South African state against the interests of French shareholders; and
54
• that the subsequent scheme of arrangement to remove ERPM from liquidation in 1999 was approved by 15% of
shareholders without consultation with French shareholders.
On the basis of these allegations, the association is claiming a payment of 5 million euros for damages, 10,000 euros for
costs and costs of suit. Ergo Mining Operations has raised the point that the French Courts lack jurisdiction to hear the matter and
also filed its defenses on the merits of the case. On May 24, 2011 the Court refused the association’s application for postponement
and the case was struck off the roll.
Legal proceedings relating to an agreement to sell Durban Deep’s mine village
We concluded an agreement with M5 on July 21, 2005, pursuant to which M5, against payment of a non-refundable fee of
R1.5 million, was granted an option to acquire Durban Deep’s mine village for R15.0 million. On November 18, 2005, M5 exercised
the option and provided a guarantee for payment. Prior to the registration of the transfer occurring, we were notified by Rand Leases
Properties Limited (formerly JCI Properties Limited) of an alleged pre-emptive right in respect of the property in terms of an
agreement dated December 1996, pursuant to which the property should be sold to them on similar terms. We subsequently
repudiated our agreement with M5 and notified Rand Leases Properties Limited that we did not intend offering the property to them.
Both parties indicated to us their intentions to institute legal proceedings for the sale and transfer of the property. On
December 12, 2006, Rand Leases Properties Limited issued a summons against us and we filed an Appearance to Defend. On April
25,
2008 the case was postponed by the High Court.
Dino Properties (Pty) Limited (previously M5) has instituted action against us seeking to enforce an agreement of sale of
Durban Deep’s mine Village entered into on July 21, 2005, or alternatively payment of R195 million which is alleged to represent the
market value of the property. DRDGOLD is defending this action, however, the parties have suspended the pleadings with the
possibility of pursuing a settlement of the case
.
Claim for alleged damages at Blyvoor
Duffuel (Pty) Ltd and Paul Frederick Potgieter are suing DRDGOLD, Ergo Mining Operations, Blyvoor and the latter's
directors for alleged pollution of peat reserves which they claim to sell to the mushroom industry. Since the 20-F for fiscal 2010 the
plaintiffs amended the amounts claimed against DRDGOLD, Ergo Mining Operations, Blyvoor and the latter's directors as follows:
• R41,051,000 for loss of peat reserves;
• R23,657,910 for removal and transportation of the polluted peat;
• R2,025,000 for required permits and authorizations;
• R1,650,000 for installation of pipelines; and
• R192,000 for importation of clean water for domestic use.
The defendants are defending this action and have also raised an exception on the basis that the claim is vague and
embarrassing, and does not disclose a cause of action.
Business rescue proceedings for Blyvoor operations
On June 23, 2011, DRDGOLD announced that its Board of Directors has decided to suspend financial assistance to
DRDGOLD’s 74%-owned subsidiary, Blyvoor. The decision follows the promulgation of the new Companies Act of South Africa
which came into effect May 1, 2011, which requires directors of parent companies to seek the consent of the parent company
shareholders and then to consider the effects on the solvency and liquidity of the parent company as conditions precedent to the
provision of financial assistance to subsidiaries. In fiscal 2010, Blyvoor accounted for 106,452 ounces of gold, or 44% of our total
production and in fiscal 2011 it accounted for 121,114 ounces or 46% of our total production.
Under the terms of business rescue procedures, the applicant may select a business rescue practitioner from a list of
approved business rescue practitioners who will have a wide range of powers at his disposal to take such actions he deems
necessary to save the business. The business rescue practitioner needs to implement a business rescue plan which requires the
approval of affected parties involved within a specified period or, if such approval is not obtained or if he is of the opinion that the
business cannot be saved, apply to the court for liquidation of the company. The business practitioner’s powers could include
giving certain creditors temporary preference over others and agreeing compromises with creditors without the risk of committing
an act of insolvency and thereby exposing the mine to liquidation. The business rescue practitioner has been granted an extension until November 1, 2011, for submission of the business rescue plan and until December 2, 2011 for the business rescue process in terms of section 132(3) of the Companies Act, 2008; further extension may, however, be granted.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
55
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following Operating and Financial Review and Prospects section is intended to help the reader understand the factors
that have affected the Company's financial condition and results of operations for the historical period covered by the financial
statements and management's assessment of factors and trends which are anticipated to have a material effect on the Company's
financial condition and results in future periods. This section is provided as a supplement to, and should be read in conjunction
with, our audited financial statements and the other financial information contained elsewhere in this Annual Report. Our financial
statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Our discussion contains forward looking information based on current
expectations that involve risks and uncertainties, such as our plans, objectives and intentions. Our actual results may differ from
those indicated in such forward looking statements.
The Operating and Financial Review and Prospects include the following sections:
• Operating results:
-
Business overview, a general description of our business.
-
Key drivers of our operating results and principal factors affecting our operating results, a general description of the
principal uncertainties and variables facing our business and the primary factors that have a significant impact on our
operating performance.
-
Recent acquisitions and dispositions, a description of the recent acquisitions and other transactions that have
impacted, or will impact, our performance.
-
Key financial and operating indicators, a presentation of the key financial measures we use to track our operating
performance.
-
Application of critical accounting policies, a discussion of accounting policies that require critical judgments and
estimates.
-
Operating results, an analysis of our consolidated results of operations during the three fiscal years presented in our
financial statements. The analysis is presented both on a consolidated basis, and by operating segment.
• Liquidity and capital resources, an analysis of our cash flows, borrowings and our anticipated funding requirements and
sources.
• Research and development, patents and licenses, etc.
• Outlook and trend information, a review of the outlook for, and trends affecting our business.
• Off-balance sheet arrangements.
• Tabular disclosure of contractual obligations, being the numerical review of our contractual future cash obligations.
• Safe harbor.
56
5A. OPERATING RESULTS
Business overview
We are a South African gold mining company engaged in underground and surface gold mining, including exploration,
extraction, processing and smelting. We have operations comprising underground mining and surface tailings retreatment,
including the requisite infrastructure and metallurgical processing plants. Our operations are currently located in South Africa. As
from June 30, 2010, DRDGOLD's foreign subsidiaries, which were the holding companies for its previously disposed Australasian
operations, have been placed into voluntary liquidation. In fiscal 2010, the Group has broadened its activities to include initial
exploration activities on a small scale in Zimbabwe.
During the fiscal years presented in this Annual Report all our operations take place in one geographic region, namely
South Africa (“South African Operations”), based on revenue generated from the location of our subsidiaries, as follows:
• Blyvooruitzicht Gold Mining Company Limited (Blyvoor) – underground mining and surface tailings retreatment;
• ErgoGold (unincorporated entity) and Ergo Mining (Pty) Limited (Ergo JV), collectively referred to as Ergo – surface
tailings retreatment;
• Crown Gold Recoveries (Pty) Limited (Crown) – surface tailings retreatment; and
• East Rand Proprietary Mines Limited (ERPM) – surface tailings retreatment (reported under Crown) and ERPM
Extension 1 and 2 exploration tenements. ERPM’s underground mining operation has been discontinued and are included
under ‘Corporate head-office and all other expenses’ in our financial statements’ operating segments.
In fiscal 2011, the South African Operations accounted for 100% of our total production and loss for the year of
R415.4 million (fiscal 2010: R203.4 million profit for the year and fiscal 2009: R110.7 million profit for the year).
Exploration activities are undertaken mainly in South Africa. In fiscal 2010, we also commenced small scale exploration
activities in Zimbabwe.
From 1895 to 1997, our principal mining operation was the Durban Deep mine. Up to 1999, our general growth strategy
was to acquire existing under-performing mines in South Africa at relatively low acquisition costs, and turn them into profitable
business units by introducing low-cost mining methods and reducing costs through employing our experience in managing
marginal gold mines to more efficiently utilize existing infrastructures. From 1999 to 2006 our focus was to expand our operations
outside of South Africa by acquiring lower cash cost and higher margin mines than those in South Africa, through the acquisition
of Tolukuma, our former 20% interest in Porgera and 79% interest in Emperor (Vatukoula), which together constituted our
Australasian Operations. With the exit from our Australasian Operations in 2008, our strategy has since changed to refocus on our
operations in South Africa and in particular on the expansion of our surface tailings retreatment operations. A large portion of the
proceeds we received from the disposal of our Australasian operations have been utilized during fiscal 2009, 2010 and 2011 to
expand our retreatment of surface tailings to recover gold.
Our new strategy is to enhance shareholders’ value by reducing risk, controlling costs, managing margins and taking a
disciplined approach to growth. In the short- to medium-term the focus will be on optimizing surface circuits, growing geological
expertise to enhance exploration capacity and phasing out underground operations, in a manner that maximizes shareholder value.
In fiscal 2011, revenue was 29% higher than in fiscal 2010 as a result of the higher rand gold price which increased by
17% and an increase in production of 10%. In fiscal 2010, revenue was slightly higher than in fiscal 2009. The effect of the higher
gold price was offset by lower gold production, in particular from underground operations due to the lower grades recovered as a
result of the seismic activity at Blyvoor’s underground operation at the end of fiscal 2009. In fiscal 2009 revenue was slightly
higher than in fiscal 2008. The effect of the higher gold price was offset by lower gold production, in particular from underground
operations due to the closure of ERPM’s underground operation. We had R259.1 million in cash and cash equivalents as at
June 30, 2011 compared to R188.2 million in cash and cash equivalents as at June 30, 2010. The increase in cash and cash
equivalents was mainly attributable to increased cash inflows from operating activities.
As at June 30, 2011, we had attributable Ore Reserves of approximately 6.3 million ounces, compared to 6.0 million
ounces as at June 30, 2010 and 5.2 million ounces as at June 30, 2009. The increase was mainly attributable to the higher gold
price.
57
Key drivers of our operating results and principal factors affecting our operating results
The principal uncertainties and variables facing our business and, therefore, the key drivers of our operating results are:
• The price of gold, which fluctuates widely in dollars and rands;
• The production tonnages and gold content thereof, impacting on the amount of gold we produce at our operations;
• The cost of producing that gold as a result of mining efficiencies; and
• General economic factors, such as exchange rate fluctuations and inflation, and factors affecting mining operations
particularly in South Africa.
Gold price
Our revenues are derived primarily from the sale of gold produced at our mines. As a result, our operating results are
directly related to the price of gold which can fluctuate widely and is affected by numerous factors beyond our control, including
industrial and jewelry demand, expectations with respect to the rate of inflation, the strength of the dollar (the currency in which
the price of gold is generally quoted) and of other currencies, interest rates, actual or expected gold sales by central banks, forward
sales by producers, global or regional political or economic events, and production and cost levels in major gold-producing
regions such as South Africa. In addition, the price of gold is often subject to rapid short-term changes because of speculative
activities. The demand for and supply of gold may affect gold prices, but not necessarily in the same manner that supply and
demand affect the prices of other commodities. The supply of gold consists of a combination of new production from mining and
existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial
organizations and private individuals. As a general rule we sell the gold produced at market prices to obtain the maximum benefit
from prevailing gold prices.
The following table indicates the movement in the dollar gold spot price for the 2011, 2010 and 2009 fiscal years:
2011 fiscal year
2010 fiscal year
% change
Opening gold spot price on July 1, ..................................
$1,244 per ounce
$935 per ounce
33%
Closing gold spot price on June 30, ................................
$1,506 per ounce
$1,244 per ounce
21%
Lowest gold spot price during the fiscal year ..................
$1,157 per ounce
$909 per ounce
27%
Highest gold spot price during the fiscal year ..................
$1,553 per ounce
$1,261 per ounce
23%
Average gold spot price for the fiscal year ......................
$1,369 per ounce
$1,089 per ounce
26%
2010 fiscal year
2009 fiscal year
% change
Opening gold spot price on July 1, ..................................
$935 per ounce
$930 per ounce
1%
Closing gold spot price on June 30, ................................
$1,244 per ounce
$935 per ounce
33%
Lowest gold spot price during the fiscal year ..................
$909 per ounce
$713 per ounce
27%
Highest gold spot price during the fiscal year ..................
$1,261 per ounce
$989 per ounce
28%
Average gold spot price for the fiscal year ......................
$1,089 per ounce
$873 per ounce
25%
2009 fiscal year
2008 fiscal year
% change
Opening gold spot price on July 1, ..................................
$930 per ounce
$651 per ounce
43%
Closing gold spot price on June 30, ................................
$935 per ounce
$930 per ounce
1%
Lowest gold spot price during the fiscal year ..................
$713 per ounce
$648 per ounce
10%
Highest gold spot price during the fiscal year ..................
$989 per ounce
$1,011 per ounce
-2%
Average gold spot price for the fiscal year ......................
$873 per ounce
$821 per ounce
6%
A significant upward trend in the dollar gold price has been noted over the past six fiscal years. Our production has been
sourced from our South African Operations and, until fiscal 2008, our Australasian Operations as well. As a result, the impact of
movements in relevant exchange rates during those six fiscal years, has been significant on our operating results. The average gold
price in rand (based on average spot prices for the year) increased from R7,899 per ounce in fiscal 2009 (a 32% increase from
fiscal 2008), to R8,289 per ounce in fiscal 2010 (a 5% increase from fiscal 2009) and R9,565 per ounce in 2011 (a 15% increase
from fiscal 2010).
Based on our forecast gold price of R350,649 per kilogram for fiscal 2012, a 10% increase in the rand gold price received
will increase our forecast profit for the year by R272.2 million and a 10% decrease in the rand gold price received will decrease
our profit for the year by R265.1 million.
58
Gold production and operating costs
Gold production from our operations totaled 265,179 ounces during fiscal 2011, compared to 241,194 ounces in fiscal
2010, and 247,690 ounces in fiscal 2009. The benefits enjoyed in fiscal 2011 by the 15% increase (fiscal 2010: 5% increase) in the
average rand gold price received were partially offset by an increase in average operating costs of 8% (fiscal 2010: 9%). Average
operating costs were reasonably well contained due to higher production and an increased contribution from our lower cost
surface retreatment operations.
Our costs and expenses consist primarily of operating costs and depreciation. Operating costs include labor, contractor
services, stores, electricity and other related costs, incurred in the production of gold. ‘Consumables and other’ and 'labor' are the
largest components of operating costs, each constituting 35% of operating costs for fiscal 2011. For fiscal 2011, 35%, fiscal 2010
32% and fiscal 2009 44% of our mining operations, based on kilograms of gold produced, involved deep level underground
mining which is more labor intensive.
In fiscal 2011, production increased to 265,179 ounces (produced from 24.2 million tonnes milled at an average yield of
0.34g/t) from 241,194 ounces in fiscal 2010 (produced from 22.6 million tonnes milled at an average yield of 0.33g/t). Production
decreased from 247,690 ounces (produced from 14.5 million tonnes milled at an average yield of 0.53g/t) in fiscal 2009 to
241,194 ounces in fiscal 2010 (produced from 22.6 million tonnes milled at an average yield of 0.33g/t). The reasons for the
movements in production are explained in more detail below.
Blyvoor produced 121,114 ounces (from 3.9 million tonnes milled at an average yield of 0.98g/t) in fiscal 2011, in
comparison with 106,452 ounces (from 3.6 million tonnes milled at an average yield of 0.92g/t) in fiscal 2010 and 129,473 ounces
(from 4.0 million tonnes milled at an average yield of 1.00g/t) in fiscal 2009. The increase in production at Blyvoor in fiscal 2011
compared to fiscal 2010, reflected continued recovery of the underground operations from the effects of substantial seismic
damage in the high-grade areas of No. 5 Shaft and a protracted, wage related strike in fiscal 2010. However, Blyvoor’s production
had been trending down in the last quarter of fiscal 2011 due to public holiday interruptions and seismicity-related work
stoppages, while costs had increased due mainly to higher electricity charges, and particularly power utility Eskom’s winter tariff
which added R11 million a month to overhead costs and as a result of a 20% drop in grade quarter on quarter which was
attributable to the use of a substitute explosive for the fourth quarter of fiscal 2011, due to major overhaul repairs at our regular
explosive supplier’s manufacturing plant. The decrease in production at Blyvoor in fiscal 2010 compared to fiscal 2009, was as a
result of lower recovered grades from underground operations as a result of seismic activity damaging the high-grade mining areas
during the last quarter of fiscal 2009 and a month long wage related strike during the first quarter of fiscal 2010.
Crown (which has been restated to include the surface retreatment operation of ERPM) produced 95,713 ounces (from
7.1 million tonnes milled at an average yield of 0.42g/t) during fiscal 2011, in comparison with 99,410 ounces (from 7.1 million
tonnes milled at an average yield of 0.43g/t) in fiscal 2010 and 95,616 ounces (from 8.0 million tonnes milled at an average yield
of 0.37g/t) in fiscal 2009. The decrease in production in fiscal 2011 was mainly as a result of diminishing grades as the processing
of the Top Star dump neared completion. The higher grades in fiscal 2010 compared to fiscal 2009 were a result of higher grade
material from the Mennells and Top Star sites and the lower throughput was due to constraints created by Crown’s deposition
facility.
ERPM (which has been restated to include only its underground production) had no underground gold production during
fiscal 2011 and 2010, in comparison with 18,935 ounces (from 0.2 million tonnes milled at an average yield of 3.20g/t) in fiscal
2009. The decrease in production at ERPM resulted from the discontinuation of the underground operations from October 2008.
Ergo, which commenced production in November 2008, produced 48,352 ounces (from 13.2 million tonnes milled at an
average yield of 0.11g/t) in fiscal 2011, in comparison with 35,332 ounces (from 11.9 million tonnes milled at an average yield of
0.09g/t) in fiscal 2010 and 3,666 ounces (from 2.3 million tonnes milled at an average yield of 0.05g/t) in fiscal 2009. The
increase in production in fiscal 2011 is due to a rise in both throughput and average grade, resulting from continued build-up of
slimes recovery from the Elsburg Tailings Complex. The increase in fiscal 2010 compared to fiscal 2009 is due to the first full
fiscal year of production and the ramp-up of production towards full production. We have made an encouraging technological
breakthrough at Ergo which separates out an agent that carries at least 37% of the gold. Whether we implement this technology
will be determined not just in terms of value over life of mine, but whether payback in the near term can be achieved. We aim to
take a firm view on this early in the third quarter of fiscal 2012.
59
General economic factors
As at September 30, 2011, our operations are located in South Africa. We also engage in small scale exploration activities
in Zimbabwe (such activities are at an early stage and therefore do not affect our results of operations). We are exposed to a
number of factors, which could affect our profitability, such as exchange rate fluctuations, inflation and other risks relating to
South Africa. In conducting mining operations, we recognize the inherent risks and uncertainties of the industry, and the wasting
nature of the assets.
Effect of exchange rate fluctuations
For the year ended June 30, 2011, 100% of our revenues were generated from South African operations, all of our
operating costs were denominated in rand and we derived all of our revenues in dollars. Fiscal 2011 was marked by volatility in
the dollar and an overall weakening in the dollar relative to the rand. As the price of gold is denominated in dollars and we realize
our revenues in dollars, the depreciation of the dollar against the rand reduces our profitability, whereas the appreciation of the
dollar against the rand increases our profitability. Based upon average rates during the respective years, the rand strengthened by
8% against the dollar in fiscal 2011, compared to a strengthening by 16% against the dollar in fiscal 2010 and a weakening by
24% against the dollar in fiscal 2009. The strengthening of the rand against the dollar limited the increase in the average rand gold
price received to only 17% in fiscal 2011 and 5% in fiscal 2010, whereas in fiscal 2009 the 32% was increase in the average rand
gold price was mainly as a result of the significant weakening (24%) of the rand against the dollar.
As an unhedged gold producer, we do not enter into forward gold sales contracts to reduce our exposure to market
fluctuations in the dollar gold price or the exchange rate movements. If revenue from gold sales falls for a substantial period
below our cost of production at our operations, we could determine that it is not economically feasible to continue commercial
production at any or all of our operations or to continue the development of some or all of our projects. Our weighted average cash
operating costs per kilogram for our operations was R251,296 per kilogram of gold produced in fiscal 2011, R233,112 per
kilogram of gold produced in fiscal 2010 and R219,024 per kilogram of gold produced in fiscal 2009. The average gold price
received, from operations, was R308,220 per kilogram of gold produced in fiscal 2011, R267,292 per kilogram of gold produced
in fiscal 2010 and R250,589 per kilogram of gold produced in fiscal 2009.
Effect of inflation
In the past, our operations have been materially adversely affected by inflation. As we are unable to control the prices at
which our gold is sold, if there is a significant increase in inflation in South Africa without a concurrent devaluation of the rand or
an increase in the price of gold, our costs will increase, negatively affecting our operating results.
The movements in the rand/dollar exchange rate, based upon average rates during the periods presented, and the local
annual inflation rate for the periods presented, as measured by the South African Consumer Price Index, or CPI, are set out in the
table below:
Year ended June 30,
2011
(%)
2010
(%)
2009
(%)
The average rand/dollar exchange rate (strengthened)/weakened by ..........................................
(8.2) (15.9) 23.7
CPI (inflation rate) ...................................................................................................................
5.3 4.2 6.9
The South African CPI inflation rate stabilized in fiscal 2011 and fiscal 2010 after a significant decrease in fiscal 2009
and as at September 30, 2011, it was at 5.7%. From January 2009, the South African Reserve Bank changed the way inflation is
measured by expanding the range of consumer goods used and changing the benchmark measure from CPIX (CPI minus mortgage
costs) to CPI. Mortgage costs have been replaced by owners’ equivalent rental (OER) to capture housing costs, making CPIX
redundant. The closest measure to CPIX is CPI minus OER.
South African political, economic and other factors
We are a South African company and, subsequent to the sale of our Australasian Operations, all our revenue producing
operations are based in South Africa. As a result, we are subject to various economic, fiscal, monetary and political factors that
affect South African companies generally. South African companies are subject to exchange control regulations. Governmental
officials have from time to time stated their intentions to lift South Africa’s exchange control regulations when economic
conditions permit such action. Over the last few years, certain aspects of exchange controls for companies and individuals have
been incrementally relaxed. It is, however, impossible to predict when the South African Government will remove exchange
controls in their entirety. South African companies remain subject to restrictions on their ability to export and deploy capital
outside of the Southern African Common Monetary Area, unless dispensation has been granted by the South African Reserve
Bank. For a detailed discussion of exchange controls, see Item 10D.: “Exchange controls.”
60
On May 1, 2004, the Mineral and Petroleum Resources Development Act (MPRD Act) became effective. Prior to the
introduction of the MPRD Act, private ownership in mineral rights and statutory mining rights in South Africa could be acquired
through the common law or by statute. Now, all mineral rights have been placed under the custodianship of the South African
Government under the provisions of the MPRD Act, and old order proprietary rights need to be converted to new order rights of
use within certain prescribed periods. We have submitted certain applications in this regard. This process is described in more
detail under Item 4B.: “Business Overview – Governmental regulations and their effects on our business - South Africa - Common
Law Mineral Rights and Statutory Mining Rights.”
The MPRD Act makes reference to royalties being payable to the South African government in terms of the Royalty Bill.
The fourth draft of the Royalty Bill was promulgated in Parliament on August 14, 2008 and provides for the payment of a royalty
according to a formula based on earnings before interest, tax and after the deduction of capital expenditure. The Mineral and
Petroleum Resources Royalty Act, No.28 of 2008 was enacted on November 21, 2008 and was published in the South African
Government Gazette on November 24, 2008 and the Mineral and the Petroleum Resources Royalty Act (Administration), No.29 of
2008 on November 26, 2008. The rate as calculated per the abovementioned formula is then applied to revenue to calculate the
royalty amount due, with a minimum of 0.5% and a maximum of 5% for gold, payable half yearly with a third and final payment
thereafter. The royalty is tax deductible and the cost after tax amounts to a rate of between 0.33% and 3.3% at the prevailing marginal
tax rates applicable to the group. The registration process commenced on November 1, 2009, after which the group duly registered,
and the payment of royalties commenced on March 1, 2010, with DRDGOLD payments due as from June 30, 2010 and every six
months thereafter. The royalty is payable on old unconverted mining rights and new converted mining rights.
Recent acquisitions and dispositions
The global gold mining industry has experienced active consolidation and rationalization activities in recent years.
Accordingly, we have been, and may continue to be, involved in acquisitions and dispositions as part of this global trend and to
identify value-adding business combinations and acquisition opportunities. To ensure that our Ore Reserve base is maintained, or
increased, we are currently focusing on organic growth from our existing operations, brownfields exploration in South Africa and
greenfield exploration in Zimbabwe.
The following is a description of acquisitions and dispositions completed by us since July 1, 2008:
Top Star Dump
On August 21, 2008 a Mining Right was granted for gold recovery over the Top Star Dump, in favor of Crown by the
Department of Mineral Resources with effect from August 21, 2008. The mining right for the Top Star Dump has been granted
until August 20, 2013 and gold recovery started during December 2008.
Ergo (includes ErgoGold and the Ergo JV)
On June 7, 2007, we and Mintails announced the formation of the Ergo JV, a joint venture between Mintails SA and Ergo
Mining Operations. Following discussions initiated in the first quarter of 2007, the joint venture parties agreed to pursue a strategy to
consolidate certain of their assets on the East Rand. Mintails SA contributed one fully refurbished carbon-in-leach, or CIL, circuit at
the Brakpan plant and Ergo Mining Operations contributed the Elsburg tailings complex, comprising approximately 180 Mt of
tailings. This part of the project, previously referred to as Ergo Phase 1, was subsequently established under ErgoGold. Mintails SA
and Ergo Mining Operations, through their subsidiaries, initially owned 50% each of ErgoGold and the Ergo JV.
On August 6, 2007, the joint venture parties entered into a sale of assets agreement with AngloGold Ashanti pursuant to
which it acquired the remaining moveable and immovable assets of the Ergo plant for a total consideration of R42.8 million. These
assets will be operated by the Ergo JV for its own account, under the AngloGold Ashanti old mining rights, until new order mining
rights have been obtained. These assets consist of servitudes (access agreements), infrastructure, piping, equipment, old order mining
rights and the right to an additional 15 Mt of tailings material.
On November 26, 2007, we announced that Ergo Mining Operations signed a binding term sheet with Mintails SA, which
provided for significant expansion of the joint venture through:
• the planned refurbishment of all infrastructure at the Brakpan plant, to increase capacity from one CIL gold recovery circuit
to a plant capable of processing tailings for the recovery of gold, uranium and sulphuric acid; and
• substantially increasing available tailings material from 180 Mt to up to 1,700 Mt, by securing rights over tailings dumps
and slimes dams in the region.
61
Additional agreements were concluded on November 14, 2007 for:
• the acquisition by the Ergo JV of additional tailings properties and the Withok deposition complex from AngloGold Ashanti
for a payment of R45.0 million and assumption of rehabilitation obligations; and
• the acquisition by Mintails SA of an option to acquire tailings properties (the Grootvlei Properties), comprising some
105 Mt, from Pamodzi Gold Limited. The Grootvlei properties formed part of the Mintails SA contribution to the expanded
Ergo JV.
Ergo Phase 1 (ErgoGold) involved the refurbishment of one CIL circuit at the Brakpan plant with the capacity to treat an
estimated 15Mt of tailings a year, for the recovery of approximately 52,000 ounces of gold a year. Ergo Phase 2 includes the
expansion of the gold plant by refurbishing the second CIL circuit and developing uranium and acid plants. ErgoGold is managed by
Crown.
On September 29, 2008, Ergo Mining Operations acquired a further 15% interest in ErgoGold from Mintails SA resulting
in Ergo Mining Operations, which holds its interest through its subsidiary, ERPM, holding a 65% interest and Mintails SA a 35%
interest in the joint venture. On December 8, 2008, DRDGOLD agreed to acquire Mintails SA's remaining interest in ErgoGold,
as well as all of the shareholder’s loans owed by ErgoGold to the Mintails group. The acquisition, which was completed on March
31, 2009, resulted in the Group acquiring 100% of ErgoGold. The purchase consideration was paid in cash and amounted to
R100.0 million for the 15% interest and R177.0 million for the 35% interest.
On January 21, 2010, Ergo Mining Operations through its subsidiary ERPM, acquired the remaining 50% interest in the
Ergo JV from Mintails SA for a total consideration of R82.1 million, consisting of R62.1 million in cash and payment of the
balance of R20.0 million with DRDGOLD’s shares in Witfontein Mining (Pty) Limited. The acquisition was completed on April
15, 2010 and was recorded in the financial statements effective May 1, 2010.
DRDGOLD treats ErgoGold and the Ergo JV as one operating segment called Ergo, and includes their respective
financial results within our Annual Report in accordance with IFRS 8 (Operating Segments). Furthermore, the company’s
management believes it is appropriate to present ErgoGold and the Ergo JV together in this discussion as they share the same
infrastructure, human resources and mineable material, with ErgoGold being focused on the extraction of gold from the re-
treatment of the Elsburg and Benoni deposition sites and the Ergo JV being an exploration project focused on the extraction of
uranium and further gold from a range of deposition sites (including the Elsburg site).
ERPM
On October 6, 2008 we ceased pumping at ERPM’s South West Vertical Shaft for safety reasons following the death of two
employees underground. Post mortems suggested that the two men, who had been conducting routine water level measurements, died
of asphyxiation. The South West Vertical Shaft had been used only for water pumping purposes for several years.
The Department of Mineral Resources issued a Section 54 notice under the Mine Health and Safety Act, subjecting access
into the area to certain restrictions and conditions relating to ventilation. On October 23, 2008, drilling and blasting operations were
suspended in all shafts after the cessation of pumping of underground water at South West Vertical shaft on October 6, 2008 for
safety reasons.
On November 19, 2008, we announced our intention to place on care and maintenance the underground operations of
ERPM, and to proceed with a consultation process in terms of Section 189A of the Labour Relations Act to determine the future
of the mine’s 1,700 employees. The consultation process was completed on January 20, 2009 and 1,335 employees were
retrenched. On August 20, 2009, we discontinued care and maintenance and closed the underground operations.
On June 30, 2010 DRDGOLD signed heads of agreement with White Water Resources Limited (White Water), in terms of
which White Water would acquire the prospecting rights over ERPM Extensions 1 and 2 and the mining right over ERPM
Extension 1 from ERPM. ERPM’s mining right application over ERPM Extension 1 is pending. Both extensions are contiguous to
the ERPM mining lease area. The purchase consideration for the prospecting and mining rights was R18.5 million and would be
settled through the issue to ERPM of 74 million ordinary shares in White Water and 26 shares in a special purpose vehicle (SPV) to
be created, which would hold the assets acquired by White Water from ERPM in accordance with the terms of the transaction. This
transaction was part of DRDGOLD’s strategy to focus management efforts on surface retreatment.
In the event that the Department of Mineral Resources did not approve the transfer of one or more of the prospecting or
mining rights, the consideration would be reduced to R9.3 million to be settled through the issue to ERPM of 37 million ordinary
shares in White Water and 26 ordinary shares in the SPV.
The transaction was subject to the successful conclusion of various conditions precedent, including its approval by White
Water shareholders and the DRDGOLD Board of Directors. The DRDGOLD Board of Directors did not approve the transaction and
the disposal did not proceed due as the Board of Directors decided that it was more appropriate for DRDGOLD to perform the
exploration work to better understand the nature of the asset.
62
Blyvoor
On November 9, 2009, in a bid to save our Blyvoor mine from liquidation, we applied to the High Court of South Africa for
a provisional judicial management order over the operation. A provisional judicial management order was granted by the High Court
of South Africa on November 10, 2009.
The application, in terms of the provisions of Section 427 of the South African Companies Act, was prompted by Blyvoor’s
inability to continue to sustain losses incurred since April 2009, which were brought about by the following circumstances:
• a drop in the rand gold price received between April 1, 2009 and September 30, 2009, due to the strengthening of the
rand against the US dollar;
• extensive damage caused during May 2009 to higher-grade underground production areas at Blyvoor’s No. 5 Shaft by
seismic activity, restoration of which was expected to take until March 2010 to complete;
• power utility Eskom’s higher winter tariffs, compounded by a 32% price increase effective from July 1, 2009, and the
likelihood of further increases in coming months; and
• the wage strike by the National Union of Mineworkers, which lasted for almost a month and resulted in the loss of
approximately 8,000 ounces of expected production.
In terms of a provisional judicial management order, the court appointed a judicial manager who had a wide range of powers
at his disposal to take such actions as he deemed necessary to save the business. These could include giving certain creditors
temporary preference over others and agreeing compromises with creditors without the risk of committing an act of insolvency and
thereby exposing the mine to liquidation.
On April 13, 2010, DRDGOLD announced that the High Court of South Africa had agreed to lift, with immediate effect,
the provisional judicial management order in place since November 10, 2009. The Company’s application to the court for the
lifting of the provisional judicial management order indicated that for the period from November 2009 to February 2010, Blyvoor
had traded at an unaudited profit of R33.6 million, the amount owed to trade creditors at the time when the provisional judicial
management order was granted had been reduced from R39 million to R2.17 million, monthly production of gold had increased
from 8,745 ounces to 10,127 ounces and the gold price had increased from R240,000/kg to R265,000/kg.
On December 2, 2009, DRDGOLD announced a proposed transaction to sell 60% of Blyvoor to Aurora Empowerment
Systems (Pty) Limited, or Aurora, for R295 million and to provide a R80 million loan facility over a six month period. On April 1,
2010, the Company announced that through mutual agreement the offer made by Aurora was withdrawn.
On September 14, 2010, DRDGOLD met all formal requirements to restructure its holding in Blyvoor, then a subsidiary
of Ergo Mining Operations, which is the holding company of DRDGOLD’s surface operations, such that Blyvoor would become a
direct subsidiary of DRDGOLD. This was done to form separate brands for the Company’s underground and surface operations in
two separate investment vehicles; the first being Blyvoor involved in underground operations at a higher risk, marginal gold mine
with a high potential upside if the rand gold price reaches more favorable levels and the second being Ergo Mining Operations
involved in surface operations at a lower risk, higher margin gold mine. Following this restructuring, DRDGOLD’s Board of
Directors announced in April, 2011 that Blyvoor no longer fit within the Company’s strategic focus and that the mine would be
sold.
On June 23, 2011, DRDGOLD announced that its Board of Directors had decided to suspend financial assistance to
Blyvoor. The decision followed the promulgation of the new Companies Act of South Africa which requires directors of parent
companies to seek the consent of the parent company shareholders and then to consider the effects on the solvency and liquidity of
the parent company as conditions precedent to the provision of financial assistance to subsidiaries. Blyvoor’s production had been
trending down as a result of a drop in grade, public holiday interruptions and seismicity-related work stoppages, while costs had
increased due mainly to higher electricity charges, and particularly power utility Eskom’s winter tariff which adds R11 million a
month to overhead costs. The Board of Directors of Blyvoor had, in response to the DRDGOLD Board’s decision, resolved to
begin business rescue proceedings for Blyvoor in terms of Chapter 6 of the Companies Act. The business rescue process provided
for in Chapter 6 replaced the judicial management process in the previous Companies Act.
On August 17, 2011, DRDGOLD announced that Blyvoor had been granted an extension by the Southern Gauteng High
Court of South Africa (Johannesburg) until November 1, 2011, to publish a business rescue plan. On October 20, 2011 it was
announced that further extension had been granted till December 2, 2011, for the business rescue process in terms of section 132(3)
of the Companies Act, 2008; further extension may, however, be granted. The extension was granted because various processes
critical to finalization of the business rescue plan were ongoing and would require additional time to conclude. These included:
• discussions on terms with key creditors;
• wage negotiations with unions and associations;
• negotiations with neighboring mining companies regarding asset acquisitions; and
• on-mine measures to improve labor, energy and water efficiencies.
63
On September 27, 2011, the Business Rescue Practitioner overseeing business rescue proceedings at Blyvoor gave notice of
Blyvoor’s intention to enter a 60-day consensus-seeking process in terms of Section 189 (3) of the Labour Relations Act with the
National Union of Mineworkers, or NUM and the United Association of South Africa, or UASA – the Union, to consider reducing
employee numbers by approximately 500 employees. The reason for the need to consider the reduction is that Blyvoor – under
business rescue proceedings in terms of Chapter 6 of the Companies Act since June this year – has been unable to meet production
and financial targets, a situation exacerbated by higher utility costs. Blyvoor is proposing voluntary separation and application of
the principle of “last in, first out” as among the mechanisms to be applied to effect the required reduction in employee numbers.
Measures currently under consideration to achieve a targeted 30% improvement in the cost of production in R/kg terms, and thus
to avoid employee reduction, include:
• a reduction in overtime expenditure;
• an increase in available face time and subsequent re-organisation of shifts;
• a re-evaluation of the profitability of 6 Shaft, 4 Shaft and the Reef Picking Project;
• a reduction of departmental costs by 10%; and
• revised mining plans.
Other
On September 17, 2008, our wholly-owned subsidiary, DRD (Offshore) Limited, sold all of its shares in G.M. Network
Limited, or GoldMoney, to other GoldMoney shareholders. The cash consideration in respect of the disposal amounted to
R23.8 million ($2.9 million). GoldMoney is a company that holds the rights, patents and other intellectual property of
GoldMoney.com, which is a product specializing in digital gold currency. We previously held a 50.25% shareholding in Net-Gold
Services Limited, which was converted on March 30, 2008 into a 12.3% shareholding in GoldMoney.
On December 9, 2008, Argonaut, Mintails SA and Witfontein, entered into a share purchase agreement (SPA) which
resulted in Argonaut (a wholly owned subsidiary of DRDGOLD) and Mintails SA each owning 50% of the shareholding of
Witfontein as well as being authorized to each appoint 50% of the board. Previously Mintails SA owned 100% of the issued share
capital of Witfontein. Witfontein was to be used as a future deposition establishment facility (i.e. slime deposition). On January
21, 2010, Ergo Mining Operations through its subsidiary ERPM, acquired the remaining 50% interest in the Ergo JV from
Mintails for a total consideration of R82.1 million. The purchase consideration was paid in cash in the amount of R62.1 million
and the balance of R20.0 million was paid with DRDGOLD’s shares in Witfontein.
In January 2009 we completed the acquisition of 28.33% of the shares in West Wits SA (Pty) Limited, a subsidiary of
West Wits Mining Limited, an Australian based listed company. The formation of the company was to explore, evaluate and
potentially extract gold and uranium from the West Rand Goldfield of South Africa's Witwatersrand Basin.
On July 22, 2009, the Company announced the rejection by the Mintails board of the offer by Ergo Mining Operations to
purchase the South African business assets of Mintails after its announcement dated June 29, 2009, which set out information
relating to Mintails having conditionally accepted an offer by Ergo Mining Operations, to acquire all of its South African business
assets, excluding its interest in West Wits Mining Limited.
Key financial and operating indicators
The financial results for the years ended June 30, 2011, 2010 and 2009 below are stated in accordance with IFRS as
issued by the IASB.
64
We consider the key performance measures for the growth of our business and its profitability to be gold revenue,
production, operating costs, cash costs per kilogram and total costs per kilogram, capital expenditure and Ore Reserves. The
following table presents the key performance measurement data for the past three fiscal years:
Operating data
Year ended June 30,
2011
2010
2009
Revenue (R'000) ....................................................................................................
2,565,319
1,990,522 1,910,738
Gold production (ounces) ....................................................................................
265,179 241,194 247,690
Gold production (kilograms) ..............................................................................
8,248 7,502 7,704
Revenue (R/kilogram) ............................................................................................
311,023 265,332 248,019
Average gold price received (R/kilogram) ........................................................
308,220
267,292
250,589
Operating costs (R'000) .........................................................................................
2,088,299
1,718,865 1,627,988
Cash operating costs (R'000) .................................................................................
2,072,687
1,748,806 1,635,006
Cash operating costs (R/kilogram)
1
....................................................................
251,296 233,112 212,228
Total costs (R/kilogram) .........................................................................................
357,486
237,123 237,344
Capital expenditure - cash (R'000) ......................................................................
317,250
194,018
345,132
Ore Reserves (ounces) ............................................................................................
6,336,000
6,027,000 5,220,000
Revenue
Revenue is derived from the sale of gold. The following table analyzes the revenue per operation:
Year ended June 30,
2011
R'000
2010
R'000
2009
R'000
Blyvoor ........................................................................................................................
1,185,860 861,409
1,018,527
Ergo
2
............................................................................................................................
468,592 294,325 24,178
Crown
3
........................................................................................................................
910,867 834,788 733,990
ERPM³ ..........................................................................................................................
- -
134,043
Total .............................................................................................................................
2,565,319 1,990,522 1,910,738
Revenue increased from R1,990.5 million in fiscal 2010 to R2,565.3 million in fiscal 2011 as a result of the 15% higher
rand gold price and the 10% increase in gold production. Both Blyvoor and Ergo managed to increase their gold production by
14% and 37%, respectively (discussed in more detail below under “Gold production”). Crown’s gold production decreased by 4%,
mainly as a result of diminishing grades as the processing of the Top Star dump neared completion.
In fiscal 2010, revenue increased from R1,910.7 million in fiscal 2009 to R1,990.5 million. This increase was a
consequence of the higher average gold price received by us of R265,332 per kilogram of gold produced, compared to R248,019
per kilogram of gold produced in fiscal 2009. The increase in revenue due to the higher average gold price received was offset by
lower gold production at Blyvoor as a result of the seismic activity during the last quarter of fiscal 2009 and a month long wage
related strike during the first quarter of fiscal 2010 at Blyvoor (discussed in more detail below under “Gold production”), which
resulted in production decreasing from 247,690 ounces in fiscal 2009 to 241,194 ounces in fiscal 2010.
1
Cash operating costs per kilogram and total costs per kilogram are non-IFRS financial measures of performance that we use to determine cash
generating capacities of the mines and to monitor performance of our mining operations. For a reconciliation to operating costs see Item 5A.:
“Operating Results” Under “Reconciliation of cash cost per kilogram, total costs and total costs per kilogram.”
2
Ergo has been restated during fiscal 2010 to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second
quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the Mintails group owned the remaining 50%. Effective
March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. Effective May 1, 2010 the Group acquired
Mintails’ 50% interest in the Ergo JV, resulting in the Group owning 100%.
3
Crown has been restated during fiscal 2010 to include the surface retreatment operation of ERPM. ERPM has therefore also been restated and
comprises only its underground operation.
65
Gold production
The following table analyzes the production per operation:
South African Production in Year ended June 30
2011 2010 2009
Ounces Kilograms Ounces Kilograms Ounces Kilograms
Blyvoor .......................................................
121,114 3,767
106,452 3,311
129,473 4,027
Surface operations ......................................
29,645 922
29,226 909
40,575
1,262
Underground operations .............................
91,469 2,845
77,226 2,402
88,898 2,765
Ergo
1
...........................................................
48,352 1,504
35,332 1,099 3,666 114
Crown
2
........................................................
95,713 2,977
99,410 3,092
95,616 2,974
ERPM
2
........................................................
- - - -
18,935
589
Underground operations .............................
-
-
-
-
18,935
589
Total production ........................................
265,179 8,248
241,194 7,502
247,690 7,704
For fiscal 2011, our total gold production increased by 23,985 ounces, or 10%, to 265,179 ounces from 241,194 ounces
produced in fiscal 2010.
At Blyvoor, total gold production for the year was 121,114 ounces, up by 14% from 106,452 ounces in fiscal 2010. This
reflected continued recovery of the underground operations from the effects of substantial seismic damage in the high-grade areas
of No 5 Shaft and a protracted, wage related strike in the previous year. Underground production rose by 18% to 91,469 ounces
from 77,226 ounces in fiscal 2010, as a result of a 16% increase in throughput to 732,000 tonnes from 633,000 tonnes in fiscal
2010 and an increase in average grade to 3.89g/t from 3.79g/t. The increase was partly offset by a drop in grade for the last quarter
of fiscal 2011 due to the use of a substitute explosive for the fourth quarter of fiscal 2011, due to the major overhaul of our regular
preferred supplier’s explosive manufacturing plant. While surface production was stable, rising by 1% to 29,645 ounces from
29,226 ounces in fiscal 2010, as a result of a 5% increase in throughput to 3,129,000 tonnes from 2,968,000 tonnes in fiscal 2010
which had been offset by a 6% decrease in average grade to 0.29g/t from 0.31g/t in fiscal 2010.
At Ergo, total gold production was 37% higher at 48,352 ounces (fiscal 2010: 35,332 ounces). This reflects an 11% rise
in throughput to 13,206,000 tonnes (fiscal 2010: 11,867,000 tonnes) and a 22% rise in average grade to 0.11g/t (fiscal 2010:
0.09g/t), resulting from continued build-up of slimes recovery from the Elsburg Tailings Complex.
At Crown, total gold production for the year was down by 4% to 95,713 ounces from 99,410 ounces in fiscal 2010. This
was as a consequence of a 2% decline in average grade from 0.43g/t to 0.42g/t. Throughput was stable at 7,120,000 tonnes.
At ERPM, underground operations ceased in October 2008 and have been permanently halted. As a result ERPM had no
underground production in fiscal 2011 or fiscal 2010, compared to 18,935 ounces in fiscal 2009.
For fiscal 2010, our total attributable gold production from operations decreased by 6,496 ounces, or 3%, to 241,194
ounces from 247,690 ounces produced in fiscal 2009.
At Blyvoor, total production declined by 18% to 106,452 ounces from 129,473 ounces in fiscal 2009, reflecting a 13%
decrease in production from the underground operations to 77,226 ounces from 88,898 ounces in fiscal 2009 and a 28% decrease
in production from surface operations to 29,226 ounces from 40,575 ounces in fiscal 2009. The decrease in underground
production was as a result of lower recovered grades following seismic activity which damaged high-grade mining areas during
the last quarter of fiscal 2009. As a consequence, the grade recovered from underground operations decreased from 4.59g/t in
fiscal 2009 to 3.79g/t in fiscal 2010. A month long wage related strike during the first quarter of fiscal 2010 also contributed to the
decrease in total production. The decrease in the surface production is due to lower volumes recovered from lower grade tailings
material available and to the discontinuation of the treatment of uneconomic rock dump material.
At Ergo, fiscal 2010 was the first full year of production, since production commenced at the end of the second quarter of
fiscal 2009. Ergo has now reached a sustainable state of production, although engineering modifications at the Ergo plant to
improve recovered grades are still underway as at September 30, 2011. Ergo’s recovered grade improved from 0.05g/t in fiscal
2009 to 0.09g/t in fiscal 2010 and 0.11g/t in fiscal 2011.
1
Ergo has been restated during fiscal 2010 to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second
quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the Mintails group owned the remaining 50%. Effective
March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. The Ergo JV has not yet produced gold and
was a joint venture, where the Group owned 50% and the Mintails group owned 50%. Effective May 1, 2010 the Group acquired Mintails’ 50%
interest, resulting in the Group owning 100%.
2
Crown has been restated during fiscal 2010 to include the surface retreatment operation of ERPM. ERPM has therefore also been restated and
comprises only its underground operation.
66
At Crown, there was a 4% increase in gold production to 99,410 ounces from 95,616 ounces in fiscal 2009 because of a
16% improvement in recoveries from 0.37g/t in fiscal 2009 to 0.43g/t in fiscal 2010. The increase was partly offset by a reduction
of throughput to 7,122,000 tonnes from 8,007,000 tonnes because of the continued impact of deposition constraints at Crown’s
deposition facility. A more detailed review of gold production at each of our operations is provided under Item 4D.: “Property,
Plant and Equipment.”
Cash costs
1
and total costs
2
per kilogram
Our operational focus is to increase production, improve productivity and control costs. For fiscal 2011, cash costs increased
to R251,296 per kilogram of gold from R233,112 per kilogram of gold in fiscal 2010. Total costs increased to R357,486 per kilogram
of gold from R237,123 per kilogram of gold in fiscal 2010. The increase in cash costs per kilogram of gold produced in fiscal 2011
was due to price increases in key consumables together with above inflation increases in both labor and electricity, which were
partially offset by higher production. The increase in total costs was due to a R546.6 million impairment of Blyvoor’s property, plant
and equipment.
For fiscal 2010, cash costs increased to R233,112 per kilogram of gold from R212,228 per kilogram of gold in fiscal 2009.
Total costs from our operations decreased to R237,123 per kilogram of gold from R237,344 per kilogram of gold in fiscal 2009. The
increase in cash costs per kilogram of gold produced in fiscal 2010 was due to price increases in key consumables (labor,
consumables and electricity) and lower production. The decrease in total costs from operations was due to R156.7 million profit on
disposal (placed into voluntary liquidation) of our foreign subsidiary companies, which were the holding companies of our
Australasian Operations.
Reconciliation of cash costs per kilogram, total costs and total costs per kilogram
Cash costs of production include costs for all mining, processing, administration, royalties and production taxes, but
exclude depreciation, depletion and amortization, rehabilitation, retrenchment costs and corporate administration costs. Cash costs
per kilogram are calculated by dividing cash costs by kilograms of gold produced. Cash costs per kilogram have been calculated
on a consistent basis for all periods presented.
Total operating costs include cash costs of production, depreciation, retrenchment costs, depletion and amortization and
the accretion of rehabilitation, reclamation and closure costs.
Total costs, as calculated and reported by us, include total operating costs, plus other operating and non-operating
income, finance expenses and other operating and non-operating costs, but exclude taxation, minority interest, profit or loss from
associates and the cumulative effect of accounting adjustments. These costs are excluded as the mines do not have control over
these costs and they have little or no impact on the day-to-day operating performance of the mines. Total costs per kilogram are
calculated by dividing total costs by kilograms of gold produced. Total costs and total costs per kilogram have been calculated on
a consistent basis for all periods presented.
Cash costs per kilogram, total costs and total costs per kilogram are non - IFRS financial measures that should not be
considered by investors in isolation or as alternatives to operating costs, net profit/(loss) attributable to equity owners of the
parent, profit/(loss) before tax and other items or any other measure of financial performance presented in accordance with IFRS
or as an indicator of our performance. While the Gold Institute has provided definitions for the calculation of cash costs, the
calculation of cash costs per kilogram, total costs and total costs per kilogram may vary significantly among gold mining
companies, and these definitions by themselves do not necessarily provide a basis for comparison with other gold mining
companies. However, we believe that cash costs per kilogram, total costs and total costs per kilogram are useful indicators to
investors and our management of an individual mine's performance and of the performance of our operations as a whole as they
provide:
• an indication of a mine’s profitability and efficiency;
• the trend in costs;
• a measure of a mine's margin per kilogram, by comparison of the cash costs per kilogram by mine to the price of gold;
and
• a benchmark of performance to allow for comparison against other mines and mining companies.
A reconciliation of operating costs to total costs, cash costs per kilogram and total costs per kilogram, for each of the
three years ended June 30, 2011, 2010 and 2009 is presented below. In addition, we have also provided below details of the
amount of gold produced by each mine for each of those periods.
1
Cash costs per kilogram is a non - IFRS financial measure of performance that we use to determine cash generating capacities of the mines and
to monitor performance of our mining operations. For a reconciliation to operating costs see Item 5A.: “Operating Results.”
2
Total costs per kilogram is a non - IFRS financial measure of performance that we use to determine cash generating capacities of the mines and
to monitor performance of our mining operations. For a reconciliation to operating costs see Item 5A.: “Operating Results.”
67
For the year ended June 30, 2011
(in R'000, except as otherwise noted)
Blyvoor
Ergo
1
Crown
2
ERPM
2
Other
3
Total
Cash operating costs
4
.......................................
1,091,941
308,976
671,770 - -
2,072,687
Movement in gold in process
23,879
1,197
(9,464) - -
15,612
Operating costs
1,115,820 310,173 662,306 - -
2,088,299
Plus:
Depreciation ..................................................
32,638
86,917
11,247
-
117
130,919
Retrenchment costs ........................................
-
-
-
839
-
839
Movement in provision for environmental
rehabilitation..................................................
5,649
9,154 27,198 11,049 (483)
52,567
Actuarial gain on post-retirement benefits .......
- -
(5,651) - -
(5,651)
Ongoing rehabilitation expenditure .................
1,453 7,114 25,197 9,047 167
42,978
Net other operating costs/(income) .................
8,559 (2,279) 3,552 18,623 5,141
33,596
Total operating costs ......................................
1,164,119 411,079 723,849 39,558 4,942 2,343,547
Plus:
Impairments...................................................
546,566
-
-
-
1,090
547,656
Administration expenses and general costs .....
1,781
9,438
1,956
(3,380)
78,291
88,086
Finance
income
..............................................
(35,728) (164) (4,874) (2,847) (9,179) (52,792)
Finance expenses ..........................................
5,441
3,678
2,634
11,290
(996)
22,047
Total costs.......................................................
1,682,179 424,031 723,565 44,621 74,148 2,948,544
Gold produced (ounces) ...................................
121,114
48,352 95,713
-
-
265,179
Gold produced (kilograms) ...............................
3,767
1,504
2,977
-
-
8,248
Cash costs per kilogram (R per kilogram) .........
289,870
205,436
225,653 - -
251,296
Total costs per kilogram (R per kilogram) .........
446,556
281,936
243,052 - -
357,486
1
Ergo has been restated during fiscal 2010 to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second quarter of fiscal 2009, at which stage the Group owned 50% of the joint
venture and the Mintails group owned the remaining 50%.
2
Crown has been restated during fiscal 2010 to include the surface retreatment operation of ERPM. ERPM has therefore also been restated and comprises only its underground operation.
3
Relates to other non-core operating entities within the Group.
4
Cash operating costs equate to cash costs of production.
68
For the year ended June 30, 2010
(in R'000, except as otherwise noted)
Blyvoor
Ergo
1
Crown
2
ERPM
2
Other
3
Total South
African
Operations
Other-
Offshore
Operations
Total
Continuing
Operations
Cash operating costs
4
.......................................
878,888
254,192
615,726
-
-
1,748,806 -
1,748,806
Movement in gold in process
(33,766) (5,215) 9,040 -
-
(29,941) -
(29,941)
Operating costs
845,122 248,977 624,766
-
-
1,718,865 -
1,718,865
Plus:
Depreciation ..................................................
32,616
95,418
61,005
1,452
278
190,769 -
190,769
Retrenchment costs ........................................
10,925
-
-
4,029
5,173
20,127 -
20,127
Movement in provision for environmental
rehabilitation..................................................
1,246
578 (16,994)
(4,618)
(68,246)
(88,034) -
(88,034)
Actuarial gain on post-retirement benefits .......
- -
(35,290)
-
-
(35,290)
-
(35,290)
Ongoing rehabilitation expenditure .................
1,942 5,272
20,924
4,390
2,323
34,851
-
34,851
Net other operating costs/(income) .................
7,350 (493)
14,371
26,398
2,873
50,499
-
50,499
Total operating costs ......................................
899,201 349,752 668,782
31,651
(57,599)
1,891,787
-
1,891,787
Plus:
(Reversal of impairments)/Impairments ..........
-
-
(12,514)
-
18,738
6,224
-
6,224
Administration expenses and general costs .....
5,609
6,169
19,752
18,541
6,765
56,836
190
57,026
Finance income ..............................................
(36,556)
(814)
(4,879)
17,150
(19,980)
(45,079)
(155,194)
(200,273)
Finance
expenses
..........................................
11,730 2,574 5,931
36,799
(32,902)
24,132
-
24,132
Total costs.......................................................
879,984 357,681 677,072
104,141
(84,978)
1,933,900
(155,004)
1,778,896
Gold produced (ounces) ...................................
106,452
35,332 99,410 -
-
241,194
-
241,194
Gold produced (kilograms) ...............................
3,311
1,099
3,092
-
-
7,502
-
7,502
Cash costs per kilogram(4) (R per kilogram) .....
265,445
231,294
199,135
-
-
233,112
-
233,112
Total costs per kilogram (R per kilogram) .........
265,776
325,460
218,975
-
-
257,785
-
237,123
1
Ergo has been restated to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the
Mintails group owned the remaining 50%. Effective March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. Effective May 1, 2010 the Group acquired Mintails’ 50%
interest in the Ergo JV, resulting in the Group owning 100%.
2
Crown has been restated to include the surface retreatment operation of ERPM. ERPM has therefore also been restated and comprises only its underground operation.
3
Relates to other non-core operating entities within the Group.
4
Cash operating costs equate to cash costs of production.
69
For the year ended June 30, 2009
(in R'000, except as otherwise noted)
Blyvoor
Ergo
1
Crown
2
ERPM
2
Other
3
Total South
African
Operations
Other-
Offshore
Operations
Total
Continuing
Operations
Cash operating costs (4) ...................................
830,336
66,442
525,516
212,712
-
1,635,006 -
1,635,006
Movement in gold in process
9,445 (11,232)
(5,231)
-
-
(7,018) -
(7,018)
Operating costs
839,781 55,210
520,285
212,712
-
1,627,988 -
1,627,988
Plus:
Depreciation
..................................................
29,273
30,784 38,112
607 441
99,217 -
99,217
Retrenchment
costs
........................................
-
- -
30,681
4,241
34,922 -
34,922
Movement in provision for environmental
rehabilitation..................................................
(426)
(2,825) 11,002
(11,023)
22,817
19,545 -
19,545
Actuarial loss on post-retirement benefits .......
- -
18,226
- -
18,226
18,226
Ongoing rehabilitation expenditure .................
4,971 3,419
13,084
1,761 7,896 31,131
31,131
Net other operating costs/(income) .................
7,022 3,561
3,238 (14,751) 3,926 2,996
2,996
Total operating costs ......................................
880,621 90,149
603,947
219,987 39,321
1,834,025
-
1,834,025
Plus:
Impairments...................................................
-
-
121,474
53,012
(99,348)
75,138
-
75,138
Administration expenses and general costs .....
16,719
2,810
19,980
16,592
18,662
74,763
8,820
83,583
Finance
income
..............................................
(44,207) (16) (9,029) (32,991)
(120,752)
(206,995)
1,004
(205,991)
Finance expenses ..........................................
12,889
2,372
7,563
25,350
(16,749)
31,425
10,318
41,743
Total costs.......................................................
866,022 95,315
743,935
281,950
(178,866)
1,808,356
20,142
1,828,498
Gold produced (ounces) ...................................
129,473
3,666 95,616 18,935
-
247,690
-
247,690
Gold produced (kilograms) ...............................
4,027
114
2,974
589
-
7,704
-
7,704
Cash costs per kilogram(4) (R per kilogram) .....
206,192
582,825
176,703
361,141
-
212,228
-
212,228
Total costs per kilogram (R per kilogram) .........
215,054
836,096
250,146
478,693
-
234,729
-
237,344
1
Ergo has been restated to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the
Mintails group owned the remaining 50%. Effective March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. The Ergo JV has not yet produced gold and was a joint
venture, where the Group owned 50% and the Mintails group owned 50%. Effective May 1, 2010 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%.
2
Crown has been restated to include the surface retreatment operation of ERPM. ERPM has therefore also been restated and comprises only its underground operation.
3
Relates to other non-core operating entities within the Group.
4
Cash operating costs equate to cash costs of production.
70
Capital expenditure
During fiscal 2011, total capital expenditure (cash) was R317.3 million, compared to R194.0 million in fiscal 2010, an
increase of 64%. Capital expenditure increased primarily as a result of the Crown/Ergo pipeline project which commenced during
June 2010. In fiscal 2011, Ergo spent R29.4 million on the refurbishment of the second CIL circuit at the Ergo plant and
R27.7 million on the extension of the Brakpan tailings facility, Crown spent R119.7 million which was all part of the Crown/Ergo
pipeline project. Crown also spent R27.9 million on tailings deposition site maintenance and R0.6 million on vehicles and
equipment. Blyvoor spent R57.2 million on opening up and development, R25.3 million on equipment and R13.2 million on other
equipment and tailings facility management. For a detailed summary of capital expenditure, see Item 4D.: “ Property, Plant and
Equipment”.
During fiscal 2010, total capital expenditure (cash) relating to operations was R194.0 million, compared to
R345.1 million in fiscal 2009, a decrease of 44%. Capital expenditure decreased, because most of the capital for Phase 1 of the
Ergo project was incurred during fiscal 2009. In fiscal 2010, Ergo spent R34.4 million for the installation and development of
infrastructure, Crown spent R29.6 million on the commencement of the Crown/Ergo pipeline project and R16.1 million on tailings
deposition site maintenance and vehicles and equipment, Blyvoor spent R79.6 million mainly for opening up and development and
equipment. For a detailed summary of capital expenditure, see Item 4D.: “ Property, Plant and Equipment”.
Subsequent to June 30, 2011 and up to September 30, 2011 we spent R77.9 million on capital expenditure relating mainly
to:
• Blyvoor for opening up and development amounting to R12.9 million and R3.7 million on other equipment ;
• Crown for the Crown/Ergo pipeline project amounting to R26.6 million;
• Ergo for construction and commissioning of the upgrading of the second CIL circuit amounting to R9.0 million and the
extension of the Brakpan tailings facility amounting to R17.9 million; and
• Zimbabwe exploration amounting to R3.2 million.
Ore Reserves
As at June 30, 2011, our Ore Reserves were estimated at 6.3 million ounces, as compared to approximately 6.0 million
ounces at June 30, 2010, representing a 5% increase. The increase is mainly due to an increase in the rand gold price. Excluding the
effect of depletion, our Ore Reserves increased by 0.686 million ounces, or 11%. As at June 30, 2010, our Ore Reserves from
operations were estimated at 6.0 million ounces, as compared to approximately 5.2 million ounces at June 30, 2009, representing a
15% increase. The increase was mainly due to an increase in the rand gold price and the inclusion of the Crown/Ergo pipeline ore
reserves. Excluding the effect of depletion, our Ore Reserves increased by 1.0 million ounces, or 19%.
We seek to increase our attributable Ore Reserves through development and to acquire additional new Ore Reserves through
acquisitions as well as exploration.
Year ended June 30,
2011 2010 2009
Ounces
Kilograms
Ounces
Kilograms Ounces Kilograms
‘000
‘000
‘000
Blyvoor ...............................................................
4,339
134,963
3,973
123,544
3,519
109,453
Crown .................................................................. 809
25,150
858
26,667
410
12,739
Ergo
1
................................................................... 1,188
36,961
1,196
37,192
1,291
41,697
Total Ore ............................................................ 6,336
197,074
6,027 187,403 5,220
163,889
Our Ore Reserves presented in Item 4B.: “Business Overview” and above are prepared using three year average gold prices
at the time of reserve determination. For purposes of our financial statements, depreciation and impairment of property, plant and
equipment is determined based upon our "recoverable minerals", which means proven and probable ore reserves, which are
calculated using our life of mine business plans and a gold price at the end of each financial year.
1
Ergo’s Ore Reserves include the Elsburg and Benoni tailings complexes which are being processed by Ergo, however the mining rights for
these tailings are owned by ERPM.
71
Application of critical accounting policies
Some of our significant accounting policies require the application of significant judgment by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty and are based on our historical experience, terms of existing contracts, management's view on trends in the gold mining
industry and information from outside sources.
Management believes the following critical accounting policies involve the more significant judgments and estimates used
in the preparation of our consolidated financial statements and could potentially impact our financial results and future financial
performance:
• Property, plant and equipment
• Impairment of property, plant and equipment
• Deferred income and mining taxes
• Reclamation and environmental costs
• Post-retirement medical benefits
• Financial instruments
Management has discussed the development and selection of each of these critical accounting policies with the Board of
Directors and the Audit Committee, both of which have approved and reviewed the disclosure of these policies. Our significant
accounting policies relating to our accounting estimates and judgments are described in more detail in note 1 to the consolidated
financial statements. Refer to Item 18.: “Financial statements’’. This discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes included in Item 18.: “Financial statements’’.
Property, plant and equipment
Actual expenditures incurred for mineral property interests, mine development costs, mine plant facilities and equipment are
capitalized to the specific mine to which the cost relates. Depreciation is calculated on a mine-by-mine basis using the units of
production method. Other assets are depreciated using the straight-line method over the expected life of these assets. Under the units
of production method, we estimate the depreciation rate based on actual production over total Proven and Probable Ore Reserves of
the particular mine, which are calculated using our life of mine business plans and a gold price at the end of each financial year.
This rate is then applied to actual costs capitalized to date to arrive at the depreciation expense for the period. Proven and Probable
Ore Reserves of the particular mine reflect estimated quantities of economically and legally recoverable reserves. Changes in
management’s estimates of the quantities of economically recoverable reserves impact depreciation on a prospective basis. The
estimate of the total reserves of our mines could be materially different from the actual gold mined due to changes in the factors used
in determining our Ore Reserves, such as the gold price, foreign currency exchange rates, labor costs, engineering evaluations of
assay values derived from sampling of drill holes and other openings. Any change in management’s estimate of the total Proven and
Probable Ore Reserves would impact the depreciation charges recorded in our consolidated financial statements. The prevailing
market price of gold at the end of the financial year was R236,227, R306,081 and R328,155 per kilogram for the fiscal years
ended June 30, 2009, 2010 and 2011, respectively.
Impairment of property, plant and equipment
The carrying amounts of assets, other than inventories and deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. Future cash flows are estimated based on
quantities of recoverable minerals, expected gold prices, production levels and cash costs of production, all based on life of mine
business plans. The term “recoverable minerals” means proved and probable ore reserves, which are calculated using our life of
mine business plans and a gold price at the end of each financial year. The prevailing market price of gold at the end of the
financial year was R236,227, R306,081 and R328,155 per kilogram for the fiscal years ended June 30, 2009, 2010 and 2011,
respectively. For the purpose of impairment testing, assets are grouped together into the smallest group of assets which generates
cash inflows from continuing use that is largely independent of the cash inflows of other assets or groups of assets, or the cash-
generating unit. An impairment loss is recognized directly against the carrying amount of the asset whenever the carrying amount of
an asset, or its cash generating unit, exceeds its recoverable amount. Impairment losses are recognized in profit or loss.
The recoverable amount of property, plant and equipment is generally determined utilizing discounted future cash flows. We
also consider such factors as our market capitalization, the quality of the individual ore body and country risk in determining the
recoverable amount. During fiscal 2011, R546.6 million was recorded as an impairment and during fiscal 2010 a reversal of
impairment of R12.5 million and in 2009 an impairment of R72.4 million were recorded by applying these principles.
72
In fiscal 2011, we calculated the recoverable amount based on updated life-of-mine business plans, a gold price of R350,649
per kilogram in year one escalating at 6.1% per annum, and a discount rate of 13.9%. With a 10% reduction in the gold price to
R315,584 per kilogram, an additional impairment of R366.2 million would be raised, or at an increase in the discount rate of 3.8
percentage points (27.3%) to 17.7%, the group would start to raise an additional impairment of the mining assets. The increase in
discount rate from 13.7% in fiscal 2010 to 13.9% in fiscal 2011, was as a result of the increase in the groups average borrowing rate
from 10.0% to 10.7% as well as an increase in the beta factor from 0.63 to 0.77 indicating an increased volatility in the group’s share
price. The increase in the escalation rate from 5.8% in fiscal 2010 to 6.1% in fiscal 2011 was a result of higher inflation rates from
4.2% (CPI) up to 5.3% (CPI).
The R546.6 million impairment in fiscal 2011, related to Blyvoor which represents one cash generating unit. A discount rate
of 14.4% (2010: 13.7%), together with further risk adjustments to future cash flows were used in determining the impairment.
Management also took into consideration as part of their reasonableness assessment, a sensitivity analysis and the fact that Blyvoor is
under business rescue proceedings, with the business rescue plan not being approved as at year end. Further considerations included
the group's market capitalization which exceeded the group's net asset value.
As at June 30, 2011, the net asset value as per the statement of financial position amounting to R1,219.2 million, was near to
the company’s market capitalization amounting to R1,258.6 million and as at June 30, 2010, the net asset value of R1,650 million
exceeded the market capitalization of R1,312.5 million. This is an indicator of possible impairment in accordance with paragraph 12
of IAS 36 – Impairment of assets (International Financial Reporting Standards (IFRS)). Management has assessed the recoverable
amounts of the mining assets through each operation’s respective life-of-mine plans, using the value in use method and the
assumptions mentioned in the aforementioned paragraph, and determined that no additional impairment is required.
Deferred income and mining taxes
Deferred taxation is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it
is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary
differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to
the temporary differences, based on the expected manner of realization or settlement of the carrying amount of assets and liabilities,
and based on the laws that have been enacted or substantively enacted by the reporting date.
The amount recognized as a deferred tax asset is generally determined utilizing discounted future cash flows. We consider
all factors that could possibly affect the probability that future taxable profit will be available against which unused tax credits can be
utilized. These factors included profitability of the operations and an estimate of the gold price. The amount recognized as a deferred
tax asset is sensitive to the current gold spot price. As at June 30, 2011 we recognized a deferred tax asset of R69.2 million (June 30,
2010: R140.7 million and June 30, 2009: R165.1 million). The amount recognized at June 30, 2011 is based on a future gold price
received of R350,649 per kilogram in year one, escalating at an average of 6.1% per annum. At a 10% lower gold price received of
R315,584 per kilogram, the deferred tax asset will reduce by R15.3 million.
During fiscal 2011, the Company changed the deferred tax rate from the maximum statutory rate to the expected average
effective tax rate, resulting from the South African income tax formula for mining income. This change has been accounted for as a
change in estimate and is therefore applied prospectively. The change reduced the expense through profit or loss and the net deferred
tax liability by R39.9 million.
Reclamation and environmental costs
The provision for environmental rehabilitation (which includes restoration costs) represents the cost that will arise from
rectifying damage caused before production commenced. Accordingly an asset is recognized and included within mining properties.
Provisions for environmental rehabilitation are provided at the present value of the expenditures expected to settle the obligation,
using estimated cash flows based on current prices. The unwinding of the obligation is included in profit or loss. Estimated future
costs of environmental rehabilitation are reviewed regularly and adjusted as appropriate for new circumstances or changes in law or
technology. Changes in estimates are capitalized or reversed against the related asset but taken to profit or loss if there is no related
asset left. Gains or losses from the expected disposal of assets are not taken into account when determining the provision.
Estimated provisions for environmental rehabilitation, comprising pollution control rehabilitation and mine closure, are
based on our environmental management plans in compliance with current technological, environmental and regulatory requirements.
An average discount rate of 8.53%, average inflation rate of 5.98% and expected life of mines according to the life-of-mine plans
were utilized in the calculation of the estimated net present value of the rehabilitation liability (fiscal 2010: average discount rate of
8.95%, average inflation rate of 5.76% and fiscal 2009: average discount rate of 8.25% and inflation rate of 5.7%). During fiscal 2011
there was a net increase in the provision of R10.9 million for the Ergo JV and R18.1 million for Crown, representing an increase in
their respective footprints and a reduction amounting to R21.4 million for rehabilitation costs incurred (during fiscal 2010 there was a
net increase in our provision of R6.4 million and due to the acquisition of the remaining 50% interest in the Ergo JV an increase
amounting to R79.0 million).
73
Charges to profit or loss for the environmental rehabilitation of R52.6 million, R88.0 million (benefit raised which includes
the transfer of liabilities to the amount of R63.4 million and R4.8 million relating to the disposal of the mining rights of Durban
Roodepoort Deep and West Witwatersrand Gold Mine (Pty) Limited, respectively) and R34.2 million were raised in fiscal 2011,
2010 and 2009, respectively. Unwinding of the provisions amounting to R9.4 million, R10.8 million and R9.8 million was recorded
in fiscal 2011, 2010 and 2009, respectively.
In South Africa, annual contributions are made to dedicated Rehabilitation Trust Funds, which are to be used to fund the
estimated cost of rehabilitation during and at the end of the life of the relevant mine.
Post-retirement medical benefits
Post-retirement medical benefits in respect of qualifying employees are recognized as an expense over the expected
remaining service lives of relevant employees. We have an obligation to provide medical benefits to certain of our pensioners and
dependants of ex-employees. These liabilities are provided in full, calculated on an actuarial basis. Periodic valuation of these
obligations is carried out by independent actuaries using appropriate mortality tables, long-term estimates of increases in medical
costs and appropriate discount rates. Actuarial gains and losses are recognized immediately in profit or loss. Assumptions used to
determine the liability include a discount rate, health cost inflation rate, real discount rate, retirement age, spouse age gap,
continuation at retirement and proportion married at retirement. At June 30, 2011 a provision of R5.5 million (June 30, 2010:
R12.5 million, June 30, 2009: R42.5 million) for post-retirement medical benefits has been raised. During fiscal 2011, a gain of
R4.0 million (fiscal 2010: R29.7 million gain; fiscal 2009: R21.0 million expense) relating to these post-retirement medical
benefits went to profit or loss. The gain in fiscal 2011 was brought about by the partial settlement of the liability. The gain in fiscal
2010 was brought about by an actuarial valuation after management revised their assumptions used in this provision as a result of
a project initiated during fiscal 2010 to optimize the synergies of our surface retreatment operations and the resulting possibility of
a settlement of existing post retirement medical benefits. An independent legal opinion was obtained in this regard. While we
believe that these assumptions are appropriate, significant changes in the assumptions may materially affect post-retirement
obligations as well as future expenses, which may have an impact on earnings in the periods where the changes in the assumptions
occur.
Financial instruments
Financial instruments recognized on the statement of financial position include investments, trade and other receivables,
cash and cash equivalents, long- and short-term interest-bearing borrowings, trade and other payables, and bank overdrafts.
Financial instruments are initially recognized at fair value and include any directly attributable transaction costs, except those
financial instruments measured at fair value through profit or loss.
If the value of the financial instrument cannot be obtained from an active market, we have established fair value by using
valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis and option pricing models, refined to reflect the issuer’s specific
circumstances. Preference shares are measured at amortized cost based on expected future discounted cash flows. The original risk
adjusted discount rate of 13% is used when estimating the future liability and are re-measured on an annual basis. This original
risk adjusted discount rate is replaced with a risk adjusted market rate to determine a fair value on an annual basis.
Operating results
Comparison of financial performance for the fiscal year ended June 30, 2011 with fiscal year ended June 30, 2010
Revenue
The following table illustrates the year-on-year change in revenue by evaluating the contribution of each segment to the
total change on a consolidated basis for fiscal 2011 in comparison to fiscal 2010:
Impact of change in volume
R’000
Total
revenue
2010 Acquisitions
Internal
growth/
(decline)
Impact of
change in
price Net change
Total
revenue
2011
Blyvoor ....................................
861,409
-
118,636
205,815
324,451
1,185,860
Ergo
1
........................................
294,325
-
108,465
65,802
174,267
468,592
Crown
2
.....................................
834,788
-
(31,049)
107,128
76,079
910,867
Total Operations .....................
1,990,522
-
196,052
378,745
574,797
2,565,319
1
Ergo has been restated during fiscal 2010 to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second
quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the Mintails group owned the remaining 50%. Effective
March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. Effective May 1, 2010 the Group acquired
Mintails’ 50% interest in the Ergo JV, resulting in the Group owning 100%.
2
Crown has been restated during fiscal 2010 to include the surface retreatment operation of ERPM.
74
Revenue for fiscal 2011 increased by R574.8 million, or 29%, to R2,565.3 million, due to the higher gold price received
and the 10% increase in gold production. The average gold price increased from R265,332 per kilogram in fiscal 2010 to
R311,023 per kilogram in fiscal 2011.
Operating costs
The following table illustrates the year-on-year change in operating costs by evaluating the contribution of each segment
to the total change on a consolidated basis for fiscal 2011 in comparison to fiscal 2010:
Impact of change in volume
R’000
Total
operating
costs
2010 Acquisitions
Internal
growth/
(decline)
Impact of
change in
costs Net change
Total
operating
costs
2011
Blyvoor .....................................
845,122 -
116,393
154,305
270,698 1,115,820
Ergo
1
.........................................
248,977 -
91,752
(30,556)
61,196
310,173
Crown
2
......................................
624,766 -
(23,237)
60,777
37,540
662,306
Total .........................................
1,718,865 -
184,908
184,526
369,434
2,088,299
The following table lists the major components of operating costs for each of the years set forth below:
Years ended June 30,
Costs
2011 2010
Labor ................................................................................................................................. 35%
34%
Contractor services ............................................................................................................. 12%
12%
Consumables and other ......................................................................................................
35% 38%
Electricity and water ........................................................................................................... 18%
16%
As gold mining in South Africa is very labor intensive, labor costs and contractor services are one of the largest
components of operating costs. Operating costs are linked directly to the level of production of a specific fiscal year. Operating
costs in fiscal 2011 increased by 22% to R2,088.3 million compared to operating costs of R1,718.9 million in fiscal 2010. This
increase was mainly as a result of a 7% rise in volumes, together with above inflation increases in both labor and electricity costs
which affected Blyvoor in particular.
At Blyvoor operating costs increased from R845.1 million in fiscal 2010 to R1,115.8 million in fiscal 2011, a consequence
of increased volumes and above inflation increases in both labor and electricity costs. Operating costs at Ergo increased from
R249.0 million in fiscal 2010 to R310.2 million in fiscal 2011 which is due in part to a ramp-up in volumes. Operating costs at Crown
increased from R624.8 million in fiscal 2010 to R662.3 million in fiscal 2011, due to higher labor and electricity costs.
Rehabilitation provision and amounts contributed to environmental trust funds
As of June 30, 2011, we estimate our total rehabilitation provision, being the discounted estimate of future costs, to be
R490.2 million as compared to R420.6 million at June 30, 2010. The increase in the provision for environmental rehabilitation in
fiscal 2011 was due to changes in discount and inflation rate assumptions, changes in estimates resulting from changes to the life-of-
mines and additional environmental damage incurred. In fiscal 2011 an expense of R52.6 million (fiscal 2010: R88.0 million
benefit) including an unwinding of the discount of R9.4 million were recorded (fiscal 2010: R10.8 million) in profit or loss.
A total of R134.2 million was invested in our various environmental trust funds as at the end of fiscal 2011, as compared
to R126.1 million for fiscal 2010. The increase is attributable to interest received on the investment of these funds and
contributions of R1.2 million during fiscal 2011. The shortfall between the trust funds and the estimated provisions is expected to
be financed by ongoing financial contributions in available financial investments over the remaining production life of the
respective mining operations, the proceeds on the disposal of remaining assets and gold from plant clean-up.
1
Ergo has been restated during fiscal 2010 to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second
quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the Mintails group owned the remaining 50%. Effective
March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. Effective May 1, 2010 the Group acquired
Mintails’ 50% interest in the Ergo JV, resulting in the Group owning 100%.
2
Crown has been restated during fiscal 2010 to include the surface retreatment operation of ERPM.
75
Depreciation
Depreciation charges were R130.9 million for fiscal 2011 compared to R190.8 million for fiscal 2010. The decrease is
mainly attributable to the extension of Crown's life-of-mine due to the construction of the Crown/Ergo pipeline.
Retrenchment costs
Retrenchment costs decreased to R0.8 million in fiscal 2011 from R20.1 million in fiscal 2010. In fiscal 2011, these costs
relate to the last of the retrenchments at ERPM due to the closure of its underground operation.
Impairments
In fiscal 2011, an impairment of R546.6 million was raised against Blyvoor’s property, plant and equipment due to its
current distressed financial position and the uncertainties relating to the outcome of the business rescue plan which is expected on
November 1, 2011. Blyvoor represents one cash generating unit. A discount rate of 14.4% (2010: 13.7%), together with further risk
adjustments to future cash flows were used in determining the impairment. Management also took into consideration as part of their
reasonableness assessment, a sensitivity analysis and the fact that Blyvoor is under business rescue proceedings, with the business
rescue plan not being approved as at year end. Further considerations included the group's market capitalization in comparison to the
group's net asset value.
In addition, an impairment amounting to R1.1 million was raised against the West Witwatersrand Gold Mines (Pty)
Limited rehabilitation trust fund, due to the disposal of the relating mining rights over the West Wits mining lease area.
Administration expenses and general costs
The administration expenses and general costs increased in fiscal 2011 to R88.1 million from R57.0 million in fiscal
2010, an increase of R31.1 million. In fiscal 2010, administration expenses and general costs included a non-recurring credit of
approximately R30.0 million as a result of a decrease in the provision for post-retirement medical benefits as part of a project
initiated during fiscal 2010 to optimize the synergies of DRDGOLD’s surface operations, and the resulting settlement of the post-
retirement medical benefit, management has revised the assumptions used in calculating the provision. Other than inflation related
increases, this was the main reason for the year-on-year increase.
Finance income
Finance income decreased from R200.3 million in fiscal 2010 to R52.8 million in fiscal 2011. The majority of the
decrease in fiscal 2011 was due to the fact that finance income in fiscal 2010 included a non-recurring gain of R156.7 million for
foreign currency translation reserves realized on the liquidation of foreign subsidiaries, which included the Australasian
Operations.
Finance expenses
Finance expenses decreased from R24.1 million in fiscal 2010 to R22.0 million in fiscal 2011. The decrease is mainly
attributable to the capitalization of borrowing costs in the current year relating to the Crown/Ergo pipeline, amounting to R6.4
million.
Income tax
The net tax charge of R32.2 million for fiscal 2011 comprises a current taxation charge of R1.2 million, a deferred tax
charge of R25.9 million and secondary tax on companies amounting to R5.1 million. This compares to a net tax charge of
R8.3 million for fiscal 2010, comprising a current taxation charge of R8.5 million, a deferred tax benefit of R2.0 million and
secondary tax on companies amounting to R1.8 million. The year-on-year increase in the net tax charge was mainly due to higher
profits, in particular at Crown and Ergo, which resulted in an increase in the deferred tax charge for the year.
76
Comparison of financial performance for the fiscal year ended June 30, 2010 with fiscal year ended June 30, 2009
Revenue
The following table illustrates the year-on-year change in revenue by evaluating the contribution of each segment to the
total change on a consolidated basis for fiscal 2010 in comparison to fiscal 2009:
Impact of change in volume
R’000
Total
revenue
2009 Acquisitions
Internal
growth/
(decline)
Impact of
change in
price Net change
Total
revenue
2010
Blyvoor ....................................
1,018,527
-
(181,094)
23,976
(157,118)
861,409
Ergo
1
........................................
24,178
- 208,906 61,241 270,147 294,325
Crown
2
.....................................
733,990
-
29,123
71,675
100,798
834,788
ERPM
2
.....................................
134,043
-
(134,043)
-
(134,043)
-
Total Operations .....................
1,910,738
-
(77,108)
156,892
79,784
1,990,522
Revenue for fiscal 2010 increased by R79.8 million, or 4.2%, to R1,990.5 million, primarily due to the higher gold price
received. The average gold price increased from R248,019 per kilogram in fiscal 2009 to R265,332 per kilogram in fiscal 2010.
The impact of the increase in the gold price was offset by the decrease in production at ERPM due to its underground operation
ceasing production in October 2008 and due to a decrease in production at Blyvoor as a result of the seismic events during the last
quarter of fiscal 2009 and the month-long labor strike.
Operating costs
The following table illustrates the year-on-year change in operating costs by evaluating the contribution of each segment
to the total change on a consolidated basis for fiscal 2010 in comparison to fiscal 2009:
Impact of change in volume
R’000
Total
operating
costs
2009 Acquisitions
Internal
growth/
(decline)
Impact of
change in
costs Net change
Total
operating
costs
2010
Blyvoor ....................................
839,781
-
(149,313)
154,654
5,341
845,122
Ergo¹ ........................................
55,210
-
477,034
(283,267) 193,767 248,977
Crown² .....................................
520,285
-
20,643
83,838
104,481
624,766
ERPM
²
......................................
212,712 -
(212,712) -
(212,712) -
Total ........................................
1,627,988
-
135,652
(44,775)
90,877
1,718,865
The following table lists the major components of operating costs for each of the years set forth below:
Years ended June 30,
Costs
2010 2009
Labor ................................................................................................................................. 34%
39%
Contractor services ............................................................................................................. 12%
11%
Consumables and other ......................................................................................................
38% 37%
Electricity and water ........................................................................................................... 16%
13%
As gold mining in South Africa is very labor intensive, labor costs and contractor services are one of the largest
components of operating costs. Operating costs are linked directly to the level of production of a specific fiscal year. Operating
costs in fiscal 2010 increased by 5.5% to R1,718.9 million compared to operating costs of R1,628.0 million in fiscal 2009. This
increase was primarily attributable to Ergo which started its operations during November 2008 and therefore had its first full
twelve month fiscal year of production during fiscal 2010. This was offset by the cessation of ERPM’s underground operation
during fiscal 2009.
1
Ergo has been restated during fiscal 2010 to include ErgoGold and the Ergo JV. ErgoGold started gold production at the end of the second
quarter of fiscal 2009, at which stage the Group owned 50% of the joint venture and the Mintails group owned the remaining 50%. Effective
March 31, 2009 the Group acquired Mintails’ 50% interest, resulting in the Group owning 100%. Effective May 1, 2010 the Group acquired
Mintails’ 50% interest in the Ergo JV, resulting in the Group owning 100%.
2
Crown has been restated during fiscal 2010 to include the surface retreatment operation of ERPM. ERPM has therefore also been restated and
comprises only of its underground operation.
77
At Blyvoor operating costs increased from R839.8 million in fiscal 2009 to R845.1 million in fiscal 2010, with a decrease in
volume from 129,473 ounces to 106,452 ounces produced, as a result of the seismic events during the last quarter of fiscal 2009 and
a month-long wage related labor strike during the second quarter of fiscal 2010. Operating costs at Ergo were R249.0 million in
fiscal 2010, representing operating costs for the first full twelve months of production. Operating costs at Crown were R624.8 million
in fiscal 2010, compared to R520.3 million in fiscal 2009. The increase in Crown’s operating costs was due to wage increases and
higher electricity tariffs. At ERPM there were no operating costs relating to underground production during fiscal 2010 due to the
underground operations being placed under care and maintenance, and later suspended during fiscal 2010.
Rehabilitation provision and amounts contributed to environmental trust funds
As of June 30, 2010, we estimated our total rehabilitation provision, being the discounted estimate of future costs, to be
R420.6 million as compared to R412.5 million at June 30, 2009. The increase in fiscal 2010 related to the acquisition of the
remaining 50% interest in the Ergo JV which was partially offset by a reduction in the rehabilitation provision of R4.8 million and
R63.4 million due to the Durban Roodepoort and West Witwatersrand Gold Mines (Pty) Ltd liabilities being taken over by
Mintails SA Limited, respectively. In fiscal 2010 a benefit of R88.0 million (fiscal 2009: R19.5 million expense) including an
unwinding of the discount of R10.8 million were recorded (fiscal 2009: R9.8 million) in profit or loss.
A total of R126.1 million was invested in our various environmental trust funds as at the end of fiscal 2010, as compared
to R129.7 million for fiscal 2009. The decrease is attributable to an impairment of the rehabilitation trust fund relating to the West
Witwatersrand Gold Mines (Pty) Limited amounting to R18.7 million, as a result of the transfer of the relating environmental
rehabilitation provision. The shortfall between the trust funds and the estimated provisions is expected to be financed by ongoing
financial contributions in available financial investments over the remaining production life of the respective mining operations,
the proceeds on the disposal of remaining assets and gold from plant clean-up.
Depreciation
Depreciation charges were R190.8 million for fiscal 2010 compared to R99.2 million for fiscal 2009. The increase was
mainly attributable to additional assets acquired during the last quarter of fiscal 2009 by Ergo, therefore fiscal 2010 includes a full
12 months of depreciation for these assets, the acquisition of the remaining 50% interest in the Ergo JV during the last quarter of
fiscal 2010, and the decrease in the Crown life-of-mine for purposes of depreciation due to limited deposition capacity in fiscal
2009.
Retrenchment costs
Retrenchment costs decreased to R20.1 million in fiscal 2010 from R34.9 million in fiscal 2009. In fiscal 2010, these
costs related to retrenchments at Blyvoor amounting to R10.9 million, retrenchments at ERPM amounting to R4.0 million and
retrenchments at our corporate head office amounting to R5.2 million. These retrenchments were due to various cost reduction
initiatives implemented during fiscal 2010, which included the right-sizing initiative at Blyvoor and the closure of ERPM’s
underground operation.
Impairments
In fiscal 2010, an impairment reversal of R12.5 million was made against Crown’s property, plant and equipment due to
the extension of the Knights plant’s life-of-mine. An impairment was recorded amounting to R18.7 million against the West
Witwatersrand Gold Mines (Pty) Limited rehabilitation trust fund, due to the disposal of the relating mining rights over the West
Wits mining lease area.
Administration expenses and general costs
The administration expenses and general costs decreased in fiscal 2010 to R57.0 million from R83.6 million in fiscal
2009, a decrease of R26.6 million. The decrease was mainly due to an insurance claim received by Blyvoor amounting to
R14.1 million and cost reduction initiatives undertaken by management, including a non-recurring credit of approximately R30.0
million as a result of a decrease in the provision for post-retirement medical benefits as part of a project initiated during fiscal
2010 to optimize the synergies of DRDGOLD’s surface operations, and the resulting settlement of the post-retirement medical
benefit, management has revised the assumptions used in calculating the provision.
78
Finance income
Finance income decreased from R206.0 million in fiscal 2009 to R200.3 million in fiscal 2010. The majority of the
decrease in fiscal 2010 related to the decrease in interest received on our cash and cash equivalents which were significantly lower
in fiscal 2010 than in fiscal 2009. In addition, finance income for fiscal 2010 included a R156.7 million profit on disposal of
subsidiaries and R14.6 million net gain on the preference shares carried at amortized cost due to an increase in the repayment
period.
Finance expenses
Finance expenses decreased from R41.7 million in fiscal 2009 to R24.1 million in fiscal 2010. A decrease in the
unwinding of discount on financial liabilities measured at amortized cost and unrealized foreign exchange losses were the main
reasons for the decrease from fiscal 2009 to fiscal 2010.
Income tax
The net tax charge of R8.3 million for fiscal 2010 comprised a current taxation charge of R8.5 million, a deferred tax
benefit of R2.0 million and secondary tax on companies charge as a result of the dividend declared amounting to R1.8 million.
This compared to a net tax benefit relating to our operations of R28.4 million for fiscal 2009, which comprised a current taxation
charge of R46.2 million and a deferred tax benefit of R74.6 million. The increase in the deferred tax benefit in fiscal 2009 was as
a result of the recognition of estimated tax losses at our operations and other temporary differences which were not recognized
previously. On the statement of financial position this deferred tax asset raised was offset by a deferred tax liability raised on the
acquisition of ErgoGold amounting to R185.7 million. The decrease in the deferred tax benefit in fiscal 2010, was due to no
acquisitions or transactions with similar tax implications taking place during fiscal 2010.
5B. LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Net cash of R324.0 million was generated by operating activities for fiscal 2011 as compared to net cash generated by
operating activities of R53.6 million for fiscal 2010 and R208.2 million for fiscal 2009. During fiscal 2011, the net working capital
movement represented an outflow of cash of R3.3 million, compared to an outflow of R31.5 million in fiscal 2010 and an inflow of
R41.4 million in fiscal 2009. Cash generated from operating activities increased largely due to the 15% increase in the rand gold price
and the 10% improvement in gold production for the year, which resulted in a significant rise in the group’s revenue. Although
Blyvoor contributed towards the increase in cash generated from operating activities, our surface retreatment operations generated
most of the cash flows from operating activities.
Investing activities
Net cash utilized by investing activities amounted to R335.2 million in fiscal 2011 compared to R226.4 million in fiscal
2010 and R593.4 million in fiscal 2009.
In fiscal 2011, cash utilized by investing activities mainly consisted of R317.3 million in additions to property, plant and
equipment, of which R176.8 million related to the Crown/Ergo pipeline project. In addition, R22.6 million was spent on
environmental trust funds and rehabilitation payments. In fiscal 2010, cash utilized by investing activities mainly consisted of
R194.0 million in additions to property, plant and equipment, and R40.4 million for the acquisition of the remaining 50% of the Ergo
JV. Cash utilized by investing activities in fiscal 2009, mainly consisted of R345.1 million in additions to property, plant and
equipment and R277.8 million for the acquisition of the remaining 50% of ErgoGold.
Total capital expenditure (cash) for fiscal 2011 was R317.3 million. Capital expenditure was predominantly on the
Crown/Ergo pipeline project, Ore Reserve development, new infrastructure and new mining equipment at our operations. Significant
continuing capital projects for fiscal 2011 included:
• Blyvoor for opening up and development amounting to R57.2 million, equipment replacement amounting to R25.3 million
and R13.2 million for other equipment and tailings facility management;
• Crown for long-lead items relating to the Crown/Ergo pipeline project amounting to R119.7 million and for tailings
deposition site maintenance of R27.9 million; and
• Ergo for construction, commissioning and refurbishment of the refurbishment of the second CIL circuit amounting to R29.4
million and expansion of the tailing complex amounting to R27.7 million.
79
Total capital expenditure (cash) for fiscal 2010 was R194.0 million. Capital expenditure was predominantly on Ore Reserve
development, new infrastructure and new mining equipment at our operations. Significant continuing capital projects for fiscal 2010
included:
• Blyvoor for opening up and development amounting to R48.9 million;
• Crown for long-lead items relating to Crown/Ergo pipeline amounting to R29.6 million; and
• Ergo for construction and commissioning of the second feeder pipeline from the Elsburg Tailings Complex to the Brakpan
plant amounting to R34.4 million.
Total capital expenditure (cash) for fiscal 2009 was R345.1 million. Capital expenditure was predominantly on Ore Reserve
development, new infrastructure and new mining equipment at our operations. Significant continuing capital projects for fiscal 2009
included:
• Development of infrastructure at Blyvoor at a cost of R41.4 million and specifically for the WAP project at a cost of R10.1
million (refer Item 4B ‘Business Overview’);
• Tailings deposition site maintenance, 3A17 dump reclamation and Top Star at Crown at a cost of R39.6 million;
• Mining properties development at ERPM at a cost of R17.2 million;
• Installation and development of infrastructure at Ergo amounting to R178.4 million.
We anticipate decreasing our capital expenditure in fiscal 2012 by about 23% from our capital expenditure for fiscal
2011 on operations. We expect to incur R244.0 million of capital expenditure on mining equipment and development, upgrading
current metallurgical plants and tailings facilities as follows:
• Blyvoor – R112.5 million;
• Crown – R56.0 million;
• Ergo – R59.0 million;
• Exploration in Zimbabwe – R16.5 million.
Financing activities
Net cash inflow from financing activities was R81.3 million in fiscal 2011 compared to a net cash inflow of R7.8 million in
fiscal 2010. In fiscal 2009 the net cash outflow from financing activities was R85.8 million.
During fiscal 2011, the net inflow consisted of R108.0 million raised through a Domestic Medium Term Notes Program,
which had been offset by an R8.3 million repayment of borrowings and a dividend payment of R19.2 million.
During fiscal 2010, we issued 6,620,413 shares for cash consideration of R29.9 million and we issued 262,663 shares to the
share option scheme for a consideration of R1.0 million. Costs relating to these share issues were incurred, amounting to R2.0
million. A dividend of R19.0 million was paid and there was a repayment of borrowings amounting to R2.1 million.
During fiscal 2009, we issued 1,429,715 shares to the share option scheme for a consideration of R6.7 million, a dividend of
R37.7 million was paid and there was a repayment of borrowings amounting to R54.4 million.
Borrowings and funding
Our external sources of capital include the issuance of debt, bank borrowings, loan notes and the issuance of equity
securities, which include the following:
Effective July 31, 2007 and March 1, 2008, Ergo entered into two separate loan facilities, amounting to R85.3 million, with
AngloGold Ashanti Limited for the purchase of the remaining movable and immovable assets of Ergo. The facilities were repayable
in equal monthly installments over 23 and 19 months, respectively, of which the final installment was made during fiscal 2010. The
loans bore interest at the prime lending rate, which was 10.0% at June 30, 2010. The loan was secured over the assets that were
purchased from AngloGold Ashanti Limited. The facilities were repaid in full early in fiscal 2010, therefore, as of such date the
facilities were no longer in place.
On January 1, 2009, we entered into a facility of R250.0 million with Investec Bank Limited. The facility bore interest at
the three-month Johannesburg Inter-bank Acceptance Rate, or JIBAR, plus 300 basis points. During fiscal 2009, we had not
drawn down against this facility. During fiscal 2010 we drew down and settled, R50 million against this facility. This facility was
not renewed and, therefore, as at June 30, 2010, this facility was no longer in place.
On October 1, 2010 Ergo Mining Operations (formerly DRDGOLD SA), established a R500 million Domestic Medium
Term Note Programme, or DMTN Programme, under which it may from time to time issue notes. On October 1, 2010, Ergo
Mining Operations successfully issued R108 million in notes under the DMTN Programme and the different notes issued mature
12 and 24 months from the date of issue and bear interest at the three month JIBAR rate plus a margin ranging from 4% to 5% per
annum. The loan notes with a 12 month maturity, amounting to R78.0 million, are repayable on October 3, 2011. The remaining
loan notes with a 24 month maturity, amounting to R30.0 million, are repayable on October 3, 2012.
80
Anticipated funding requirements and sources
At June 30, 2011, we had cash and cash equivalents of R259.1 million, and positive working capital (defined as current
assets less current liabilities) of R100.0 million, compared to cash and cash equivalents of R188.2 million and positive working
capital of R132.9 million at June 30, 2010 and cash and cash equivalents of R352.7 million and positive working capital of
R224.5 million at June 30, 2009. At September 30, 2011, our cash and cash equivalents were R293.9 million.
Our management believes that existing cash resources, net cash generated from operations and the availability of
negotiated funding facilities will be sufficient to meet our anticipated commitments for fiscal 2012 as described above.
Our estimated working capital, capital expenditure and other funding commitments, as well as our sources of liquidity,
would be adversely affected if:
• our operations fail to generate forecasted net cash flows from operations;
• there is an adverse variation in the price of gold or foreign currency exchange rates in relation to the US dollar,
particularly with respect to the rand; or
• our operating results or financial condition are adversely affected by the uncertainties and variables facing our business
discussed under Item 5A.: “Operating Results” or the risk factors described in Item 3D.: “Risk Factors.”
In such circumstances, we could have insufficient capital to meet our current obligations in the normal course of
business, which would have an adverse impact on our financial position and our ability to continue operating as a going concern.
We would need to reassess our operations, consider further restructuring and/or obtain additional debt or equity funding. There
can be no assurance that we will obtain this additional or any other funding on acceptable terms or at all.
5C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
We are not involved in any research and development and have no registered patents or licenses.
5D. TREND INFORMATION
During the first quarter of fiscal 2012, we produced 63,562 ounces at average cash costs of R297,808 per kilogram from our
operations. Gold production from our operations for the second quarter of fiscal 2012 is expected to be in line with the first quarter
results. Cash costs for the second quarter of fiscal 2012 are expected to be slightly lower due to winter tariffs for electricity applying
during the first quarter of fiscal 2012.
For the full year fiscal 2012, we are forecasting gold production from our operations of approximately 269,203 ounces at
cash costs of approximately R288,747 per kilogram, based on an exchange rate assumption of approximately $1.00/R7.27. Our
ability to meet the full year’s production target could be impacted by, amongst other factors, seismicity, lower grades, achieving the
targets set at Ergo and timely installation of the Crown/Ergo pipeline. We are also subject to cost pressures due to increases in labor
costs; increases in crude oil, steel, electricity and water prices; unforeseen changes in ore grades and recoveries; unexpected changes
in the quality or quantity of reserves; unstable or unexpected ground conditions and seismic activity; technical production issues;
environmental and industrial accidents; gold theft; environmental factors; and pollution, which could adversely impact the forecasted
cash costs for fiscal 2012.
5E. OFF-BALANCE SHEET ARRANGEMENTS
The Company does not engage in off-balance sheet financing activities, and does not have any off-balance sheet debt
obligations, unconsolidated special purposes entities or unconsolidated affiliates.
81
5F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Estimated and actual payments due by period
Total
Less than
1 year
Between
1-3 years
Between
3-5 years
More than 5
years
R’000 R’000 R’000 R’000 R’000
Loan notes (including interest) ...........................................
116,517
85,717
30,800
-
-
Purchase obligations – contracted capital expenditure
1
........
50,370 50,370 -
-
-
Preference shares held by Khumo Gold SPV (Pty) Limited
and the DRDSA Empowerment Trust (including interest)....
162,937
-
-
-
162,937
Environmental rehabilitation, reclamation and closure
costs
2
................................................................................
490,225
19,049
-
-
471,176
Total contractual cash obligations ...................................
820,049 155,136
30,800
- 634,113
5G. SAFE HARBOR
See “Special Note regarding Forward-Looking Statements.”
1
Represents planned capital expenditure for which contractual obligations exist.
2
Operations of gold mining companies are subject to extensive environmental regulations in the various jurisdictions in which they operate. These
regulations establish certain conditions on the conduct of our operations. Pursuant to environmental regulations, we are also obliged to close our
operations and reclaim and rehabilitate the lands upon which we have conducted our mining and gold recovery operations. The estimated closure
costs at existing operating mines and mines in various stages of closure are reflected in this table. For more information on environmental
rehabilitation obligations, see Item 4D.: “Property, Plant and Equipment” and Note 19 “Provision for environmental rehabilitation, reclamation and
closure costs” under Item 18.: “Financial Statements”.
82
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6A. DIRECTORS AND SENIOR MANAGEMENT
Directors and Executive Officers
Our board of directors may consist of not less than four and not more than twenty directors. As of June 30, 2011 and as of
June 30, 2010, our board consisted of six directors.
In accordance with JSE listing requirements and our Memorandum of Incorporation, or MOI, one third of the directors
comprising the board of directors, on a rotating basis, are subject to re-election at each annual general shareholders’ meeting.
Additionally, all directors are subject to election at the first annual general meeting following their appointment. Retiring directors
normally make themselves available for re-election.
The address of each of our Executive Directors and Non-Executive Directors is the address of our principal executive
offices.
Executive Directors
Daniël Johannes Pretorius (44) Chief Executive Officer. Mr. D.J. Pretorius was appointed as Chief Executive Officer
Designate on August 21, 2008. On January 1, 2009 he succeeded Mr. John William Cornelius Sayers as Chief Executive Officer. Mr.
Pretorius holds a B Proc, LLB degree and was appointed Group Legal counsel for the Company in February 2003. He has 18 years of
experience in the mining industry. He was appointed as Chief Executive Officer of Ergo Mining Operations, previously known as
DRDGOLD SA, in July 2006 and is also an alternate director of Rand Refinery Limited.
Craig Clinton Barnes (41) Chief Financial Officer. Mr. C.C. Barnes joined the Company in August 2004 as Group Financial
Accountant. A Chartered Accountant, he has a B Com degree from the University of the Witwatersrand, or Wits University, and a B
Com Honors degree from the University of South Africa, or Unisa. Prior to joining the Company, he was head of financial reporting
for Liberty Group Limited and he has over 17 years financial experience. He was appointed as Chief Financial Officer of Ergo
Mining Operations in July 2006 and as Chief Financial Officer of DRDGOLD in May 2008.
Non-Executive Directors
Geoffrey Charles Campbell (50). Mr. G.C. Campbell was appointed as Non-Executive Director in 2002, as a Senior
Independent Non-Executive Director in December 2003 and as Non-Executive Chairman in October 2005. A qualified geologist, he
has worked on gold mines in Wales and Canada. He then spent 15 years first as a stockbroker and afterwards as a fund manager,
during which time he managed the Merrill Lynch Investment Manager’s Gold and General Fund, one of the largest gold mining
investment funds. He was also Research Director for Merrill Lynch Investment Managers. Mr. G.C. Campbell is also a director of
Oxford Abstracts.
Robert Peter Hume (71). Mr. R.P. Hume was appointed as a Non-Executive Director in 2001. He has 41 years experience in
the field of auditing, including 18 years as a partner in the East London (South Africa) office of KPMG. Since retiring from KPMG in
1999, he has been an Investment Manager at Nvest Securities (Pty) Limited (formerly Sasfin Frankel Pollak) in East London.
James Turk (64). Mr. J. Turk was appointed a Non-Executive Director in October 2004. He is the founder and a director of
GoldMoney Network Limited, formerly G.M. Network Limited (also known as GoldMoney.com), the operator of a digital gold
currency payment system. Since graduating from George Washington University with a BA degree in International Economics in
1969, he has specialized in international banking, finance and investments. After starting his career with Chase Manhattan Bank (now
J.P. Morgan Chase) he joined RTB Inc., a private investment and trading company of a prominent precious metals trader in 1980. He
moved to the United Arab Emirates in 1983 as Manager of the Commodity Department of the Abu Dhabi Investment Authority.
Since resigning from this position in 1987, he has written frequently on money and banking.
Edmund Jeneker (49). Mr. E.A. Jeneker (SAIPA, FIAC, Cert.Dir(IoD)) was appointed a Non-Executive Director on
November 1, 2007. He trained as an accountant and has over 20 years’ experience in finance, taxation, business strategy and
general management at Grant Thornton, SwissReSA, World Bank Competitiveness Fund and Deloitte. He is active in community
development and serves as a member of the Provincial Development Commission of the Western Cape Provincial Government.
He currently holds the position of Managing Executive – Absa AllPay Consolidated Investment Holdings at Absa Group Limited.
Senior Management
David Johannes Botes (54) Group Risk Manager. Mr. D.J. Botes (Dip Comm, HDip Tax) joined DRDGOLD on September
7, 1988 as Group Financial Manager. He was appointed Group Risk Manager on February 1, 2003. He has 28 years of financial
management experience.
83
Jacob Hendrik Dissel (53) Group Financial Manager. Mr. J.H. Dissel (B Comm Hons) joined DRDGOLD as Group
Financial Manager in October 1999. He has 28 years experience in the mining industry
Themba John Gwebu (47) Executive Officer: Legal, Compliance and Company Secretary. Mr. T.J. Gwebu (B Iuris, LLB,
LLM) is a qualified attorney who worked as a magistrate prior to joining the Company in April 2004 as Assistant Legal Advisor. He
was appointed to the position of Company Secretary in April 2005 and Executive Officer: Legal, Compliance and Company
Secretary on January 1, 2007.
Henry Gouws (42) Managing Director: Ergo. Mr. H. Gouws graduated from Technicon Witwatersrand and obtained a
National Higher Diploma in Extraction Metallurgy in 1991. He completed a MDP in 2003 through Unisa School of Business
Leadership. He was appointed Operations Manager of Crown in January 2006 and General Manager in July 2006. He was appointed
to this current position with effect from October 1, 2011. He has 24 years experience in the mining industry.
Kevin Peter Kruger (43) Managing Director: Chizim Gold. Mr. K.P. Kruger holds a BSc degree in mechanical engineering
from Wits University and joined the Company in 1994. Previously the Engineering Manager at the Company’s North West
Operations, he was appointed to his current position with effect from October 1, 2011.
Charles Methley Symons (57) Chief Operating Officer. Mr. C.M. Symons joined the mining industry in February 1977 and
transferred to Crown in January 1986 where he was appointed General Manager in 1995. He holds a Masters degree in Business
Leadership and a B Comm degree from Unisa, and he also has a National Diploma in Extractive Metallurgy. He was appointed
Executive Officer: Surface Operations on January 1, 2008, Executive Officer: Operations on May 11, 2010 and Chief Operating
Officer with effect from October 1, 2011.
Phillip Watters (55) General Manager Projects. Mr. P. Watters joined the Company in 2002 and took up his current position
on August 1, 2005. He was previously General Manager ERPM. Mr. P. Watters, who obtained a Mine Manager’s certificate of
Competency in May 1993, has a total of 36 years experience in mining, 24 years of which were spent with Gold Fields and four with
Anglo American. His career includes both production and project management experience.
William Stanly Owen O’Brien (47) General Manager: Blyvoor. Mr. W.S.O. O’Brien was appointed General Manager:
Blyvoor on September 25, 2008. He was previously employed by Harmony Gold where he held various management positions. He
has 27 years of experience in the mining industry and holds a Mine Manager’s Certificate of Competency.
Martin Bruce Ebell (53) Manager Metallurgical Technical Services. Mr. M.B. Ebell joined the Company in 2008 as
Manager Metallurgical Technical Services. He was previously employed by Bateman Minerals and Metals, Alex Steward Assayers,
Dowding Reynard and Associates, Millsell/Henry Gould and Rand Mines, and has 30 years of experience in the field of extractive
metallurgy in various managerial, consulting and project engineering positions. He is registered professional engineer and a member
of SAIMM and MMMA and holds a MEng (MEM) USA, BSc (Eng) Minerals Processing, B Comm degrees and a MDP certificate.
Ryno Botha (39) Mineral Resource Manager: Mr. R. Botha joined the Company on December 6, 2004 and was promoted to
his current position as Mineral Resource Manager on November 1, 2008. He was previously employed by JCI, Amplats, Anglo
Platinum and has 19 years of mining experience. He holds a M(Eng) in Mineral Resource Management, Graduate Diploma in
Engineering (MRM), National Higher Diploma in Mineral Resource Management, National Diploma in Mine Surveying and a Mine
Surveyor’s Certificate of Competency.
Barry Gordon de Blocq (49) General Manager Corporate Services. Mr. de Blocq joined DRDGOLD in September 1998
from AngloGold, where he was Divisional Industrial Relations Manager. He holds a B Soc Sc, degree and was promoted to his
current position on January 1, 2010. He has 24 years experience in the mining industry.
There are no family relationships between any of our executive officers or directors. There are no arrangements or
understandings between any of our directors or executive officers and any other person by which any of our directors or executive
officers has been so elected or appointed.
84
6B. COMPENSATION
Our MOI provide that the directors' fees should be determined from time to time in a general meeting or by a quorum of
Non-Executive Directors. The total amount of directors' remuneration paid and or accrued for the year ended June 30, 2011 was
R15.6 million. Non-Executive Directors receive the following fees:
• Base fee as Non-Executive Chairman of R1,144,238 per annum;
• Base fee as Non-Executive Directors of R508,550 per annum;
• Annual fee for Audit Committee Chairman of R50,856;
• Annual fee for Audit Committee member of R25,428;
• Annual fee for Nominations Committee Chairman of R19,071;
• Annual fee for Nominations Committee member of R9,535;
• Annual fee for the chairman of Remuneration Committee, Risk Committee, and Transformation and Social Development
Committee of R38,142;
• Annual fee for members of Remuneration Committee, Risk Committee and Transformation and Social Development
Committee of R19,071 each;
• Half-day fee for participating by telephone in special board meetings;
• Daily fee of R19,071 and hourly rate of R2,542.80; and
• The Chairman of the board to receive committee fees.
Non-executive directors’ fees to be adjusted annually on the basis of the consumer price index.
The following table sets forth the compensation for our directors for the year ended June 30, 2011:
Directors
Basic
salary/board
fees
(R'000)
Retirement fund
contributions/
bonus/restraint
of
trade/expenses
(R'000)
Total
(R'000)
Share
option
scheme
gains
(R'000)
Executive
D.J.
Pretorius
................................................ 4,188 3,779 7,967 -
C.C.
Barnes
.................................................. 2,892 1,535 4,427 -
Subtotal .......................................................
7,080 5,314
12,394 -
Non-Executive
G.C.
Campbell
.............................................. 1,371
- 1,371
-
R.
Hume
....................................................... 647
- 647 -
J.
Turk
.......................................................... 544
- 544 -
E.A. Jeneker
624
-
624
-
Subtotal .......................................................
3,186
-
3,186
-
Prescribed officers
1
C.M. Symons ................................................
1,914 1,222
3,136 -
T.J. Gwebu
1,768 868
2,636
-
Subtotal ....................................................... 3,682
2,090 5,772
-
Total ............................................................ 13,948
7,404 21,352
-
See also Item 6E.: “Share Ownership” for details of share options held by directors.
1
The Companies Act, 2008 (Act 71 of 2008), under section 30, requires the remuneration of prescribed officers, as defined in regulation 38
of Company Regulations 2008, to be disclosed with that of directors of the Company. A person is a prescribed officer if they have general
executive authority over the company, general responsibility for the financial management or management of legal affairs, general
managerial authority over the operations of the company or directly or indirectly exercise or significantly influence the exercise of
control over the general management and administration of the whole or a significant portion of the business and activities of the
company.
85
Compensation of senior management
Our senior management comprises its executive directors, prescribed officers and executive officers. Under the JSE
Listing Rules we are not required to, and we do not otherwise, disclose compensation paid to individual senior managers other
than executive directors, non-executive directors and prescribed officers. However, the aggregate compensation paid to senior
management, excluding compensation paid to Executive Directors, in fiscal 2011 was R22.1 million (fiscal 2010: R18.5 million),
representing 11 executive officers in fiscal 2011 and 11 executive officers in fiscal 2010.
Bonuses or incentives are paid based upon performance against predetermined key performance indicators. Should an
Executive Director meet all the targets set in terms of such predetermined key performance indicators, he will be entitled to a bonus
of up to 50%, 75% or 100% of his remuneration package, depending on his particular agreement. Should an Executive Director not
meet all the targets set in terms of the predetermined key performance indicators, he will be entitled to a lesser bonus as determined
by the Remuneration and Nominations Committee.
Service Agreements
Service contracts negotiated with each executive and non-executive director incorporate their terms and conditions of
employment and are approved by our Remuneration and Nominations Committee.
The Company’s executive directors, Mr. D.J. Pretorius and Mr. C.C. Barnes, entered into agreements of employment
with us, on January 1, 2009 and May 5, 2008 respectively. Mr. C.C.Barnes’ service contract has been renewed for another three
years, effective from May 5, 2011, by our Remuneration Committee at a meeting held in August 2011. These agreements regulate
the employment relationship with Messrs. D.J. Pretorius and C.C. Barnes.
Mr. D.J. Pretorius receives from us a remuneration package of R4.2 million per annum. Mr. D.J. Pretorius is eligible
under his employment agreement, for an incentive bonus of up to 100% of his annual remuneration package in respect of one
bonus cycle per annum over the duration of his appointment, on condition that he achieves certain key performance indicators.
DRDGOLD shall issue Mr. D.J. Pretorius with 100,000 ordinary DRDGOLD shares or alternatively shall pay Mr. D.J. Pretorius
the cash value of 100,000 ordinary DRDGOLD shares reckoned at market value on the date that the conversion of mining rights
of DRDGOLD’s South African operations is completed.
Mr. C.C. Barnes receives from us a remuneration package of R2.9 million per annum. Mr. C.C. Barnes is eligible under
his employment agreement, for an incentive bonus of up to 75% of his annual remuneration package in respect of one bonus cycle
per annum over the duration of his appointment, on condition that he achieves certain key performance indicators. As a further
consideration for agreeing to remain in the employment of the company as set out in the agreement, the company will issue
Mr. C.C. Barnes with, up to 50% of his annual package, share options in DRDGOLD Limited on an annual basis and on the third
anniversary of this agreement a bonus payment equal to 30% of his annual package.
Each service agreement with our directors provides for the provision of benefits to the director where the agreement is
terminated by us in the case of our executive officers, except where terminated as a result of certain action on the part of the director,
or upon the director reaching a certain age, or by the director upon the occurrence of a change of control of us. A termination of a
director's employment upon the occurrence of a change of control of us is referred to as an “eligible termination.” Upon an eligible
termination, the director is entitled to receive a payment equal to at least one year's salary or fees, but not more than three years salary
for Executive Directors or two years fees for Non-Executive Directors, depending on the period of time that the director has been
employed.
Messrs. R.P. Hume, J. Turk and E.A. Jeneker each have service agreements which run for fixed periods until
September 30, 2012, October 31, 2012, and October 31, 2011 respectively. After their two year period, the agreements continue
indefinitely until terminated by either party on not less than three months prior written notice. Mr. G.C. Campbell has a service
agreement which continues indefinitely until terminated by either party on not less than three months prior written notice.
86
6C. BOARD PRACTICES
Board of Directors
As at September 30, 2011, the board of directors comprises two Executive Directors (Mr. D.J. Pretorius and
Mr. C.C. Barnes), and four Non-Executive Directors (Messrs. G.C. Campbell, R.P. Hume, J. Turk and E.A. Jeneker). The Non-
Executive Directors are independent under the Nasdaq requirements and the South African King II and King III Reports.
In accordance with the King II and King III Reports on corporate governance, as encompassed in the JSE Listings
Requirements, and in accordance with the United Kingdom Combined Code, the responsibilities of Chairman and Chief Executive
Officer are separate. Mr. G.C. Campbell is the Non-Executive Chairman, Mr. D.J. Pretorius is the Chief Executive Officer and
Mr. C.C. Barnes is the Chief Financial Officer. The board has established a nominations committee, and it is our policy for details
of a prospective candidate to be distributed to all directors for formal consideration at a full meeting of the board. A prospective
candidate would be invited to attend a meeting and be interviewed before any decision is taken. In compliance with the Nasdaq
rules a majority of independent directors will select or recommend director nominees.
The board’s main roles are to create value for shareholders, to provide leadership of the Company, to approve the
Company’s strategic objectives and to ensure that the necessary financial and other resources are made available to management
to enable them to meet those objectives. The board retains full and effective control over the Company, meeting on a quarterly
basis with additional ad hoc meetings being arranged when necessary, to review strategy and planning and operational and
financial performance. The board further authorizes acquisitions and disposals, major capital expenditure, stakeholder
communication and other material matters reserved for its consideration and decision under its terms of reference. The board also
approves the annual budgets for the various operational units.
The board is responsible for monitoring the activities of executive management within the Company and ensuring that
decisions on material matters are referred to the board. The board approves all the terms of reference for the various
subcommittees of the board, including special committees tasked to deal with specific issues. Only the executive directors are
involved with the day-to-day management of the Company.
To assist new directors, an induction program has been established by the Company, which includes background
materials, meetings with senior management, presentations by the Company’s advisors and site visits. The directors are assessed
annually, both individually and as a board, as part of an evaluation process, which is driven by an independent consultant. In
addition, the Remuneration and Nominations Committee formally evaluates the executive directors and the alternate directors on
an annual basis, based on objective criteria.
All directors, in accordance with the Company’s MOI, are subject to retirement by rotation and re-election by
shareholders. In addition, all directors are subject to election by shareholders at the first annual general meeting following their
appointment by directors. The appointment of new directors is approved by the board as a whole. The names of the directors
submitted for re-election are accompanied by sufficient biographical details in the notice of the forthcoming annual general
meeting to enable shareholders to make an informed decision in respect of their re-election.
All directors have access to the advice and services of the Company Secretary, who is responsible to the board for
ensuring compliance with procedures and regulations of a statutory nature. Directors are entitled to seek independent professional
advice concerning the affairs of the Company at the Company’s expense, should they believe that course of action would be in the
best interest of the Company.
Two of the Non-Executive Directors (Messrs. G.C. Campbell and R.P. Hume) have share options under the Company’s
share option scheme, but we do not believe that this interferes with their independence. No new share options were issued to Non-
Executive Directors since December 2004. See Item 6A.: “Directors and Senior Management” and Item 6E.: “Share ownership”.
Board meetings are held quarterly in South Africa. The structure and timing of the Company’s board meetings, which are
scheduled over 2 or 3 days, allows adequate time for the Non-Executive Directors to interact without the presence of the
Executive Directors. The board meetings include the meeting of the Risk Committee, Audit Committee, Remuneration and
Nominations Committee and Transformation and Sustainable Development Committee which act as subcommittees to the board.
Each subcommittee is chaired by one of the Independent Non-Executive Directors, except for the Risk Committee which is
chaired by the Chief Executive Officer, who provide a formal report back to the board. Each subcommittee meets for
approximately half a day. Certain senior members of staff are invited to attend the subcommittee meetings.
The board sets the standards and values of the Company and much of this has been embodied in the Company’s Code of
Ethics and Conduct, a copy of which is available on our website at www.drdgold.com. The Code of Ethics and Conduct applies to
all directors, officers and employees, including the principal executive, financial and accounting officers, in accordance with
Section 406 of the US Sarbanes-Oxley Act of 2002, the related US securities laws and the Nasdaq rules. The Code contains
provisions under which employees can report violations of Company policy or any applicable law, rule or regulation, including
US securities laws.
87
Directors' Terms of Service
The following table shows the date of appointment, expiration of term and number of years of service with us of each of the
directors as at June 30, 2011:
Director Title Year first
appointed
Term of
current
office
Unexpired
term of
current office
G.C. Campbell
Non-Executive Director
2002
2 years
4 months
D.J. Pretorius
Chief Executive Officer
2008
3 years
6 months
C.C. Barnes¹
Chief Financial Officer
2008
3 years
-
R.P. Hume
Non-Executive Director
2001
2 years
15 months
E.A. Jeneker
Non-Executive Director
2007
2 years
4 months
J. Turk
Non-Executive Director
2004
2 years
16 months
¹Mr.
C.C. Barnes’ service contract has been renewed for another three years, effective from May 5, 2011 in the Remuneration Committee meeting
held in August 2011
.
Executive Committee
As at September 30, 2011, the Executive Committee consisted of Mr. D.J. Pretorius (Chairman), Mr. C.C. Barnes, Mr. C.M.
Symons, and Mr. T.J. Gwebu.
The Executive Committee meet on a weekly basis to review current operations, develop strategy and policy proposals for
consideration by the board of directors. Members of the Executive Committees, who are unable to attend the meetings in person, are
able to participate via teleconference facilities, to allow participation in the discussion and conclusions reached.
Board Committees
The board has established a number of standing committees to enable it to properly discharge its duties and
responsibilities and to effectively fulfill its decision-making process. Each committee acts within written terms of reference which
have been approved by the board and under which specific functions of the board are delegated. The terms of reference for all
committees can be obtained by application to the Company Secretary at the Company’s registered office. Each committee has
defined purposes, membership requirements, duties and reporting procedures. Minutes of the meetings of these committees are
circulated to the members of the committees and made available to the board. Remuneration for Non-Executive Directors for their
services on the committees concerned is determined by the board. The committees are subject to regular evaluation by the board
with respect to their performance and effectiveness.
The following information reflects the composition and activities of these committees.
Committees of the Board of Directors
Remuneration Committee
As at June 30, 2011, the Remuneration Committee consisted of Mr. E.A. Jeneker (Chairman), Mr. G.C. Campbell, Mr. R.P.
Hume and Mr. J. Turk.
The Remuneration Committee, which is comprised of Non-Executive Directors, has been appointed by the board of
directors. The committee meets quarterly, but may meet more often on an ad hoc basis if required. The Remuneration Committee
is governed by its terms of reference and is responsible for approving the remuneration policies of the Company, the terms and
conditions of employment, and the eligibility and performance measures of the DRDGOLD (1996) Share Option Scheme
applicable to executive directors and senior management.
The committee’s objective is to evaluate and recommend to the board competitive packages which will attract and retain
executives of the highest caliber and encourage and reward superior performance. The committee also aims to ensure that criteria
are in place to measure individual performance. The committee approves the performance-based bonuses of the executive
directors based on such criteria. The Executive Officer: Human Resources provides the committee with access to comparative
industry surveys, which assist in formulating remuneration policies. As and when required the committee may also engage the
services of independent consultants to evaluate and review remuneration policies and related issues and brief members on
pertinent issues. The committee has in the past year engaged the services of such consultants to review the employment contracts
of the executive directors.
88
The remuneration policy, relating to the remuneration of directors and senior executives, is based on a reward system
comprising four principal elements:
• Basic remuneration, as benchmarked against industry norms;
• Bonuses or incentives, which are measured against agreed outcomes or Key Performance Indicators, or KPIs;
• Short-term rewards for exceptional performance; and
• Long-term retention of key employees based on scarcity of skill and strategic value, using share options granted under
the DRDGOLD (1996) Share Option Scheme.
A copy of the policy is available by application to the Company Secretary at the Company’s registered office.
Nominations Committee
The board resolved to separate the Nominations Committee from the Remunerations Committee. The Nominations
Committee is chaired by the Chairman of the board, Mr. G.C. Campbell. The terms of reference were approved in August 2008.
Its duties include:
• making recommendations to the board on the appointment of new Executive and Non-Executive directors, including
making recommendations on the composition of the board generally and the balance between Executive and Non-
Executive directors appointed to the board;
• regular reviewing of the board structure, size and composition and making recommendations to the board with regard to
any adjustments that are deemed necessary;
• identifying and nominating candidates for the approval of the board to fill board vacancies as and when they arise as well
as putting in place plans for succession, in particular for the Chairman and Chief Executive Officer; and
• making recommendations on directors who are retiring by rotation to be put forward for re-election.
As at September 30, 2011, the members of the Nomination Committee consisted of Mr. G.C. Campbell (Chairman) and Mr.
R.P. Hume.
Audit and Risk Committees
On February 11, 2005, the Audit and Risk Committees started conducting joint meetings in respect of the quarterly
meetings. The members meet and the business of each committee is handled in joint deliberations taking place on the issues
raised. The Audit Committee is chaired by Mr. R.P. Hume and the Risk Committee by Mr. D.J. Pretorius. The reason for the joint
sittings is that there is a great deal of overlap between the financial risks discussed at Audit Committee level and at Risk
Committee level. The joint sittings of the Committees bring about better disclosure and ensure that the Company conforms more
closely to the process prescribed by the US Sarbanes-Oxley Act of 2002.
Audit Committee
As at June 30, 2011, the Audit Committee consisted of Mr. R.P. Hume (Chairman), Mr. G.C. Campbell and Mr. E.A.
Jeneker.
The Audit Committee is comprised solely of Non-Executive Directors, all of whom are independent. See Item 16G.:
“Corporate Governance”. The primary responsibilities of the Audit Committee, as set out in the Audit Committee charter, is to
assist the board in carrying out its duties relating to accounting policies, internal financial control, financial reporting practices and
the preparation of accurate financial reporting and financial statements in compliance with all applicable legal requirements and
accounting standards. A copy of the charter is available by application to the Company Secretary at the Company’s registered
office.
The Audit Committee meets quarterly with the external auditors, the Company’s internal audit practitioner, the Chief
Financial Officer and the Internal Audit and Compliance Manager to review the audit plans of the internal auditors, to ascertain
the extent to which the scope of the internal audits can be relied upon to detect weaknesses in the internal controls and to review
the annual and interim financial statements prior to approval by the board. The Audit Committee reviews our annual results, the
effectiveness of our system of internal financial controls, internal audit procedures and legal and regulatory compliance. The
committee also reviews the scope of work carried out by our internal auditors and holds regular discussions with the external auditors
and internal auditors.
The committee appoints, re-appoints and removes the external auditors and approves the remuneration and terms of
engagement of the external auditors. The committee is required to pre-approve, and has pre-approved, non-audit services provided
by our external auditors. The Company’s external audit function is currently being undertaken by KPMG Inc.
89
The Company’s internal and external auditors have unrestricted access to the chairman of the Audit Committee and,
where necessary, to the Chairman of the board and Chief Executive Officer. All important findings arising from audit procedures
are brought to the attention of the committee and, if necessary, to the board.
Risk Committee
As at June 30, 2011, the Risk Committee consisted of Mr. D.J. Pretorius (Chairman), Mr. J. Turk, Mr. G.C. Campbell, Mr.
E.A. Jeneker, Mr. R.P. Hume and Mr. C.C. Barnes.
The Risk Committee was established in January 2004 and currently comprises four Non-Executive Directors and two
Executive Directors. Its overall objective is to assist the board in its duties relating to risk management and control
responsibilities, assurance issues, health, safety and environmental compliance, and the monitoring and reporting of all these
matters. The Risk Committee facilitates communication between the board, the Audit Committee, internal auditors and other
parties engaged in risk management activities. The terms of reference of the Risk Committee can be obtained by application to the
Company Secretary at the Company’s registered office.
The Risk Committee’s role is to ensure that:
• an effective risk management program is implemented and maintained;
• risk management awareness is promoted amongst all employees;
• risk programs (financing/insurance) adequately protect the Company against catastrophic risks;
• regular risk assessments are conducted;
• total cost of risk in the long term is reduced;
• the protection of the Group's assets is promoted throughout the Group;
• the health and safety and well being of all stakeholders is improved; and
• the Company’s activities are carried out in such a way so as to ensure the safety and health of employees.
The Risk Committee meets quarterly and reports to the board. Additional ad hoc meetings may be arranged as and when
required. Certain members of executive management are occasionally invited to attend Risk Committee meetings, such as the
Internal Audit and Compliance Manager, the Group Risk Manager, the Group Financial Manager, the Operational Managers and
the Group Legal Counsel.
The system to manage risk involves all significant business and operational risks which could undermine the
achievement of business objectives and undermine the preservation of shareholder value. The significant risks facing the Group
including those at operations have been identified and have been included in Item 3D.: “Risk factors.” Individuals have been
appointed to address each risk and the results thereof are reviewed by senior management through regular risk meetings. The aim
of the internal control systems is for management to provide reasonable assurance that the objectives will be met. In addition to
the above initiatives the Group also employs third party consultants to benchmark our operations against other mining operations
throughout South Africa and worldwide.
An important aspect of risk management is the transfer of risk to third parties to protect the Company from any major
disaster. We have embarked on a program to ensure that our major assets and potential business interruption and liability claims
are covered by group insurance policies that encompass our operations. The majority of the cover is through reputable insurance
companies in London and Europe and the insurance programs are renewed on an annual basis. A cell captive has been established
to enable further reduction in annual insurance premiums.
Transformation and Sustainable Development Committee
The board, taking into account that all the group’s operations are now based in South Africa and in order to achieve the
triple bottom line espoused in the King II and King III Reports and in order to reach the empowerment goal to which it is
committed, establishing a committee, the focus of which will be transformation and sustainable development. The terms of
reference were approved by the board at the August 2008 meeting. The board has resolved to convert the current Transformation
and Sustainable Development Committee in the Social and Ethics Committee which the Company is required to set up in terms of
the Companies Act, 2008. The objectives of this committee are:
• promoting transformation within the company and the economic empowerment of previously disadvantaged
communities, particularly within areas where the company conducts business;
• striving towards achieving the goal of equality as the South African constitution and other legislation require within the
context of the demographics of the country at all levels of the company and its subsidiaries; and
• conducting business in a manner which is conducive to internationally acceptable environmental and sustainability
standards.
As at September 30, 2011, the Transformation and Sustainable Development Committee consisted of Mr. E.A. Jeneker
(Chairman), Mr. D.J. Pretorius and Mr. C.C. Barnes.
90
6D. EMPLOYEES
Employees
The geographic breakdown of our employees (including contractors who are contracted employees employed by third
parties), was as follows at the end of each of the past three fiscal years:
Year ended June
30
2011
2010
2009
South Africa ................................................................................................................................
6,875
6,409
6,715
The total number of employees at June 30, 2011, of 6,875 comprises 1,715 contractors and 5,160 employees who are
directly employed by us and our subsidiary companies. As of September 30, 2011, we had 6,916 employees (including 1,760 contract
employees). The increase in the number of employees in fiscal 2011 is mainly due to the learnerships signed on across the operations.
As of June 30, 2011, the breakdown of our employees by main categories of activity for the periods below was as follows:
Year ended June 30,
Category of Activity
2011 2010 2009
Mining - Our Employees ..............................................................................................................
2,719 2,368 2,832
Mining - Contractors ....................................................................................................................
1,715 1,749 1,846
Engineering .................................................................................................................................
1,164 1,113 839
Metallurgy ..................................................................................................................................
687 672 699
Mineral Resources .......................................................................................................................
92 91 97
Administration.............................................................................................................................
134 126 161
Environmental .............................................................................................................................
71 62 48
Human Resources ........................................................................................................................
245 183 135
Medical .......................................................................................................................................
18 17 23
Safety .........................................................................................................................................
30 28 35
Total ...........................................................................................................................................
6,875 6,409 6,715
Labor Relations
As at June 30, 2011, we employed and contracted 6,875 people in South Africa. Approximately 86% of South African
employees are members of trade unions or employee associations. South Africa's labor relations environment remains a platform for
social reform. The National Union of Mineworkers, or NUM, the main South African mining industry union, is influential in the
tripartite alliance between the ruling African National Congress, the Congress of South African Trade Unions, or COSATU, and the
South African Communist Party as it is the biggest affiliate of COSATU. The relationship between management and labor unions
remains cordial. The DRDGOLD/NUM coordinating forum meets regularly to discuss matters pertinent to both parties at a
DRDGOLD SA level, while operations level forums continue to deal with local matters.
On November 19, 2008 the company advised unions of its intention to place on care and maintenance the underground
operations of the ERPM mine, and to proceed with a consultation process in terms of Section 189A of the Labour Relations Act to
determine the future of the mine's 1,700 employees. Underground mining at the ERPM mine was halted on October 31, 2008
when pumping infrastructure could no longer cope with rising underground water levels. On January 20, 2009, the process was
concluded and 1,335 employees were retrenched. A further 105 employees were retrenched in November 2009 following the total
cessation of all underground mining activities at ERPM.
On August 26, 2009, the Company advised unions of its intention to right-size the Blyvoor operations and that Blyvoor
would proceed with a 60-day facilitated consultation process in terms of Section 189A of the Labour Relations Act to determine
the future of affected employees. A combined management/unions task team was appointed to investigate possible cost-reduction
measures at the mine.
On November 9, 2009, the Company announced its intention to apply to the High Court of South Africa for a judicial
management order over the Blyvoor operation after the restructuring process in terms of Section 189A of the Labour Relations
Act failed to deliver the expected turnaround and the mine faced a four-week wage strike by the National Union of Mineworkers
which resulted in decreased production. The result of the process saw 278 employees retrenched.
91
In September 2009 the Company signed a two-year wage settlement with the United Association of South Africa
(UASA). In terms of the settlement, employees in the UASA recognition unit at Blyvoor would receive a 6.5% increase, at Crown
a 6% increase and at ERPM a 4% increase. In addition, employees in the UASA recognition unit are eligible for a gold price/profit
linked incentive scheme, in terms of which their overall increases can rise to a total of 15%. The NUM rejected the company’s
offer of a 7% increase for lowest-category employees at Blyvoor and 6.5% for the balance, a 6.0% across-the-board increase at
Crown and a 4% across-the-board increase at ERPM. The NUM also rejected the gold price/profit linked incentive scheme. The
NUM was granted strike certificates in respect of the three operations and strike action started with the night shift on Tuesday,
September 15, 2009.
On October 7, 2009, the Company and NUM reached agreement on a wage settlement at Crown. The agreement was
implemented for a twenty-one month period, with effect from October 1, 2009. In terms of the settlement, employees of all unions
and associations received an 8% increase for year one and will receive a minimum of 8% in year two. The strike by the NUM was
called off and employees returned to work on October 8, 2009. On October 9, 2009, the Company and NUM reached agreement
on a wage settlement at Blyvoor. The agreement was implemented for a period of two years, with effect from July 1, 2009. In
terms of the settlement, employees of all unions and associations received an 8% increase for year one and will receive a
minimum of 8% in year two. The strike by the NUM was called off and employees returned to work on October 11, 2009.
On September 27, 2011, DRDGOLD announced that the Business Rescue Practitioner overseeing business rescue proceedings
at Blyvoor has given notice of Blyvoor’s intention to enter a 60-day consensus-seeking process in terms of Section 189 (3) of the
Labour Relations Act with the National Union of Mineworkers, or NUM, and United Association of South Africa, or UASA –
The Union, to consider reducing employee numbers by approximately 500 employees. The reason for the need to consider the
reduction is that Blyvoor – under business rescue proceedings in terms of Chapter 6 of the Companies Act since June this year –
has been unable to meet production and financial targets, a situation exacerbated by higher utility costs. Blyvoor is proposing
voluntary separation and application of the principle of “last in, first out” as among the mechanisms to be applied to effect the
required reduction in employee numbers. Measures currently under consideration to achieve a targeted 30% improvement in the
cost of production in R/kg terms, and thus to avoid employee reduction, include:
• a reduction in overtime expenditure;
• an increase in available work time and subsequent re-organisation of shifts;
• a re-evaluation of the profitability of 6 Shaft, 4 Shaft and the Reef Picking Project;
• a reduction of departmental costs by 10%; and
revised mining plans.
As at September 30, 2011, we were still engaged in wage negotiations at all of our operations for the fiscal 2012 and 2013
wage increases. In October 2011, Blyvoor signed a three-year wage settlement agreement with the NUM and UASA. In terms of
the settlement, employees in Categories 4 and 5 miners would receive a 7% increase and employees in Categories 6 - 8, miners,
artisans and Officials would receive a 6% increase in each year, with the third year being the greater of these percentages or CPI
as at 1 July 2013. In addition, employees in both recognition units will participate in a gold price/profit linked profit share bonus
scheme, in terms of which their overall increases can rise to a total of 15%. Blyvoor’s wage settlement agreements were concluded
without any industrial action by either NUM or UASA.
The Company is placing a greater emphasis on its Corporate Social Responsibility by becoming increasingly involved in
appropriate projects that give effect to the ideals of the Mining Charter and good corporate governance. We recognize the need for
transformation and have put structures in place to address this at both management and board level.
By statute we are required to pay each employee who is dismissed for reasons based on the operational requirements of
our operations, a severance package of not less than one week’s remuneration for every completed year of service. In specific
agreements with organized labor we undertook, as in the past, to pay packages equal to two weeks basic pay for every completed
year of service as part of a balancing compromise with the labor unions between the high additional costs of non-financial items
and incentive payments (which are deemed part of remuneration), and an additional one week benefit based on basic pay. These
employees were provided with counseling services and the opportunity to undergo skills training to be able to find employment
outside the mining industry.
AIDS represents a very serious threat to us and the gold mining industry as a whole in terms of the potential reduced
productivity and increased medical costs. The exact extent of infection in our workforce is not known at present, although it is
roughly estimated by the industry that the prevalence of HIV, the virus that causes AIDS, in the South African industry is currently
approximately 30% to 35%. We have several AIDS awareness campaigns in place at our operations.
92
Blyvoor has contracted Harmony’s Health Share to provide all health care services, including primary and occupational
health programs, a wellness program, which treats AIDS related illnesses, provides counseling on healthy life styles and monitors the
progression of the HIV virus.
Safety statistics
Due to the importance of our labor force, we continuously strive to create a safe and healthy working environment. The
following are our 2011 overall safety statistics for our managed mines:
(Per million man hours)
Year ended June 30,
2011
2010
Lost time injury frequency rate (LTIFR)
1
....................................................................................
16.36
9.08
Reportable incidence
1
................................................................................................................
5.14
3.20
Fatalities
1
..................................................................................................................................
0.04 0.11
Number of fatalities (average per month) ....................................................................................
0.08 0.17
6E. SHARE OWNERSHIP
As of September 30, 2011, options to purchase ordinary shares held by directors were as follows:
Directors
Options
at
June 30,
2010
Options
granted
during
the
period
Average
Purchase
price of
option
granted
(R)
Average
Exercise
price (R)
Options
exercised
during
the
year
Average
Exercise
Price (R)
Options
lapsed
during
the
year
Options at
September
30,
2011
Expiration
Dates
2
Non-Executive
G.C.
Campbell.............
57,994 -
19.35 - - - -
57,994
3/20/2012-
6/17/2015
R.P. Hume...................
77,907
-
16.92 - - - -
77,907
10/1/2011-
6/17/2015
Executive
C.C.
Barnes
.................
801,226
366,878
4.77 - - - -
1,168,104
11/1/2014-
10/20/2018
D.J.
Pretorius
............... 1,283,486 -
6.19 - - - -
1,283,486
4/22/2013-
10/20/2018
Prescribed Officers
C.M.
Symons
..............
915,025 167,800
5.66
-
-
- (14,000) 1,068,825 30/4/2012-
20/10/2018
T.J.
Gwebu
..................
586,922
236,600
4.73 - - - -
823,522
26/4/2014-
20/10/2018
Each option is representative of a right to acquire one ordinary share at a predetermined exercise price.
Closed periods apply to share trading by directors and other employees, whenever certain employees of the Company
become or could potentially become aware of material price sensitive information, such as information relating to an acquisition,
quarterly results etc., which is not in the public domain. When these employees have access to this information an embargo is
placed on share trading for those individuals concerned. The embargo need not involve the entire Company in the case of an
acquisition and may only apply to the board of directors, executive committee, and the financial and new business teams, but in
the case of quarterly results the embargo is group-wide.
Under the listings requirements of the JSE, we are not required to disclose, and we do not otherwise disclose or ascertain,
share ownership of individual officers in our share capital. However, to the best of our knowledge, we believe that our ordinary
shares held by executive officers, in aggregate, do not exceed one percent of the Company’s issued ordinary share capital. For details
of share ownership of directors see Item 7A.: “Major Shareholders.”
1
Calculated as follows: actual number of instances divided by the total number of man hours worked multiplied by one million.
2
Certain Directors hold options which expire at various times. For those directors, a range is provided indicating the earliest and latest expiration
dates.
93
DRDGOLD (1996) Share Option Scheme, or the Scheme
We operate a securities option plan as an incentive tool for our Executive Directors and senior employees whose skills and
experience are recognized as being essential to the Company’s performance. Two of our Non-Executive Directors (Messrs.
G.C. Campbell and R.P. Hume) have share options under the Scheme; however, no new share options have been issued to Non-
Executive Directors since December 2004. In compliance with JSE Listing Requirements, DRDGOLD has amended the terms of the
share option scheme, with the amendment being approved at the annual general meeting on November 26, 2010. According to the
JSE Listing Requirements, options awarded to an individual employee are subject to a cumulative upper limit of two million options
which is lower than the previous 2% of the Company’s issued share capital. In addition, a maximum of 40 million options are
available for utilization under the share option scheme which is lower than the previous 15% of the issued ordinary shares. As at
September 30, 2011, the number of issued and exercisable share options was approximately 5.6% of the issued ordinary share
capital, representing 21.6 million of the available 40 million share options. In addition, the participants in the Scheme are fully
taxed based on individual tax directives obtained from the South African Revenue Service on any gains realized on the exercise of
share options.
The price at which an option may be granted will be, in respect of each share which is the subject of the option, the volume
weighted average price of a share on the JSE for the seven days on which the JSE is open for trading, preceding the day on which the
employee is granted the option. The allocation date will be the date when the directors approve allocation of share options. Each
option remains in force for five years after the date of grant (ten years if issued prior to 2009), subject to the terms of the option plan.
Options granted under a plan vest primarily according to the following schedule over a maximum of a three year period:
Percentage vested in each period
Period after the original date of the option grant
25% 6 months
25% 1 year
25% 2 years
25% 3 years
Any options not exercised within five years (issued prior to 2009: ten years) from the original date of the option grant will
expire and may not thereafter be exercised. The previous bi-annual allocation of options was changed in April 2006 to an annual
allocation.
Options to purchase a total of 21,582,927 ordinary shares were outstanding on June 30, 2011, of which options to purchase
16,011,187 ordinary shares were currently exercisable. In fiscal 2011, a total of 72 employees participated in the Scheme including
Executive Directors and other senior employees. The outstanding options are exercisable at purchase prices that range from R3.50 to
R29.10 per share and expire five years (issued prior to 2009: ten years) from the date of issue to the participants.
94
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7A. MAJOR SHAREHOLDERS
As of September 30, 2011, our issued capital consisted of:
• 384,884,379 ordinary shares of no par value; and
• 5,000,000 cumulative preference shares.
To our knowledge, we are not directly or indirectly owned or controlled by another corporation or any person or foreign
government and there are no arrangements, the operation of which may at a subsequent date result in a change in control of us.
Based on information available to us, as of September 30, 2011:
• there were 6,509 record holders of our ordinary shares in South Africa, who held approximately 82,758,985 or
approximately 21.5% of our ordinary shares;
• there was one record holder of our cumulative preference shares in South Africa, who held 5,000,000 or 100% of our
cumulative preference shares;
• there were no US record holders of our ordinary shares, excluding those shares which are held as part of our ADR program;
and
• there were 718 record holders of our ADRs in the United States, who held approximately 221,952,638 (22,195,264 ADRs)
or approximately 57.7% of our ordinary shares.
The following table sets forth information regarding the beneficial ownership of our ordinary shares as of September 30,
2011 by:
• each of our directors; and
• any person whom the directors are aware of as at September 30, 2011 who is interested directly or indirectly in 5% or more
of our ordinary shares.
Shares Beneficially
Owned
Holder
Number Percent
D.J. Pretorius ......................................................................................................................................
* *
C.C. Barnes ........................................................................................................................................
* *
J. Turk ................................................................................................................................................
* *
G.C. Campbell ....................................................................................................................................
* *
R.P. Hume ..........................................................................................................................................
* *
E.A. Jeneker .......................................................................................................................................
* *
Soges Fiducem SA (Brussels) ..............................................................................................................
27,967,538
7.3%
Investec ..............................................................................................................................................
22,761,813
5.9%
Bank of New York ADRs ....................................................................................................................
101 Barclay Street
New York, NY 10011
221,952,638 57.7%
* Indicates share ownership of less than 1% of our outstanding ordinary shares.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. Ordinary shares issuable pursuant to options, to the extent the options are currently exercisable or
convertible within 60 days of September 30, 2011, are treated as outstanding for computing the percentage of any other person. As of
September 30, 2011, we are not aware of anyone owning 5% or more of our ordinary shares other than the Bank of New York which
holds 57.7% of our issued ordinary shares through our ADR program, Soges Fiducem SA which holds 7.3% and Investec which
holds 5.9%. Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to the
shares, subject to community property laws where applicable. Unless indicated otherwise, the business address of the beneficial
owner is: DRDGOLD Limited, 50 Constantia Boulevard, Constantia Kloof Ext. 28, Roodepoort, 1709, South Africa.
95
Cumulative Preference Shares
Randgold and Exploration Company Limited, or Randgold, owns 5,000,000 (100%) of our cumulative preference shares.
Randgold's address is 23 Southerland Avenue, Craighall Park, Johannesburg, South Africa.
The holders of cumulative preference shares do not have voting rights unless any preference dividend is in arrears for more
than six months. The terms of issue of the cumulative preference shares are that they carry the right, in priority to the Company's
ordinary shares, to receive a dividend equal to 3% of the gross future revenue generated by the exploitation or the disposal of the
Argonaut mineral rights acquired from Randgold in September 1997. They will only obtain their potential voting rights once the
Argonaut Project becomes an operational gold mine, and dividends accrue to them. The prospecting rights have since expired and the
Argonaut Project terminated. Additionally, holders of cumulative preference shares may vote on resolutions which adversely affect
their interests and on the disposal of all or substantially all of our assets or mineral rights. There is currently no active trading market
for our cumulative preference shares. No shareholder has voting rights which differ from the voting rights of any other shareholder.
On May 1, 2005, the Argonaut mineral rights reverted to the South African State, in terms of the MPRD Act. On February 6, 2006, a
prospecting right covering an area of 969 hectares over part of the Argonaut Project was obtained.
7B. RELATED PARTY TRANSACTIONS
Rand Refinery Limited (RRL) agreement
On October 12, 2001, we entered into an agreement with RRL for the refining and sale of all of our gold produced in South
Africa. Under the agreement, RRL performs the final refining of our gold and casts it into troy ounce bars. RRL then usually sells the
gold on the same day as delivery, for the London afternoon close price on the day the gold is sold. In exchange for this service, we
pay RRL a variable refining fee plus fixed marketing, loan and administration fees. This amounted to R6.0 million, Rnil and R4.1
million for fiscal 2011, 2010 and 2009, respectively. Mr. T.J. Gwebu, Executive Officer: Legal, Compliance and Company Secretary
of DRDGOLD is a director of RRL and a member of their Audit Committee and Remuneration Committee. Mr. D.J. Pretorius, CEO
of DRDGOLD Limited, is an alternate director of RRL. The Company currently owns 4% (Fiscal 2010: 4%) of RRL (which is jointly
owned by South African mining companies), which is disclosed in our financial statements, however the Company believes it has the
right to a further 6.22% in RRL which is currently being brought to RRL’s attention and the Company will contest if this additional
interest is not awarded.
Management service agreements
We provide management services for Ergo Mining Operations, Blyvoor, Crown and ERPM under management service
agreements entered into with each of them. These services include financial management, gold administration, technical and
engineering services, mineral resource services and other management related services. We own a 74% interest in Ergo Mining
Operations and Blyvoor. Crown and ERPM are wholly-owned subsidiaries of Ergo Mining Operations. These arrangements allow us
to monitor and provide input on the management of these companies in which we have an investment.
The management services at Blyvoor (up until September 30, 2010 which is the date the group restructured and the groups
interest in Blyvoor was transferred from Ergo Mining Operations to DRDGOLD), Crown and ERPM are provided by Ergo Mining
Operations. Ergo Mining Operation’s management fee for services performed in fiscal 2011 at Blyvoor was R4.1 million (2010:
R17.6 million), Crown R16.5 million (2010: R17.6 million) and ERPM R16.5 million (2009: R17.6 million). Management fees
recovered from Ergo Mining Operations were R23.3 million (2009: R34.6 million) and from Blyvoor (from October 1, 2010)
R12.3 million (2010: Rnil).
Ergo Mining Operations receives interest from Blyvoor (up until September 30, 2010 which is the date the group
restructured and the groups interest in Blyvoor was transferred from Ergo Mining Operations to DRDGOLD), Crown and ERPM.
Ergo Mining Operation’s interest received in fiscal 2011 from Blyvoor was R1.2 million (2010: R2.2 million), Crown R0.8 million
(2010: R0.2 million) and ERPM R30.6 million (2010: R33.9 million). Interest recovered from Ergo Mining Operations were
R26.8 million (2010: R33.3 million) and from Blyvoor (from October 1, 2010) R3.2 million (2010: Rnil).
Consultancy agreement
On June 23, 2008, Ergo Mining Operations approved a consultancy agreement with Khumo Gold SPV (Pty) Limited, or
Khumo Gold, to provide guidance and participate in the Company’s transformation initiatives, which owns 20% of Ergo Mining
Operations and Blyvoor. The agreement provides for a monthly retainer of R200,000
.
During the year ended June 30, 2011, consultancy fees were paid to Mr. P Judge who is a shareholder of Khumo Gold
amounting to R0.5 million.
96
7C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
1. Please refer to Item 18.: "Financial Statements."
2. Please refer to Item 18.: "Financial Statements."
3. Please refer to Item 18.: "Financial Statements."
4. The last year of audited financial statements is not older than 15 months.
5. Not applicable.
6. Not applicable.
7. See under Item 4D.: "Property, plant and equipment—Legal Proceedings."
8. Please see Item 10B.: "Memorandum and Articles of Association."
8B. SIGNIFICANT CHANGES
For a discussion of significant changes that have occurred since June 30, 2011, the date of the last audited financial
statements included in this Annual report, please see Note 33 “Subsequent Events” under Item 18.: "Financial Statements," which
describes post balance sheet (statement of financial position) events.
97
ITEM 9. THE OFFER AND LISTING
9A.
OFFER AND LISTING DETAILS
The following tables set forth, for the periods indicated, the high and low market sales prices and average daily trading
volumes of our ordinary shares on the JSE and ADSs on the Nasdaq Capital Market.
Price
Per
Ordinary Share
R
Price Per
ADS
1
$
Average Daily
Trading
Volume
Year Ended
High Low High Low
Ordinary
Share ADSs
1
June 30, 2007 .................................................................................
11.50
3.70
1.63
0.54
829,879
3,088,840
June 30, 2008 .................................................................................
10.25
3.50
13.52
4.73
1,200,052 260,761
June 30, 2009 .................................................................................
9.55
2.86
10.59
2.85
932,905
186.575
June 30, 2010 .................................................................................
6.98
3.20
9.00
4.07
691.256
209,087
June 30, 2011 .................................................................................
4.00
2.80
6.23
3.92
558,675
113,932
Price Per
Ordinary Share
R
Price Per
ADS
1
$
Average Daily
Trading
Volume
Quarter
High Low High Low
Ordinary
Share ADSs
1
Q1 July – September 2009 ..............................................................
6.98
5.24
9.00
6.54
496,655
160,990
Q2 October – December 2009.........................................................
5.96
3.20
8.05
4.45
1,021,809
292,438
Q3 January – March 2010...............................................................
5.71
3.60
7.90
4.61
757,818
261,006
Q4 April – June 2010 .....................................................................
4.06
3.30
5.43
4.07
480,962
123,003
Q1 July – September 2010 ..............................................................
3.79
2.80
5.35
3.92
662,904
84,599
Q2 October – December 2010.........................................................
3.82
3.04
5.65
4.60
505,415
102,819
Q3 January – March 2011...............................................................
3.55
2.88
5.30
4.40
374,581
104,749
Q4 April – June 2011 .....................................................................
4.00
2.98
6.23
4.26
699,962
164,055
Q1 July – September 2011 ..............................................................
4.89
2.97
5.79
4.21
912,881
135,675
Price Per
Ordinary Share
R
Price Per
ADS
$
Average Daily
Trading Volume
Month Ended
High Low High Low
Ordinary
Share ADSs
April 30, 2011................................................................................
4.00
3.40
6.11
5.10
1,333,700
237,908
May 31, 2011 ................................................................................
4.00
3.40
6.23
4.72
381,774
151,336
June 30, 2011.................................................................................
3.66
2.98
5.33
4.26
459,795
109,057
July 31, 2011 .................................................................................
3.51
3.09
5.10
4.43
291,106
81,936
August 31, 2011 .............................................................................
3.91
2.97
5.48
4.21
981,189
151,292
September 30, 2011 .......................................................................
4.89
3.67
5.79
4.90
1,438,085
169,751
The cumulative preference shares are not traded on any exchange.
There have been no significant trading suspensions with respect to our ordinary shares on the JSE during the past three years
ended June 30, 2011, nor have there been any significant trading suspensions with respect to our ADRs on the Nasdaq Capital Market
since our listing on that market.
9B. PLAN OF DISTRIBUTION
Not applicable.
1
Note that with effect from July 23, 2007, we changed our ADS ratio to reflect one ADS for ten of our ordinary shares.
98
9C. MARKETS
Nature of Trading Markets
The principal trading market for our equity securities is the JSE and our ADSs that trade on the Nasdaq Capital Market
(formerly Nasdaq SmallCap Market) in the form of ADRs under the symbol “DROOY.” Our ordinary shares trade on the JSE under
the symbol “DRD.” Our ordinary shares also trade on the Marche Libre on the Paris Bourse (symbol: DUR) and Brussels Bourse
(symbol: DUR) in the form of International Depository Receipts. The ordinary shares also trade on the over the counter markets in
Berlin, Stuttgart and the Regulated Unofficial Market on the Frankfurt Stock Exchange. The ADRs are issued by The Bank of New
York, as depositary. Each ADR represents one ADS. Until July 23, 2007, each ADS represented one of our ordinary shares. Prior to
February 2001, our ADSs traded on the Nasdaq National Market.
On January 22, 2007, we received a Nasdaq Staff Deficiency letter indicating that we failed to comply with the $1.00 per
share Minimum Bid Price Requirement, or the MBPR, on the Nasdaq Capital Market for continued listing set forth in Marketplace
Rule 4320(e)(2)(E)(ii). In accordance with this Rule, we were provided with 180 calendar days, or until July 23, 2007, to regain
compliance. As our ADSs had been consistently trading on the Nasdaq Capital Market at a price below the MBPR, we changed our
ADS ratio from one ADS for one of our ordinary shares to one ADS for ten of our ordinary shares on July 23, 2007. With effect from
the commencement of business on July 23, 2007, we affected a 1:10 reverse stock split (i.e. a 10:1 consolidation) of our ADRs.
Nasdaq Exemption
Exemption from the shareholder approval requirements
Between August and December 2003, the Company entered into a series of discounted issuances with several different
investors resulting in the issuance of ordinary shares, and securities convertible into ordinary shares, totaling 46,843,902, or
25.43% of the total shares outstanding on a pre-issuance basis. Included within those issuances, on December 12, 2003, the
Company entered into an agreement granting Investec the option to acquire 10.2 million ordinary shares. The Company requested
an exemption from Nasdaq Marketplace Rule 5635(a)(1)(B) in reliance upon Nasdaq Marketplace Rule 5615(a)(3). Rule
5635(a)(1)(B) provides that shareholder approval is required upon issuing 20% or more of the common stock outstanding before
the issuance. Nasdaq granted this exemption on the basis that the shareholder approval requirements of Rule 4350(i)(1)(D) are
contrary to generally accepted business practices of companies located in South Africa.
The South African Companies Act of 1973 (as amended) requires issuers to obtain shareholder approval before the
issuance of any shares or rights to shares, which approval can be provided by specific authority or a general authority granted by
means of a resolution passed by shareholders in a general meeting. JSE Listing Requirements require 75% shareholder approval
for any issuance of shares for cash. JSE Listing Requirements do, however, permit an issuer to issue shares for cash under a
general authority granted by its shareholders, but not in excess of 15% of the company’s total issued share capital during any
financial year under that authority, or the general authority. In terms of the specific issuances for which the Company received the
exemption from Nasdaq described above, there was no JSE requirement that would mandate specific shareholder approval for
these transactions. The JSE Listing Requirements accept a general authority by our shareholders under certain circumstances. The
shareholders had approved a general authority which covered the relevant transactions by resolutions passed at the Company's
annual general meetings in November 2003. In addition, included in the shares issued for cash were approximately 24.4 million
shares to the value of R435.5 million ($63.1 million) which were used for the acquisition of the Porgera Joint Venture. Approval
was obtained from the JSE to deem these shares to be a vendor placing.
Exemption from the quorum requirements
Nasdaq’s Marketplace Rules, which apply to all companies listed on the Nasdaq Stock Market and Nasdaq Capital Market,
state in Rule 5620(c) that the minimum quorum for any meeting of holders of the company’s common stock must be no less than 33
1/3 % of the issuer’s outstanding shares. Consistent with the practice of companies incorporated in South Africa, our Memorandum
of Incorporation only require a quorum of three members. As a result, and in connection with the listing of our ADSs on the Nasdaq
National Market in July 1996, we requested, and Nasdaq granted us in October 1996, an exemption from compliance with the Rule
5620(c) quorum requirement.
9D. SELLING SHAREHOLDERS
Not applicable.
9E. DILUTION
Not applicable.
9F. EXPENSES OF THE ISSUE
Not applicable.
99
ITEM 10. ADDITIONAL INFORMATION
10A. SHARE CAPITAL
Not applicable.
10B. MEMORANDUM AND ARTICLES OF ASSOCIATION
1
Description of Our Memorandum and Articles of Association and Ordinary Shares
As of June 30, 2011, we had authorized for issuance 600,000,000 ordinary shares, no par value, and 5,000,000 cumulative
preference shares, R0.10 par value. On that date, we had issued 384,884,379 ordinary shares and 5,000,000 cumulative preference
shares.
As of September 30, 2011, we had authorized for issuance 600,000,000 ordinary shares, no par value, and 5,000,000
cumulative preference shares, R0.10 par value. On that date, we had issued 384,884,379 ordinary shares and 5,000,000 cumulative
preference shares.
Set out below are brief summaries of certain provisions of our Memorandum of Incorporation
1
, or our MOI, the South
African Companies Act, 2008 (as amended), or the Companies Act, and the requirements of the JSE, all as in effect on September 30,
2011. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to the full text of the
MOI, the Companies Act, and the requirements of the JSE.
We are registered under the Companies Act of South Africa under registration number 1895/000926/06. As set forth in our
Memorandum of Incorporation, our purpose is to explore and exploit mineral rights and establish and own mining enterprises.
Borrowing Powers
Our directors may, at their discretion, raise or borrow or secure the payment of any sum or sums of money for our use as
they see fit. For so long as we are a listed company, the directors shall so restrict our borrowings and exercise all voting and other
rights or powers of control exercisable by us in relation to our subsidiary companies so that the aggregate principal amount
outstanding in respect of us and any of our subsidiary companies, as the case may be, exclusive of inter-company borrowings, shall
not, except with the consent of our shareholders at a general meeting, exceed R30.0 million or the aggregate from time to time of our
issued and paid up capital, together with the aggregate of the amounts standing to the credit of all distributable and non-distributable
reserves, any of our share premium accounts and our subsidiaries' share premium accounts certified by our auditors and which form
part of our and our subsidiaries' financial statements, whichever is higher, refer to note 22 of our financial statements documented in
Item 18.
Share Ownership Requirements
Our directors are not required to hold any shares to qualify or be appointed as a director.
Voting by Directors
A director may authorize any other director to vote for him at any meeting at which neither he nor his alternate director
appointed by him is present. Any director so authorized shall, in addition to his own vote, have a vote for each director by whom he is
authorized.
The quorum necessary for the transaction of the business of the directors may be fixed by the directors and unless so fixed
shall be not less than two.
Directors are required to notify our board of directors of interests in companies and contracts. If a director's interest is under
discussion, depending on the nature of the interest, he shall not be allowed to vote and shall not be counted, for the purpose of any
resolution regarding his interest, in the quorum present at the meeting.
The King Report on Corporate Governance for South Africa (King III Report) which came into effect on March 1, 2010,
sets out guidelines to promote the highest standards of corporate governance among South African companies. The board of directors
believes that our business should be conducted according to the highest legal and ethical standards. In accordance with the board practice, all remuneration of directors is approved by the Remuneration and Nominations Committee.
1
The Companies Act, 2008 (Act 71 of 2008) came into operation on May 1, 2011. However, the current Memorandum and Articles of
Association are now called the Memorandum of Incorporation and will remain in place until amended by the company. Companies have been
given a period of two years within which to amend their Memorandum of Incorporation. DRDGOLD has a project in place to determine the
impact of and implement the necessary amendments.
100
DRDGOLD commits itself to observing the provision of the King III Report and enforcing these to the extent possible
within the context of the report’s ‘apply or explain’ principle.
Under South African common law, directors are required to comply with certain fiduciary duties to the company and to
exercise proper care and skill in discharging their responsibilities.
Age Restrictions
There is no age limit for directors.
Election of Directors
Directors may be appointed at a general meeting from time to time. The directors may appoint any eligible person as a
director but he shall only hold office until the next annual general meeting when the relevant director shall be eligible for election.
One third of our directors, on a rotating basis, are subject to re-election at each annual general shareholder’s meeting. Retiring
directors usually make themselves available for re-election.
General Meetings
On the request of 100 shareholders or shareholders holding not less than one-twentieth of our share capital which carries the
right of voting at general meetings, we shall within 14 days of the lodging of a request by such shareholders issue a notice to
shareholders convening a general meeting for a date not less than 21 days and not more than 35 days from the date of the notice.
Directors may convene general meetings at any time.
Our annual general meeting and a meeting of our shareholders for the purpose of passing a special resolution may be called
by giving 21 days advance written notice of that meeting. For any other general meeting of our shareholders, 14 days advance written
notice is required.
Our MOI provide that if at a meeting convened upon request by our shareholders a quorum is not present within one half
hour after the time selected for the meeting, such meeting shall be dissolved. The necessary quorum is three members present in
person or represented by proxy.
Voting Rights
The holders of our ordinary shares are generally entitled to vote at general meetings and on a show of hands have one vote
per person and on a poll have one for every share held. The holders of our cumulative preference shares are not entitled to vote at a
general meeting unless any preference dividend is in arrears for more than six months at the date on which the notice convening the
general meeting is posted to the shareholders. Additionally, holders of cumulative preference shares may vote on resolutions which
adversely affect their interests and on resolutions regarding the disposal of all or substantially all of our assets or mineral rights. When
entitled to vote, holders of our cumulative preference shares are entitled to one vote per person on a show of hands and that portion of
the total votes which the aggregate amount of the nominal value of the shares held by the relevant shareholder bears to the aggregate
amount of the nominal value of all shares issued by us.
Dividends
We may, in a general meeting, or our directors may, from time to time, declare a dividend to be paid to the shareholders in
proportion to the number of shares they each hold. No dividend shall be declared except out of our profits. Dividends may be
declared either free or subject to the deduction of income tax or duty in respect of which we may be charged. Holders of ordinary
shares are entitled to receive dividends as and when declared by the directors.
Ownership Limitations
There are no limitations imposed by our MOI or South African law on the rights of shareholders to hold or vote on our
ordinary shares or securities convertible into our ordinary shares.
Winding-up
If we are wound-up, then the assets remaining after payment of all of our debts and liabilities, including the costs of
liquidation, shall be applied to repay to the shareholders the amount paid up on our issued capital and thereafter the balance shall be
distributed to the shareholders in proportion to their respective shareholdings. On a winding up, our cumulative preference shares
rank, in regard to all arrears of preference dividends, prior to the holders of ordinary shares. As of September 30, 2011, no such
dividends have been declared. Except for the preference dividend and as described in this Item our cumulative preference shares are
not entitled to any other participation in the distribution of our surplus assets on winding-up.
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Reduction of Capital
We may, by special resolution, reduce the share capital authorized by our MOI, or reduce our issued share capital including,
without limitation, any stated capital, capital redemption reserve fund and share premium account by making distributions and buying
back our shares.
Amendment of the MOI
Our MOI may be altered by the passing of a special resolution or in compliance with a court order. The Board may also
amend the MOI by increasing or decreasing the number of authorized shares, classifying or reclassifying shares, or determining the
terms of shares in a class. A special resolution is passed when the shareholders holding at least 25% of the total votes of all the
members entitled to vote are present or represented by proxy at a meeting and, if the resolution was passed on a show of hands, at
least 75% of those shareholders voted in favor of the resolution and, if a poll was demanded, at least 75% of the total votes to which
those shareholders are entitled were cast in favor of the resolution.
Consent of the Holders of Cumulative Preference Shares
The rights and conditions attaching to the cumulative preference shares may not be cancelled, varied or added, nor may we
issue shares ranking, regarding rights to dividends or on winding up, in priority to or equal with our cumulative preference shares, or
dispose of all or part of the Argonaut mineral rights without the consent in writing of the registered holders of our cumulative
preference shares or the prior sanction of a resolution passed at a separate class meeting of the holders of our cumulative preference
shares.
Distributions
Under an amendment to the MOI on October 21, 2002, we are authorized to make payments in cash or in specie to our
shareholders in accordance with the provisions of the Companies Act and other consents required by law from time to time. We may,
for example, in a general meeting, upon recommendation of our directors, resolve that any surplus funds representing capital profits
arising from the sale of any capital assets and not required for the payment of any fixed preferential dividend, be distributed among
our ordinary shareholders. However, no such profit shall be distributed unless we have sufficient other assets to satisfy our liabilities
and to cover our paid up share capital.
10C. MATERIAL CONTRACTS
Facility Agreement between Investec Bank limited (“the Lender”) and DRDGOLD Limited (“the Borrower”) dated March 31,
2009.
Under this agreement the Lender agreed to make available to the Borrower the total facility amount of R250 million up to
December 31, 2009, unless terminated by agreement between the parties and the parties may extend the agreement. The Borrower
may discharge its obligations to pay the Lender either in cash or by allotting issuing and delivering shares to the Lender. The
interest rate payable on overdue amounts shall be the rate per annum as determined by the Lender to be the aggregate of the rate
for deposits in rand for a period of 90 days, which appears on the Reuters Screen SAFETY page under the caption “YIELD” at
11:00 am on the relevant Quotation Date plus 2%. The Borrower shall also pay for necessary costs and a drawdown fee of 4% of
the advanced amount.
Final Heads of Agreement between Chizim Investments (Pvt) Limited (“Chizim”) and DRDGOLD Limited (“DRDGOLD”) dated
December 9, 2009
Under this agreement Chizim and DRDGOLD agreed to establish a joint venture company registered in Zimbabwe for
the purposes of exploring and mining gold and other minerals for the mutual benefit of both Chizim and DRDGOLD as
shareholders. Chizim and DRDGOLD shall each hold 50% shares in the issued share capital of the joint venture company to be
formed. Chizim’s main initial contribution to the joint venture company will be the procurement of mining licenses and
DRDGOLD will make an initial contribution toward the venture capital of the joint venture company of R7.5 million.
Memorandum of Agreement between Ergo Uranium (Pty) Ltd (“Ergo Uranium”) and East Rand Proprietary Mines Limited
(“ERPM”) dated January 21, 2010
Under this agreement Ergo Uranium agreed to sell to ERPM claims in loan account by Ergo Uranium against Ergo
Mining (Pty) Limited (“Ergo Mining”) in aggregate of R118 million and the 300 ordinary par value shares of R1.00 each in the
capital of Ergo Mining, constituting 50% of the total issued share capital in Ergo Mining. The purchase consideration for the sale
of the claims and shares is R82,088,321.73. The loan was purchased due to it forming part of the shareholder’s investment in Ergo
Mining.
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Heads of Agreement between East Rand Proprietary Mines Limited (“ERPM”) and Aurora Empowerment System (Pty) Limited
(“Aurora”) dated January 22, 2010
Under this agreement ERPM agreed to sell a metallurgical plant to Aurora for R20 million. Aurora was to pay a deposit
of R5 million and the balance of R15 million was payable on or before June 30, 2010, however ERPM may elect to waive
payment of the balance of the purchase price in exchange for the option to reclaim the Grootvlei and Marievale tailings dams for
minerals. Subsequently, as at September 30, 2011, the exercise periods of the transaction expired and ERPM kept the R5 million
deposit and the transaction will therefore not be completed.
Domestic Medium Term Note Programme (“DMTN Programme”) entered into by DRDGOLD South African Operations (Pty)
Limited (“Issuer”) and DRDGOLD Limited (“guarantor’) dated September 30 2010.
Under this the DMTN Programme the Issuer may from time to time issue loan notes. The maximum aggregate nominal
amount of all such notes from time to time outstanding under the DMTN Programme will not exceed R500,000,000 (five hundred
million South African Rand). The guarantor guarantees to the holders of the notes the due and punctual performance by the Issuer
of its payment obligations under the DMTN Programme notes. The notes may be listed on the JSE Limited. ABSA Capital, a
division of ABSA Bank Limited, has been appointed dealer and arranger of the notes. See Item 18 “Financial Statements” Note 22
– Loans and borrowings”.
10D. EXCHANGE CONTROLS
The following is a summary of the material South African exchange control measures, which has been derived from
publicly available documents. The following summary is not a comprehensive description of all the exchange control regulations.
The discussion in this section is based on the current law and positions of the South African Government. Changes in the law may
alter the exchange control provisions that apply, possibly on a retroactive basis.
Introduction
Dealings in foreign currency, the export of capital and revenue, payments by residents to non-residents and various other
exchange control matters in South Africa are regulated by the South African exchange control regulations, or the Regulations. The
Regulations form part of the general monetary policy of South Africa. The Regulations are issued under Section 9 of the Currency
and Exchanges Act, 1933 (as amended). In terms of the Regulations, the control over South African capital and revenue reserves, as
well as the accruals and spending thereof, is vested in the Treasury (Ministry of Finance), or the Treasury.
The Treasury has delegated the administration of exchange controls to the Exchange Control Department of the South
African Reserve Bank, or SARB, which is responsible for the day to day administration and functioning of exchange controls. SARB
has a wide discretion. Certain banks authorized by the Treasury to co-administer certain of the exchange controls, are authorized by
the Treasury to deal in foreign exchange. Such dealings in foreign exchange by authorized dealers are undertaken in accordance with
the provisions and requirements of the exchange control rulings, or Rulings, and contain certain administrative measures, as well as
conditions and limits applicable to transactions in foreign exchange, which may be undertaken by authorized dealers. Non-residents
have been granted general approval, in terms of the Rulings, to deal in South African assets, to invest and disinvest in South Africa.
The Regulations provide for restrictions on exporting capital from the Common Monetary Area consisting of South Africa,
Namibia, and the Kingdoms of Lesotho and Swaziland. Transactions between residents of the Common Monetary Area are not
subject to these exchange control regulations.
There are many inherent disadvantages to exchange controls, including distortion of the price mechanism, problems
encountered in the application of monetary policy, detrimental effects on inward foreign investment and administrative costs
associated therewith. The South African Finance Minister has indicated that all remaining exchange controls are likely to be
dismantled as soon as circumstances permit. Since 1998, there has been a gradual relaxation of exchange controls. The gradual
approach to the abolition of exchange controls adopted by the Government of South Africa is designed to allow the economy to
adjust more smoothly to the removal of controls that have been in place for a considerable period of time. The stated objective of the
authorities is equality of treatment between residents and non-residents with respect to inflows and outflows of capital. The focus of
regulation, subsequent to the abolition of exchange controls, is expected to favor the positive aspects of prudential financial
supervision.
The present exchange control system in South Africa is used principally to control capital movements. South African
companies are not permitted to maintain foreign bank accounts without SARB approval and, without the approval of SARB, are
generally not permitted to export capital from South Africa or hold foreign currency. In addition, South African companies are
required to obtain the approval of SARB prior to raising foreign funding on the strength of their South African statements of financial
position, which would permit recourse to South Africa in the event of defaults. Where 75% or more of a South African company's
capital, voting power, power of control or earnings is directly or indirectly controlled by non-residents, such a corporation is
designated an “affected person” by SARB, and certain restrictions are placed on its ability to obtain local financial assistance. We are
not, and have never been, designated an “affected person” by SARB.
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Foreign investment and outward loans by South African companies are also restricted. In addition, without the approval of
SARB, South African companies are generally required to repatriate to South Africa profits of foreign operations and are limited in
their ability to utilize profits of one foreign business to finance operations of a different foreign business. South African companies
establishing subsidiaries, branches, offices or joint ventures abroad are generally required to submit financial statements on these
operations as well as progress reports to SARB on an annual basis. As a result, a South African company's ability to raise and deploy
capital outside the Common Monetary Area is restricted.
Although exchange controls have been gradually relaxed since 1998, unlimited outward transfers of capital are not permitted
at this stage. Some of the more salient changes to the South African exchange control provisions over the past few years have been as
follows:
• corporations wishing to invest in countries outside the Common Monetary Area, in addition to what is set out below, apply
for permission to enter into corporate asset/share swap and share placement transactions to acquire foreign investments. The
latter mechanism entails the placement of the locally quoted corporation's shares with long-term overseas holders who, in
payment for the shares, provide the foreign currency abroad which the corporation then uses to acquire the target
investment;
• corporations wishing to establish new overseas ventures are permitted to transfer offshore up to R500 million to finance
approved investments abroad and up to R500 million to finance approved new investments in African countries on an
annual bases. Approval from SARB is required in advance for investments in excess of R500 million. On application to
SARB, corporations are also allowed to use part of their local cash holdings to finance up to 10% of approved new foreign
investments where the cost of these investments exceeds the current limits;
• as a general rule, SARB requires that more than 10% of equity of the acquired off-shore venture is acquired within a
predetermined period of time, as a prerequisite to allowing the expatriation of funds. If these requirements are not met,
SARB may instruct that the equity be disposed of. In our experience SARB has taken a commercial view on this, and has on
occasion extended the period of time for compliance; and
• remittance of directors' fees payable to persons permanently resident outside the Common Monetary Area may be approved
by authorized dealers, in terms of the Rulings.
Authorized dealers in foreign exchange may, against the production of suitable documentary evidence, provide forward
cover to South African residents in respect of fixed and ascertained foreign exchange commitments covering the movement of goods.
Persons who emigrate from South Africa are entitled to take limited amounts of money out of South Africa as a settling-in
allowance. The balance of the emigrant's funds will be blocked and held under the control of an authorized dealer. These blocked
funds may only be invested in:
• blocked current, savings, interest bearing deposit accounts in the books of an authorized dealer in the banking sector;
• securities quoted on the JSE and financial instruments listed on the Bond Exchange of South Africa which are deposited
with an authorized dealer and not released except temporarily for switching purposes, without the approval of SARB.
Authorized dealers must at all times be able to demonstrate that listed or quoted securities or financial instruments which are
dematerialized or immobilized in a central securities depository are being held subject to the control of the authorized dealer
concerned; or
• mutual funds.
Aside from the investments referred to above, blocked rands may only be utilized for very limited purposes. Dividends
declared out of capital gains or out of income earned prior to emigration remain subject to the blocking procedure. It is not possible to
predict when existing exchange controls will be abolished or whether they will be continued or modified by the South African
Government in the future.
Sale of Shares
Under present exchange control regulations in South Africa, our ordinary shares and ADSs are freely transferable outside
the Common Monetary Area between non-residents of the Common Monetary Area. In addition, the proceeds from the sale of
ordinary shares on the JSE on behalf of shareholders who are not residents of the Common Monetary Area are freely remittable to
such shareholders. Share certificates held by non-residents will be endorsed with the words “non-resident,” unless dematerialized.
Dividends
Dividends declared in respect of shares held by a non-resident in a company whose shares are listed on the JSE are freely
remittable.
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Any cash dividends paid by us are paid in rands. Holders of ADSs on the relevant record date will be entitled to receive any
dividends payable in respect of the shares underlying the ADSs, subject to the terms of the deposit agreement entered on August 12,
1996, and as amended and restated, between the Company and The Bank of New York, as the depository. Subject to exceptions
provided in the deposit agreement, cash dividends paid in rand will be converted by the depositary to dollars and paid by the
depositary to holders of ADSs, net of conversion expenses of the depositary, in accordance with the deposit agreement. The
depositary will charge holders of ADSs, to the extent applicable, taxes and other governmental charges and specified fees and other
expenses.
Voting rights
There are no limitations imposed by South African law or by our MOI on the right of non-South African shareholders to
hold or vote our ordinary shares.
10E. TAXATION
Material South African Income Tax Consequences
The following is a summary of material income tax considerations under South African income tax law. No representation
with respect to the consequences to any particular purchaser of our securities is made hereby. Prospective purchasers are urged to
consult their tax advisers with respect to their particular circumstances and the effect of South African or other tax laws to which they
may be subject.
South Africa imposes tax on worldwide income of South African residents. Generally, South African non-residents do not
pay tax in South Africa except in the following circumstances:
Income Tax and Taxation of dividends
Non-residents will pay income tax on any amounts received by or accrued to them from a source within (or deemed to be
within) South Africa. Interest earned by a non-resident on a debt instrument issued by a South African company will be regarded as
being derived from a South African source but will be regarded as exempt from taxation in terms of Section 10(1)(i) of the South
African Income Tax Act, 1962 (as amended), or the Income Tax Act. This exemption applies to so much of any interest and
dividends (which are not otherwise exempt) received from a South African source not exceeding (a) R32,000 if the taxpayer is 65
years of age or older or (b) R22,300 if the taxpayer is younger than 65 years of age at the end of the relevant tax year.
No withholding tax is deductible in respect of interest payments made to non-resident investors.
In 1993, all existing gold mining companies had the option to elect to be exempt from STC. If the election was made, a
higher tax rate would apply for both mining and non-mining income. In fiscal 2011, the tax rates for taxable mining and
non-mining income, for companies that elected the STC exemption were 43% (2010: 43% and 2009: 43%) and 35% (2010: 35%
and 2009: 35%), respectively. During those same years the tax rates for companies that did not elect the STC exemption were
34% (2010: 34% and 2009: 34%) and 28% (2010: 28% and 2009: 28%), respectively. In 1993, the Company elected not to be
exempt from STC, as this would have meant that the Company would have been liable for normal taxation at the higher rates of
43% for mining income and 35% for non-mining income. The Company, having chosen not to be subject to the STC exemption, is
subject to 34% tax on mining income and 28% for non-mining income. With the exception of Crown, all of the South African
subsidiaries elected not to be exempt from STC.
No income tax is payable on dividends paid to residents or non-residents, in terms of Section 10(1)(k) of the Income Tax
Act except in respect of foreign dividends received by or accrued to residents of South Africa. Accordingly, there is no withholding
tax on dividends received by or accrued to non-resident shareholders of companies listed in South Africa and non-residents will
receive the same dividend as South African resident shareholders. Prior to payment of the dividend, the Company pays Secondary
Tax on Companies (STC) at a rate of 10% (before October 1, 2007 12.5%) of the excess of dividends declared over dividends
received in a dividend cycle but the full amount of the dividend declared is paid to shareholders.
However, in accordance with new amendments to the Income Tax Act, effective April 1, 2012, which will supersede
Section 10(1)(k), withholding tax of 10% will be deductable from dividends declared after the effective date as opposed to the
relevant company having to pay STC over-and-above the dividend declared. These amendments are set out in Part VIII in Chapter II
of the Income Tax Act. Section 64F of the amendments will set out beneficial owners who are exempt from the withholding tax,
which includes resident companies receiving a dividend after the effective date being April 1, 2012. After these amendments come
into operation, the Convention between the United States of America and the Republic of South Africa for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, or the Tax Treaty, would limit the
rate of this tax with respect to dividends paid on ordinary shares or ADSs to a US resident (within the meaning of the Tax Treaty) to 5
percent of the gross amount of the dividends if such US resident is a company which holds directly at least 10 percent of our voting
stock and 15 percent of the gross amount of the dividends in all other cases.
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The above provisions shall not apply if the beneficial owner of the dividends is resident in the US, carries on business in
South Africa through a permanent establishment situated in South Africa, or performs in South Africa independent personal services
from a fixed base situated in South Africa, and the dividends are attributable to such permanent establishment or fixed base.
Capital Gains Tax
Non-residents are generally not subject to Capital Gains Tax, or CGT, in South Africa. They will only be subject to CGT on
gains arising from the disposal of capital assets if the assets disposed of consist of:
• immovable property owned by the non-residents situated in South Africa, or any interest or right in or to immovable
property. A non-resident will have an interest in immovable property if it has a direct or indirect shareholding of at least
20% in a company, where 80% or more of the net assets of that company (determined on a market value basis) are
attributable directly or indirectly to immovable property; or
• any asset of a permanent establishment of a non-resident in South Africa through which a trade is carried on.
If the non-residents are not subject to CGT because the assets disposed of do not fall within the categories described above,
it follows that they will also not be able to claim the capital losses arising from the disposal of the assets.
Material United States Federal Income Tax Consequences
The following is a summary of material US federal income tax consequences to US holders (as defined below) of the
purchase, ownership and disposition of ordinary shares or ADSs. It deals only with US holders who hold ordinary shares or ADSs as
capital assets for US federal income tax purposes. This discussion is based upon the provisions of the Internal Revenue Code of 1986,
as amended, or the Code, published rulings, judicial decisions and the Treasury regulations, all as currently in effect and all of which
are subject to change, possibly on a retroactive basis. This discussion has no binding effect or official status of any kind; we cannot
assure holders that the conclusions reached below would be sustained by a court if challenged by the Internal Revenue Service.
This discussion does not address all aspects of US federal income taxation that may be applicable to holders in light of their
particular circumstances and does not address special classes of US holders subject to special treatment (such as dealers in securities
or currencies, partnerships or other pass-through entities, banks and other financial institutions, insurance companies, tax-exempt
organizations, certain expatriates or former long-term residents of the United States, persons holding ordinary shares or ADSs as part
of a “hedge,” “conversion transaction,” “synthetic security,” “straddle,” “constructive sale” or other integrated investment, persons
who acquired the ordinary shares or ADSs upon the exercise of employee stock options or otherwise as compensation, persons whose
functional currency is not the US dollar, or persons that actually or constructively own ten percent or more of our voting stock). This
discussion addresses only US federal income tax consequences and does not address the effect of any state, local, or foreign tax laws
that may apply, the alternative minimum tax or the application of the federal estate or gift tax.
A “US holder” is a beneficial owner of ordinary shares or ADSs that is, for US federal income tax purposes:
• a citizen or resident of the US;
• a corporation or other entity subject to tax as a corporation that is created or organized under the laws of the US or any
political subdivision thereof;
• an estate, the income of which is subject to US federal income tax without regard to its source; or
• a trust, if a court within the US is able to exercise primary supervision over the administration of the trust and one or more
US persons have the authority to control all substantial decisions of the trust or if the trust has made a valid election to be
treated as a US person.
If a partnership holds any ordinary shares or ADSs, the tax treatment of a partner will generally depend on the status of the
partner and on the activities of the partnership. Partners of partnerships holding any ordinary shares or ADSs are urged to consult
their tax advisors.
Because individual circumstances may differ, US holders of ordinary shares or ADSs are urged to consult their tax
advisors concerning the US federal income tax consequences applicable to their particular situations as well as any
consequences to them arising under the tax laws of any foreign, state or local taxing jurisdiction.
Ownership of Ordinary Shares or ADSs
For purposes of the Code, a US holder of ADSs will be treated for US federal income tax purposes as the owner of the
ordinary shares represented by those ADSs. Exchanges of ordinary shares for ADSs and ADSs for ordinary shares generally will not
be subject to US federal income tax.
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Subject to the discussion below under the heading “Passive Foreign Investment Company”, distributions with respect to the
ordinary shares or ADSs, other than distributions in liquidation and distributions in redemption of stock that are treated as exchanges,
will be taxed to US holders as ordinary dividend income to the extent that the distributions do not exceed our current and
accumulated earnings and profits. For US federal income tax purposes, the amount of any distribution received by a US holder will
equal the dollar value of the sum of the South African rand payments made (including the amount of South African income taxes, if
any, withheld with respect to such payments), determined at the “spot rate” on the date the dividend distribution is includable in such
US holder's income, regardless of whether the payment is in fact converted into dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from the date a US holder includes the dividend payment in income to the date such
holder converts the payment into dollars will be treated as ordinary income or loss. Distributions, if any, in excess of our current and
accumulated earnings and profits will constitute a non-taxable return of capital and will be applied against and reduce the holder's
basis in the ordinary shares or ADSs. To the extent that these distributions exceed the US holder's tax basis in the ordinary shares or
ADSs, as applicable, the excess generally will be treated as capital gain, subject to the discussion below under the heading “Passive
Foreign Investment Company”. We do not intend to calculate our earnings or profits for US federal income tax purposes. US holders
should therefore assume that any distributions with respect to our ordinary shares or ADSs will constitute dividend income.
“Qualified dividend income” received by individual US holders (as well as certain trusts and estates) for taxable years
beginning on or before December 31, 2012 generally will be taxed at a maximum US federal income tax rate of 15% provided certain
conditions are met, including a minimum holding period. This reduced rate generally would apply to dividends paid by us if, at the
time such dividends are paid, either (i) we are eligible for benefits under a qualifying income tax treaty with the US or (ii) our
ordinary shares or ADSs with respect to which such dividends were paid are readily tradable on an established securities market in
the US. However, this reduced rate is subject to certain important requirements and exceptions, including, without limitation, certain
holding period requirements and an exception applicable if we are treated as a passive foreign investment company as discussed
under the heading “Passive Foreign Investment Company”. US holders are urged to consult their tax advisors regarding the US
federal income tax rate that will be applicable to their receipt of any dividends paid with respect to the ordinary shares and ADSs.
For purposes of this discussion, the “spot rate” generally means a rate that reflects a fair market rate of exchange available to
the public for currency under a “spot contract” in a free market and involving representative amounts. A “spot contract” is a contract
to buy or sell a currency on or before two business days following the date of the execution of the contract. If such a spot rate cannot
be demonstrated, the US Internal Revenue Service has the authority to determine the spot rate.
Dividend income derived with respect to the ordinary shares or ADSs will not be eligible for the dividends received
deduction generally allowed to a US corporation under Section 243 of the Code. Dividend income will be treated as foreign source
income for foreign tax credit and other purposes. In computing the separate foreign tax credit limitations, dividend income should
generally constitute “passive category income,” or in the case of certain US holders, “general category income.”
Disposition of Ordinary Shares or ADSs
Subject to the discussion below under the heading “Passive Foreign Investment Company”, upon a sale, exchange, or other
taxable disposition of ordinary shares or ADSs, a US holder will recognize gain or loss in an amount equal to the difference between
the US dollar value of the amount realized on the sale or exchange and such holder's adjusted tax basis in the ordinary shares or
ADSs. Subject to the application of the “passive foreign investment company” rules discussed below, such gain or loss generally will
be capital gain or loss and will be long-term capital gain or loss if the US holder has held the ordinary shares or ADSs for more than
one year. The deductibility of capital losses is subject to limitations. Gain or loss recognized by a US holder on the taxable disposition
of ordinary shares or ADSs generally will be treated as US-source gain or loss for US foreign tax credit purposes.
In the case of a cash basis US holder who receives rands in connection with the taxable disposition of ordinary shares or
ADSs, the amount realized will be based on the spot rate as determined on the settlement date of such exchange. A US holder who
receives payment in rand and converts rand into US dollars at a conversion rate other than the rate in effect on the settlement date
may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss.
An accrual basis US holder may elect the same treatment required of cash basis taxpayers with respect to a taxable
disposition of ordinary shares or ADSs, provided that the election is applied consistently from year to year. Such election may not be
changed without the consent of the Internal Revenue Service. In the event that an accrual basis holder does not elect to be treated as a
cash basis taxpayer, such US holder may have a foreign currency gain or loss for US federal income tax purposes because of the
differences between the US dollar value of the currency received prevailing on the trade date and the settlement date. Any such
currency gain or loss will be treated as ordinary income or loss and would be in addition to gain or loss, if any, recognized by such
US holder on the disposition of such ordinary shares or ADSs.
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Passive Foreign Investment Company
A special and adverse set of US federal income tax rules apply to a US holder that holds stock in a passive foreign
investment company, or PFIC. We would be a PFIC for US federal income tax purposes if for any taxable year either (i) 75% or more
of our gross income, including our pro rata share of the gross income of any company in which we are considered to own 25% or
more of the shares by value, were passive income or (ii) 50% or more of our average total assets (by value), including our pro rata
share of the assets of any company in which we are considered to own 25% or more of the shares by value, were assets that produced
or were held for the production of passive income. If we were a PFIC, US holders of the ordinary shares or ADSs would be subject to
special rules with respect to (i) any gain recognized upon the disposition of the ordinary shares or ADSs and (ii) any receipt of an
excess distribution (generally, any distributions to a US holder during a single taxable year that is greater than 125% of the average
amount of distributions received by such US holder during the three preceding taxable years in respect of the ordinary shares or
ADSs or, if shorter, such US holder's holding period for the ordinary shares or ADSs). Under these rules:
• the gain or excess distribution will be allocated ratably over a US holder's holding period for the ordinary shares or ADSs, as
applicable;
• the amount allocated to the taxable year in which a US holder realizes the gain or excess distribution will be taxed as
ordinary income;
• the amount allocated to each prior year (other than a pre-PFIC year), with certain exceptions, will be taxed at the highest tax
rate in effect for that year; and
• the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each
such year (other than a pre-PFIC year).
Although we generally will be treated as a PFIC as to any US holder if we are a PFIC for any year during a US holder's
holding period, if we cease to satisfy the requirements for PFIC classification, the US holder may avoid PFIC classification for
subsequent years if such holder elects to recognize gain based on the unrealized appreciation in the ordinary shares or ADSs through
the close of the tax year in which we cease to be a PFIC.
A US holder who beneficially owns stock in a PFIC must file Form 8621 (Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund) with the Internal Revenue Service for each tax year such holder holds stock in a
PFIC and (i) recognizes gain on a direct or indirect disposition of such stock, (ii) receives certain direct or indirect distributions from
such PFIC, or (iii) is making certain elections (including a mark-to-market election and an election to be treated as a “qualified
electing fund,” as described below) with respect to such PFIC. This form describes any distributions received with respect to such
stock and any gain realized upon the disposition of such stock. Under newly enacted legislation, unless otherwise provided by the US
Secretary of Treasury, shareholders of a PFIC are required to file an annual report with the Internal Revenue Service containing such
information as the US Secretary of Treasury may require. Although the information required to be reported to the Internal Revenue
Service pursuant to such newly enacted legislation remains unknown, it could enhance the reporting requirements applicable to US
holders of our ordinary shares or ADSs.
A US holder of the ordinary shares or ADSs that are treated as “marketable stock” under the PFIC rules may be able to
avoid the imposition of the special tax and interest charge described above by making a mark-to-market election. Pursuant to this
election, the US holder would include in ordinary income or loss for each taxable year an amount equal to the difference as of the
close of the taxable year between the fair market value of the ordinary shares or ADSs and the US holder's adjusted tax basis in such
ordinary shares or ADSs. Losses would be allowed only to the extent of net mark-to-market gain previously included by the US
holder under the election for prior taxable years. If a mark-to-market election with respect to ordinary shares or ADSs is in effect on
the date of a US holder's death, the tax basis of the ordinary shares or ADSs in the hands of a US holder who acquired them from a
decedent will be the lesser of the decedent's tax basis or the fair market value of the ordinary shares or ADSs. US holders desiring to
make the mark-to-market election are urged to consult their tax advisors with respect to the application and effect of making the
election for the ordinary shares or ADSs.
In the case of a US holder who holds ordinary shares or ADSs and who does not make a mark-to-market election, the
special tax and interest charge described above will not apply if such holder makes an election to treat us as a “qualified electing
fund” in the first taxable year in which such holder owns the ordinary shares or ADSs and if we comply with certain reporting
requirements. However, we do not intend to supply US holders with the information needed to report income and gain pursuant to a
“qualified electing fund” election in the event that we are classified as a PFIC.
108
We believe that we were not a PFIC for our 2011 fiscal year ended June 30, 2011. However, under the PFIC rules income
and assets are require to be measured and classified in accordance with US federal income tax principles. Our analysis is based on our
financial statements as prepared in accordance with IFRS, which may substantially differ from US federal income tax principles.
Therefore, no assurance can be given that we were not a PFIC for our 2011 fiscal year ended June 30, 2011. Furthermore, the tests for
determining whether we would be a PFIC for any taxable year are applied annually and it is difficult to make accurate predictions of
future income and assets, which are relevant to this determination. In addition, certain factors in the PFIC determination, such as
reductions in the market value of our capital stock, are not within our control and can cause us to become a PFIC. Accordingly, there
can be no assurance that we will not become a PFIC.
The rules relating to PFICs are very complex. US holders are urged to consult their tax advisors regarding the application of
the PFIC rules to their investments in our ordinary shares or ADSs.
Information Reporting and Backup Withholding
Payments made in the United States or through certain US-related financial intermediaries of dividends or the proceeds of
the sale or other disposition of our ordinary shares or ADSs may be subject to information reporting and US federal backup
withholding if the recipient of such payment is not an “exempt recipient” and fails to supply certain identifying information, such as
an accurate taxpayer identification number, in the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients. The backup withholding tax rate is currently 28%. Payments
made with respect to our ordinary shares or ADSs to a US holder must be reported to the Internal Revenue Service, unless the US
holder is an exempt recipient or otherwise establishes an exemption. Any amount withheld from a payment to a US holder under the
backup withholding rules is refundable or allowable as a credit against the holder's US federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
Under the Hiring Incentives to Restore Employment Act enacted on March 18, 2010, in taxable years beginning after the
date of enactment, a US holder may be required to submit to the Internal Revenue Service certain information with respect to such
US holder's beneficial ownership of ordinary shares or ADSs, if such ordinary shares or ADSs are not held on such US holder's
behalf by a financial institution. This new law also imposes penalties if a US holder is required to submit such information to the
Internal Revenue Service and fails to do so.
US holders should consult their tax advisors regarding application of the information reporting and backup withholding
rules.
10F. DIVIDENDS AND PAYING AGENTS
On August 24, 2011, we declared a dividend which, in total, amounts to R28.9 million (7.5 cents per ordinary share).
Secondary tax on companies of R2.9 million is payable on the dividend. There are no dividend restrictions.
Date of entitlement:
October 14, 2011
Approximate date of conversion
October 21, 2011
Approximate payment date:
October 31, 2011
Paying agents:
Link Market Services (US and SA)
St James’s Corporate Services Limited (UK)
Computershare (Australia)
10G. STATEMENT BY EXPERTS
Not applicable.
10H. DOCUMENTS ON DISPLAY
You may request a copy of our US Securities and Exchange Commission filings, at no cost, by writing or calling us at
DRDGOLD Limited, P.O. Box 390, Maraisburg, Johannesburg, South Africa 1700. Attn: Group Company Secretary. Tel No. +27-
11-470-2600. A copy of each report submitted in accordance with applicable United States law is available for public review at our
principal executive offices.
A copy of each document concerning us that is referred to in this Annual Report on Form 20-F, is available for public view
at our principal executive offices at DRDGOLD Limited, Quadrum Office Park, Building 1, 50 Constantia Boulevard, Constantia
Kloof Ext.28, South Africa 1709.
10I. SUBSIDIARY INFORMATION
Not applicable.
109
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
In the normal course of our operations, we are exposed to market risk, including commodity price, foreign currency, interest
and credit risks. We do not hold or issue derivative financial instruments for speculative purposes, nor do we hedge forward gold
sales.
Refer to Item 18. ‘‘Financial Statements - Note 24 - Financial instruments’’ of the consolidated financial statements for a
qualitative and quantitative discussion of our exposure to these market risks.
Commodity price risk
The market price of gold has a significant effect on our results of operations, our ability and the ability of our subsidiaries to
pay dividends and undertake capital expenditures, and the market price of our ordinary shares or ADSs. Historically, gold prices have
fluctuated widely and are affected by numerous industry factors over which we have no control. The aggregate effect of these factors
on the gold price is impossible for us to predict. The price of gold may not remain at a level allowing us to economically exploit our
reserves. It is our policy not to hedge this commodity price risk.
Concentration of credit risk
Credit risk is the risk of financial loss to us if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from our receivables from customers and investment securities
.
Our financial instruments do not represent a concentration of credit risk, because we deal with a variety of major banks and
financial institutions located in South Africa after evaluating the credit ratings of the representative financial institutions.
Furthermore, our trade receivables and loans are regularly monitored and assessed for recoverability. Where it is appropriate, an
impairment loss is raised. In addition, our South African operations deliver their gold to Rand Refinery Limited (Rand Refinery),
which refines the gold to saleable purity levels and then sells the gold, on behalf of the South African operations, on the bullion
market. The gold is sold by Rand Refinery usually on the same day as it is delivered and settlement is made within two days.
Foreign currency risk
Our reporting currency is the South African rand. Although gold is sold in US dollars, the Company is obliged to convert
this into rands. We are thus exposed to fluctuations in the US dollar/ rand exchange rate. Foreign exchange fluctuations affect the
cash flow that we will realize from our operations as gold is sold in US dollars, while production costs are incurred primarily in rands.
Our results are positively affected when the US dollar strengthens against the rand and adversely affected when the US dollar
weakens against the rand. Our cash and cash equivalent balances are held in US dollars and rands; holdings denominated in other
currencies are relatively insignificant.
Long-term debt
Set out below is an analysis of our debt as at June 30, 2011, analyzed between fixed and variable interest rates. All of our
long-term debt is denominated in South African rand.
Total
R'000
Interest rate
Variable rate ..............................................................................................
109,636
Weighted average interest rate ..................................................................
12.1%
Fixed rate ...................................................................................................
10,137
Weighted average interest rate ..................................................................
13.0%
Total ..........................................................................................................
119,773
Repayment period
2012 ..........................................................................................................
79,345
2013 ..........................................................................................................
30,291
2014 onwards .............................................................................................
10,137
Total ..........................................................................................................
119,773
Based on our fiscal 2011 financial results, a hypothetical 10% (increase)/decrease in interest rate activity would
(increase)/decrease our interest expense by R1.1 million.
110
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12A. DEBT SECURITIES
Not applicable.
12B. WARRANTS AND RIGHTS
Not applicable.
12C. OTHER SECURITIES
Not applicable.
12D. AMERICAN DEPOSITARY SHARES
Depositary Fees and Charges
DRDGOLD’s American Depository Shares, or ADSs, each representing ten of DRDGOLD’s ordinary shares, are traded on
the New York Stock Exchange under the symbol “DROOY.” The ADSs are evidenced by American Depository Receipts, or ADRs,
issued by The Bank of New York Mellon, as Depository under the Amended and Restated Deposit Agreement dated as of August 12,
1996, as amended and restated as of October 2, 1996, as further amended and restated as of August 6, 1998, as further amended and
restated July 23, 2007, among DRDGOLD Limited, The Bank of New York Mellon and owners and beneficial owners of ADRs from
time to time. ADR holders may have to pay the following service fees to the Depositary:
Service
Fees (USD)
Issuance of ADSs, including issuances resulting from a distribution of ordinary
shares or rights .......................................................................................................
$5.00 (or less) per 100 ADSs (or
portion thereof)
1
Cancellation of ADSs for the purpose of withdrawal, including if the Deposit
Agreement terminates ............................................................................................
$5.00 (or less) per 100 ADSs (or
portion thereof)
1
Distribution of cash dividends or other cash distributions ........................................
2 cents (or less) per ADS (or portion
thereof)
2
Distribution of securities distributed to holders of deposited securities which are
distributed by the Depositary to ADS registered holders
$5.00 (or less) per 100 ADSs (or
portion thereof)
2
In addition, ADR holders are responsible for certain fees and expenses incurred by the Depositary on their behalf including
(1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of
transfers of ordinary shares generally on the share register and applicable to transfers of ordinary shares to the name of the Depositary
or its nominee or the Custodian or its nominee on the making of deposits or withdrawals, (3) such cable, telex and facsimile
transmission expenses as are expressly provided in the Deposit Agreement, and (4) such expenses as are incurred by the Depositary
in the conversion of foreign currency to U.S. Dollars.
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing or surrendering ADSs
for the purpose of withdrawal or from intermediaries acting for them. The Depositary, collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The
Depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or
by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-
attracting services until its fees for those services are paid.
Depositary Payments for Fiscal 2011
For the fiscal year ended June 30, 2011, The Bank of New York Mellon, as Depositary, has agreed to reimburse DRDGOLD
an amount of $92,800.23 mainly for contributions towards the Company’s investor relations activities (including investor meetings,
conferences and fees of investor relations service vendors).
1
These fees are typically paid to the Depositary by the brokers on behalf of their clients receiving the newly-issued ADSs from the Depositary
or delivering the ADSs to the Depositary for cancellation. The brokers in turn charge these transaction fees to their clients.
2
In practice, the Depositary has not collected these fees. If collected, such fees are offset against the related distribution made to the ADR
holder.
111
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There have been no material defaults in the payment of principal, interest, a sinking or purchase fund installment, or any
other material defaults with respect to any indebtedness of ours.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
15A. Disclosure Controls and Procedures
As of June 30, 2011, our management, with the participation of our Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures (as this term is defined under the rules of the SEC). Our
management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures were effective as of June 30, 2011.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the applicable rules and forms and that such information required to
be disclosed by us in the reports we file or submit under the Securities Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
There are inherent limitations in the effectiveness of any system of disclosure controls and procedures. These limitations
include the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, any such
system can only provide reasonable assurance of achieving the desired control objectives.
15B. Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act
of 1934 as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and
effected by our board, management and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with IFRS. Under Section 404 of the
Sarbanes Oxley Act of 2002, management is required to assess our internal controls surrounding the financial reporting process as
at the end of each fiscal year. Based on that assessment, management is to determine whether or not our internal controls over
financial reporting are effective.
Internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and board; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Instead, it must be noted that even those systems that management deems to be effective can only provide reasonable assurance
with respect to the preparation and presentation of our financial statements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of
compliance with the policies and procedures.
112
Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2011. In
making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, our
management concluded that as of June 30, 2011 our internal control over financial reporting was effective.
15C. Independent Auditor’s Attestation Report
The effectiveness of internal control over financial reporting as of June 30, 2011 was audited by KPMG Inc.,
independent registered public accounting firm, as stated in their report on page F-1 of this Form 20-F.
15D. Changes in Internal Control Over Financial Reporting
Changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting during the period covered by the annual report, need to be identified and reported as required by paragraph (d) of Rule
13a-15.
During the year ended June 30, 2011, there have not been any changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Mr. R.P. Hume, Chairman of the Audit Committee, has been determined by our board to be an audit committee financial
expert within the meaning of the Sarbanes-Oxley Act, in accordance with the Rules of the Nasdaq Capital Market and rules
promulgated by the SEC and independent both under the Nasdaq Stock Market Rules and the South African Johannesburg Stock
Exchange Rules. The board is satisfied that the skills, experience and attributes of the members of the audit committee are
sufficient to enable those members to discharge the responsibilities of the audit committee.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Ethics and Conduct that applies to all senior executives including our Non-Executive
Chairman, the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and the Group Financial Manager and
Financial Manager at each mining operation as well as all other employees. The Code of Ethics and Conduct can be accessed on
the Company’s website at www.drdgold.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KPMG Inc. has served as our independent public accountant for the fiscal years ending June 30, 2011, 2010 and 2009, for
which audited financial statements appear in this Annual Report. The Annual General Meeting elects the auditors annually.
The following table presents the aggregate fees for professional audit services and other services rendered by KPMG Inc. to
us in fiscal 2011 and 2010:
Auditors' remuneration
Year ended June
30,
2011 2010
R’000 R’000
Audit fees .................................................................................................................................................... 10,065 9,859
Audit-related fees ......................................................................................................................................... - -
Tax fees ....................................................................................................................................................... - -
All other fees ................................................................................................................................................ - -
10,065 9,859
Audit Fees
Audit fees billed for the annual audit services engagement, which are those services that the external auditor reasonably can
provide, include the company audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of
documents filed with the SEC.
Audit-Related Fees
For fiscal 2011 and fiscal 2010, no audit-related fees were incurred.
113
Tax Fees
For fiscal 2011 and fiscal 2010, no fees have been billed for tax compliance, tax advice or tax planning services.
All Other Fees
All other fees consist of all fees billed which are not included under audit fees, audit related fees or tax fees. There were
no such fees billed for in either fiscal 2011 or fiscal 2010.
The Audit Committee is directly responsible for recommending the appointment, re-appointmant and removal of the
external auditors as well as the remuneration and terms of engagement of the external auditors. The committee pre-approves, and
has pre-approved, all non-audit services provided by the external auditors. The Audit Committee considered all of the fees
mentioned above and determined that such fees are compatible with maintaining KPMG Inc.’s independence.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a foreign private issuer with shares listed on the Nasdaq Capital Market, we are subject to corporate governance
requirements imposed by Nasdaq. Under Nasdaq Stock Market Rule 5615(a)(3), a foreign private issuer such as us may follow its
home country corporate governance practices in lieu of certain of the Nasdaq Stock Market Rules corporate governance
requirements. The following paragraphs summarize the significant differences between our corporate governance practices and those
followed by U.S. companies listed on the Nasdaq Capital market:
Independence of audit committee members.
Nasdaq Stock Market Rule 5605(c)(2) requires a Nasdaq listed company to have an audit committee composed of at least
three independent members. A foreign private issuer may be exempted from the requirement that all members of the audit committee
qualify as independent under Nasdaq Stock Market Rules provided, among other requirements, that the members of the audit
committee are independent under Exchange Act Rule 10A-3. As at September 30, 2011 all of our audit committee members are
independent both under the Nasdaq Stock Market Rules and the South African Johannesburg Stock Exchange Rules.
Exemption from the shareholder approval requirements.
Between August and December 2003, the Company entered into a series of discounted issuances with several different
investors resulting in the issuance of ordinary shares, and securities convertible into ordinary shares, totaling 46,843,902, or 25.43%
of the total shares outstanding on a pre-issuance basis. Included within those issuances, on December 12, 2003, the Company entered
into an agreement granting Investec the option to acquire 10.2 million ordinary shares. The Company requested an exemption from
Nasdaq Marketplace Rule 5635(a)(1)(B) in reliance upon Rule 5615(a)(3). Rule 5635(a)(1)(B) provided that shareholder approval is
required upon issuing 20% or more of the common stock outstanding before the issuance. Nasdaq granted this exemption on the basis
that the shareholder approval requirements of Rule 5635(a)(1)(B) were contrary to generally accepted business practices of
companies located in South Africa.
The South African Companies Act of 1973 (as amended) requires issuers to obtain shareholder approval before the issuance
of any shares or rights to shares, which approval can be provided by specific authority or a general authority granted by means of a
resolution passed by shareholders in a general meeting. JSE Listing Requirements require 75% shareholder approval for any issuance
of shares for cash. JSE Listing Requirements do, however, permit an issuer to issue shares for cash under a general authority granted
by its shareholders, but not in excess of 15% of the company’s total issued share capital during any financial year under that
authority, or the general authority. In terms of the specific issuances for which the Company received the exemption from Nasdaq
described above, there was no JSE requirement that would mandate specific shareholder approval for these transactions. The JSE
Listing Requirements accept a general authority by our shareholders under certain circumstances. The shareholders had approved a
general authority which covered the relevant transactions by resolutions passed at the Company's annual general meetings in
November 2003. In addition, included in the shares issued for cash were approximately 24.4 million shares to the value of R435.5
million ($63.1 million) which were used for the acquisition of the Porgera Joint Venture. Approval was obtained from the JSE to
deem these shares to be a vendor placing.
114
Exemption from the quorum requirements.
Nasdaq’s Marketplace Rules 5620 (c) states that the minimum quorum for any meeting of holders of the company’s
common stock must be no less than 33 1/3 % of the issuer’s outstanding shares. Consistent with the practice of companies
incorporated in South Africa, our articles of association only require a quorum of three members. As a result, and in connection with
the listing of our ADSs on the Nasdaq National Market in July 1996, we requested, and Nasdaq granted us in October 1996, an
exemption from compliance with the Rule 5620 (c) quorum requirement.
115
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The following financial statements and related auditor’s reports are filed as part of this Annual Report.
Page
Report of the independent registered public accounting firm .....................................................................................
F-1
Consolidated statement of comprehensive income for the years ended June 30, 2011, 2010 and 2009 .......................
F-2 to F-3
Consolidated statement of financial position at June 30, 2011 and 2010. ...................................................................
F-4
Consolidated statement of changes in equity for the years ended June 30, 2011, 2010 and 2009. ...............................
F-5
Consolidated statement of cash flows for the years ended June 30, 2011, 2010 and 2009. ..........................................
F-6
Notes to the annual financial statements. ..................................................................................................................
F-7 to F-70
F-1
Report of the Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of DRDGOLD Limited.
We have audited the accompanying consolidated statement of financial position of DRDGOLD Limited, its subsidiaries and
associate as of June 30, 2011 and 2010, and the related consolidated statement of comprehensive income, the consolidated
statement of changes in equity, and the consolidated statement of cash flows for each of the years in the three-year period ended
June 30, 2011. We also have audited DRDGOLD Limited’s internal control over financial reporting as of June 30, 2011, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). DRDGOLD Limited’s management is responsible for these consolidated financial statements,
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying management’s annual report on internal control over financial reporting.
Our responsibility is to express an opinion on these consolidated financial statements and an opinion on DRDGOLD Limited’s
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International
Financial Reporting Standards. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with International Financial Reporting Standards, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of DRDGOLD Limited and subsidiaries as of June 30, 2011 and 2010, and the results of their operations and cash flows for each
of the years in the three-year period ended June 30, 2011, in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board. Also in our opinion, DRDGOLD Limited maintained, in all material
respects, effective internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG Inc.
KPMG Inc.
Registered Accountants and Auditors
Johannesburg, Republic of South Africa
October 28, 2011
F-2
DRDGOLD Limited
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended June 30, 2011
2011
2010
2009
Note
R'000
R'000
R'000
Revenue
3
2,565,319
1,990,522
1,910,738
Cost of sales
(2,343,548)
(1,891,787)
(1,834,025)
Operating costs
(2,143,611)
(1,798,866)
(1,687,359)
Depreciation
10
(130,919)
(190,769)
(99,217)
Retrenchment costs
4
(839)
(20,127)
(34,922)
Movement in provision for environmental rehabilitation
19
(52,567)
88,034
(19,545)
Movement in gold in process
(15,612)
29,941
7,018
Gross profit from operating activities
221,771
98,735
76,713
Impairments
4
(547,656)
(6,224)
(75,138)
Administration expenses and general costs
(88,086)
(57,026)
(83,583)
Results from operating activities 4
(413,971)
35,485
(82,008)
Finance income
6
52,792
200,273
205,991
Finance expenses
7
(22,047)
(24,132)
(41,743)
(Loss)/profit before taxation
(383,226)
211,626
82,240
Income tax
8
(32,152)
(8,263)
28,444
(Loss)/profit for the year
(415,378)
203,363
110,684
Attributable to:
Equity owners of the parent
(287,915)
207,815
129,124
Non-controlling interest
(127,463)
(4,452)
(18,440)
(Loss)/profit for the year
(415,378)
203,363
110,684
F-3
DRDGOLD Limited
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued)
for the year ended June 30, 2011
2011 2010
2009
Note
R'000
R'000
R'000
Other comprehensive income, net of tax
Net foreign exchange translation reserve
747
(156,534) (606)
Transfer of reserve on disposal of foreign subsidiaries
12
-
(156,534) -
Foreign exchange gain/(loss) on translation
747
- (606)
Deferred taxation thereon
-
- -
Net fair value adjustment on available-for-sale investment
11
275
5,154 (1,133)
Fair value adjustment on available-for-sale investment
214
3,878 (1,133)
Non-controlling interest in fair value adjustment on available-for-sale
investment
61
1,276 -
Deferred taxation thereon
-
- -
Net effect of acquisition of subsidiary
-
- 193,084
Revaluation of fixed assets through acquisition of subsidiary
-
- 237,853
Non-controlling interest forming part of the acquisition of subsidiary
-
- 12,892
Deferred taxation thereon
-
- (57,661)
Total comprehensive income for the year
(414,356)
51,983 302,029
Attributable to:
Equity owners of the parent
(286,954)
55,159 260,727
Non-controlling interest
(127,402)
(3,176) 41,302
Total comprehensive income for the year
(414,356)
51,983 302,029
Earnings per share attributable to equity owners of the parent
Basic and diluted (loss)/earnings per share (cents)
9
(75)
55 34
The accompanying notes are an integral part of these consolidated financial statements.
F-4
DRDGOLD Limited
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at June 30, 2011
2011 2010
Note
R’000 R’000
ASSETS
Non-current assets
1,778,646
2,178,190
Property, plant and equipment
10
1,540,003
1,857,646
Non-current investments and other assets
11
159,312
174,223
Non-current inventories
15
10,099
5,579
Deferred tax asset
21
69,232
140,742
Current assets
510,015
402,102
Inventories
15
122,922
132,636
Trade and other receivables
16
126,410
64,521
Current tax asset
1,571
1,793
Cash and cash equivalents
259,112
188,152
Assets classified as held for sale
17
-
15,000
Total assets
2,288,661
2,580,292
EQUITY AND LIABILITIES
Equity
1,219,166
1,649,961
Equity of the owners of the parent
18
1,247,238
1,550,631
Non-controlling interest
(28,072)
99,330
Non-current liabilities
659,446
661,088
Provision for environmental rehabilitation
19
490,225
420,604
Post-retirement and other employee benefits
20
6,268
13,365
Deferred tax liability
21
122,525
168,142
Loans and borrowings
22
40,428
58,977
Current liabilities
410,049
269,243
Trade and other payables
330,468
268,833
Loans and borrowings
22
79,345
-
Current tax liability
236
410
Total equity and liabilities
2,288,661
2,580,292
The accompanying notes are an integral part of these consolidated financial statements.
F-5
DRDGOLD Limited
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended June 30, 2011
Number
of
ordinary
shares
Number of
cumulative
preference
shares
Share capital
and share
premium
R’000
Cumulative
preference
share
capital
R’000
Revaluation
and other
reserves
1
R’000
Accumulated
loss
R’000
Equity of the
owners of the
parent
R’000
Non-
controlling
interest
R’000
Total equity
R’000
Balance at June 30, 2008
376,571,588
5,000,000
4,098,206
500
207,934
(3,062,383)
1,244,257
61,204
1,305,461
Staff options exercised
1,429,715
6,707
6,707
6,707
Share issue expenses
(433)
(433)
(433)
Share-based payments
7,873
7,873
7,873
Dividend on ordinary share capital
(37,658)
(37,658)
(37,658)
Total comprehensive income for the year
131,603
129,124
260,727
41,302
302,029
Fair value adjustment on available-for-sale investment
(1,133)
(1,133)
(1,133)
Foreign exchange loss on translation
(606)
(606)
(606)
Non-controlling interest forming part of the acquisition
of subsidiary
12,892
12,892
Revaluation of fixed assets through acquisition
of subsidiary
133,342
133,342
46,850
180,192
Profit for the year
129,124
129,124
(18,440)
110,684
Balance at June 30, 2009
378,001,303
5,000,000
4,104,480
500
347,410
(2,970,917)
1,481,473
102,506
1,583,979
Issued shares for cash
6,620,413
29,877
29,877
29,877
Staff options exercised
262,663
1,004
1,004
1,004
Share issue expenses
(2,043)
(2,043)
(2,043)
Share-based payments
4,115
4,115
4,115
Dividend on ordinary share capital
(18,954)
(18,954)
(18,954)
Total comprehensive income for the year
(152,656)
207,815
55,159
(3,176)
51,983
Fair value adjustment on available-for-sale investment
3,878
3,878
1,276
5,154
Foreign exchange gain on disposal of foreign
subsidiaries recognized in profit or loss (refer note 12)
(156,534)
(156,534)
(156,534)
Profit for the year
207,815
207,815
(4,452)
203,363
Balance at June 30, 2010
384,884,379
5,000,000
4,133,318
500
198,869
(2,782,056)
1,550,631
99,330
1,649,961
Share issue expenses
(714)
(714)
(714)
Share-based payments
3,519
3,519
3,519
Dividend on ordinary share capital
(19,244)
(19,244)
(19,244)
Total comprehensive income for the year
961
(287,915)
(286,954)
(127,402)
(414,356)
Fair value adjustment on available-for-sale investment
214
214
61
275
Foreign exchange gain on translation
747
747
747
Loss for the year
(287,915)
(287,915)
(127,463)
(415,378)
Balance at June 30, 2011
384,884,379
5,000,000
4,132,604
500
203,349
(3,089,215)
1,247,238
(28,072)
1,219,166
1
Revaluation and other reserves comprise share-based payment reserves, foreign exchange translation reserve and asset revaluation reserves. The foreign exchange differences arising on translation of foreign subsidiaries have been
transferred to profit or loss during the year ended June 30, 2010.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
DRDGOLD Limited
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended June 30, 2011
2011
2010
2009
Note
R’000
R’000
R’000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from sales of precious metals
2,565,319
1,990,522
1,910,738
Cash paid to suppliers and employees
(2,249,516)
(1,942,786)
(1,745,805)
Cash generated by operations
27
315,803
47,736
164,933
Finance income
13,384
23,436
88,964
Dividends received
6,013
-
4,829
Finance expenses
(4,975)
(4,862)
(3,605)
Income tax paid
(6,212)
(12,698)
(46,889)
Net cash inflow from operating activities
324,013
53,612
208,232
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of investments
-
-
47,467
Additions to property, plant and equipment
(317,250)
(194,018)
(345,132)
Proceeds on disposal of property, plant and equipment
4,662
13,873
10,816
Environmental trust funds and rehabilitation payments
(22,577)
(5,674)
(6,049)
Cash flow on acquisition of subsidiaries, net of cash
28
-
(40,396)
(277,821)
Cash flow on acquisition/disposal of joint ventures, net of cash
29
-
(166)
(20,000)
Cash flow on acquisition of associate
30
-
-
(2,700)
Net cash outflow from investing activities
(335,165)
(226,381)
(593,419)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of shares
-
30,881
6,707
Share issue expenses
(714)
(2,043)
(433)
Advances of loans and borrowings
109,636
-
-
Repayments of loans and borrowings
(8,332)
(2,101)
(54,438)
Dividends paid
(19,244)
(18,954)
(37,658)
Net cash inflow/(outflow) from financing activities
81,346
7,783
(85,822)
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS
70,194
(164,986)
(471,009)
Cash and cash equivalents at beginning of the year
188,152
352,731
845,587
Foreign exchange movements
766
407
(21,847)
Cash and cash equivalents at the end of the year
31
259,112
188,152
352,731
The accompanying notes are an integral part of these consolidated financial statements.
F-7
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended June 30, 2011
1. ACCOUNTING POLICIES
DRDGOLD Limited (‘the company’) is a company domiciled in South Africa. The consolidated financial statements of the
company for the year ended June 30, 2011 comprise the company and its subsidiaries, (together referred to as the group) and the
group’s interests in associates and jointly controlled entities.
STATEMENT OF COMPLIANCE
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
and its interpretations adopted by the International Accounting Standards Board (IASB).
The financial statements were approved by the Board of Directors on September 19, 2011.
BASIS OF MEASUREMENT
The financial statements are prepared on the historical cost basis, unless otherwise stated.
FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in South African Rands, which is the company's functional currency. All
financial information presented in South African Rands has been rounded to the nearest thousand.
USE OF ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
reporting date, and the reported amounts of revenues and expenses during the reporting period. The determination of estimates
requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and
expected economic conditions, and in some cases actuarial techniques. Actual results could differ from those estimates.
The estimates and underlying assumptions are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable in the circumstances. Revisions to accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision
and future periods, if the revision affects both current and future periods.
The judgments that management has applied in the application of accounting policies, and the estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below:
(a) Recoverable amount of mining assets and depreciation
The recoverable amount of mining assets is generally determined utilizing discounted future cash flows. Management
also considers such factors as the market capitalization of the group, the quality of the individual ore body and the
country risk in determining the recoverable amount. During the year under review, the group calculated recoverable
amount based on updated life-of-mine business plans, a gold price of R350,649 per kilogram (2010: R311,636 per
kilogram) in year one escalating at an average of 6.1% (2010: 5.8%) per year, and a discount rate of 13.9% (2010:
13.7%). At a 10% lower gold price received of R315,584 per kilogram, an additional impairment of R366.2 million
would be recognized and at a 3.8 percentage points (27.3%) increase in the discount rate to 17.7%, the group would
begin additional impairment of the mining assets (refer note 10).
The calculation of the units-of-production rate of depreciation could be affected to the extent that actual production in
the future is different from current forecast production based on proved and probable Ore Reserves. This would
generally arise when there are significant changes in any of the factors or assumption used in estimating Ore Reserves.
Factors could include:
• changes in proved and probable Ore Reserves;
• the grade of Ore Reserves may vary significantly from time to time;
• differences between actual commodity prices and commodity price assumptions;
• unforeseen operational issues at mine sites;
• changes in capital, operating, mining processing and reclamation costs, discount rates and foreign exchange rates;
and
• changes in Ore Reserves could similarly affect the useful lives of assets depreciated on the straight-line basis, where
those lives are limited to the life of the mine.
F-8
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
USE OF ESTIMATES AND JUDGMENTS (continued)
(b) Valuation of financial instruments
If the value of a financial instrument cannot be obtained from an active market, the group has established fair value by
using valuation techniques. These include the use of recent arm’s-length transactions, reference to other instruments that
are substantially the same, discounted cash flow analysis and option pricing models, refined to reflect the issuer’s
specific circumstances.
(c) Estimate of exposure and liabilities with regard to rehabilitation costs
Estimated provisions for environmental rehabilitation, comprising pollution control rehabilitation and mine closure, are
based on the group’s environmental management plans in compliance with current technological, environmental and
regulatory requirements. An average discount rate of 8.53%, average inflation rate of 5.98% and expected life of mines
according to the life-of-mine plans were utilized in the calculation of the estimated net present value of the rehabilitation
liability (2010: discount rate of 8.95% and inflation rate of 5.76%) (refer note 19).
(d) Estimate of post-retirement medical liability
An actuarial valuation is carried out every three years. Assumptions used to determine the liability include a discount
rate, health cost inflation rate, real discount rate, retirement age, spouse age gap, continuation at retirement and
proportion married at retirement (refer note 20).
(e) Estimate of taxation
The group is subject to income tax in South Africa and Zimbabwe. Significant judgment is required in determining
income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during
the ordinary course of business. The group recognizes liabilities for anticipated tax issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will have an impact on the income tax and deferred tax provisions in the period in
which such determination is made.
(f) Fair value of share-based compensation
The fair value of options granted is determined using the Black-Scholes option pricing model. The significant inputs into
the model are: vesting period and conditions, risk-free interest rate, volatility, market price on date of grant and issue
price of grant. (Refer to notes 18 and 20 for detail on the share option scheme.)
(g) Gold in process
Gold in process in certain plants is estimated based on the best estimate of the metallurgist of the gold content and grade
thereof.
(h) Assessment of contingencies
Contingencies will realize only when one or more future events occur or fail to occur. The exercise of significant
judgment and estimates of the outcome of future events are required during the assessment of the impact of such
contingencies.
(i) Ore Reserves estimate
At the end of each financial year, the estimate of proved and probable Ore Reserves is updated. Depreciation of mining
assets is prospectively adjusted, based on these changes.
Ore Reserves are estimates of the amount of product that can be economically and legally extracted from the group’s
properties. In order to calculate Ore Reserves, estimates and assumptions are required about a range of geological,
technical and economic factors, including but not limited to quantities, grades, production techniques, recovery rates,
production costs, transport costs, commodity demand, commodity prices and exchange rates.
F-9
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
USE OF ESTIMATES AND JUDGMENTS (continued)
(i) Ore Reserves estimate (continued)
Estimating the quantity and/or grade of Ore Reserves requires the size, shape and depth of ore bodies to be determined
by analyzing geological data such as the logging and assaying of drill samples. This process may require complex and
difficult geological judgments and calculations to interpret the data.
Because the economic assumptions used to estimate Ore Reserves change from period to period and because additional
geological data is generated during the course of operations, estimates of Ore Reserves may change from period to
period. Changes in reported Ore Reserves may affect the group’s financial results and financial position in a number of
ways including the following:
• asset carrying values may be affected due to changes in estimated future cash flows;
• depreciation, depletion and amortization charged in profit or loss may change where such charges are determined
by the units-of-production method, or where the useful economic lives of assets change;
• decommissioning, site restoration and environmental provisions may change where changes in estimated Ore
Reserves affect expectations about the timing or cost of these activities; and
• the carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of the tax
benefits.
These adjustments are made prospectively where relevant.
(j) Estimate of deferred taxation
The amount recognized as a deferred tax asset is generally determined utilizing discounted future cash flows similar to
estimates used in the calculation of depreciation and rehabilitation liabilities. Management considers all factors that
could possibly affect the probability that future taxable profit will be available against which unused tax credits can be
utilized. These factors include profitability of the operations and an estimate of the gold price. The amount recognized as
a deferred tax asset is sensitive to the current gold spot price. The amount recognized at June 30, 2011 is based on a
future gold price received of R350,649 per kilogram (2010: R311,636 per kilogram) in year one, escalating at an average
of 6.1% (2010: 5.8%) per year. At a 10% lower gold price received of R315,584 per kilogram (2010: R280,472 per
kilogram), the deferred tax asset will reduce by R15.3 million (2010: Rnil).
During the year under review the group changed the deferred tax rate from the maximum statutory rate to the expected
average effective tax rate, resulting from the income tax formula for mining income. This change has been accounted for
as a change in estimate and is therefore applied prospectively. The change reduced the expense through profit or loss and
the net deferred tax liability with R39.9 million (refer notes 8 and 21).
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently by all entities in the group to all periods presented, except as
explained below under ‘New standards, interpretations and amendments to standards and interpretations adopted’.
New standards, interpretations and amendments to standards and interpretations adopted
The group adopted the following new standards, amendments to standards and interpretations, which are applicable to the group:
• IFRS 2 – Share-based Payments amendment: Group Cash-settled Share-based Payment Transactions
• IAS 32 – Financial Instruments amendment: Presentation: Classification of Rights Issues
• IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments
F-10
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
IFRS 2 amendment – Group Cash-settled Share-based Payment Transactions
The group adopted IFRS 2 amendment – Share Based Payments: Group Cash-settled Share-based Payment Transactions as of
July 1, 2010. These amendments require an entity that receives goods or services (“receiving entity”) in either an equity-settled or
a cash-settled share-based payment transaction to account for the transaction in its separate or individual financial statements.
This principle even applies if another group entity or shareholder settles the transaction (“settling entity”) and the receiving entity
has no obligation to settle the payment. Previously IFRS 2 had explicit requirements to attribute transactions settled by a parent or
shareholder only if those transactions were equity-settled. These amendments did not have any effect on the financial position or
financial performance of the group.
IAS 32 - Financial Instruments: Presentation: Classification of Rights Issues
The group adopted IAS 32 – Financial Instruments: Presentation – Classification of Rights Issues as of July 1, 2010. The
amendment requires that rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed
amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing
owners of the same class of its own non-derivative equity instruments. These amendments did not have any effect on the financial
position or financial performance of the group.
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments
The group adopted IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments, as of July 1, 2010. This interpretation
applies to the accounting by the debtor in a debt for equity swap transaction, except for:
• Transactions where the creditor is a shareholder and acting in that capacity;
• Transactions where the two entities are under common control before and after the transaction and the substance of the
transaction includes an equity contribution / distribution; and
• The debt for equity swap is in accordance with the original terms of the financial liability.
IAS 39, paragraph 41, requires that an entity recognize in profit or loss the difference between the carrying amount of the
financial liability extinguished and the consideration paid. The interpretation clarifies that equity instruments issued to a creditor
to extinguish all or part of a financial liability in a debt for equity swap would be “consideration paid” in accordance with IAS 39
paragraph 41. This interpretation did not have any impact on the financial position or financial performance of the group.
New accounting standards
Certain new accounting standards and amendments to accounting standards have been published that have various effective dates.
These new standards and amendments to accounting standards have not been early adopted by the group and a reliable estimate of
the impact of the adoption thereof for the group cannot yet be determined for some of them.
At the date of authorization of these financial statements, the following relevant standards and amendments to accounting
standards were in issue but not yet effective such that they could have bearing on the group and the group expects to adopt the
standards and amendments to accounting standards when effective:
F-11
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
New accounting standards (continued)
Standard/interpretation Effective date
Revised IAS 24
Related Party Disclosures
Annual periods commencing on
or after January 1, 2011
(2)
IFRS 9
Financial Instruments
Annual periods commencing on
or after January 1, 2013
(2)
IFRS 7 amendments
Disclosures – Transfers of Financial Assets
Annual periods commencing on
or after July 1, 2011
IAS 1 amendments
Presentation of Items of Other Comprehensive Income
Annual periods commencing on
or after July 1, 2012
IFRS 10
Consolidated Financial Statements
Annual periods commencing on
or after January 1, 2013
(2)
IFRS 11
Joint Arrangements
Annual periods commencing on
or after January 1, 2013
(2)
IFRS 12
Disclosure of Interests in Other Entities
Annual periods commencing on
or after January 1, 2013
(2)
IFRS 13
Fair Value Measurement
Annual periods commencing on
or after January 1, 2013
(2)
IAS 19 amended 2011
Employee Benefits
Annual periods commencing on
or after January 1, 2013
(2)
IAS 27
Separate Financial Statements (2011)
Annual periods commencing on
or after January 1, 2013
(2)
IAS 28
Investments in Associates and Joint Ventures (2011)
Annual periods commencing on
or after January 1, 2013
(2)
(1) No material impact.
(2) The impact is not known or estimable.
Each of these standards and interpretations is described briefly below:
Revised IAS 24 – Related party disclosures
The changes introduced in the revised IAS 24, include amendments to the definition of a related party and related party disclosure
requirements for government-related entities.
IFRS 9 – Financial Instruments
IFRS 9 deals with classification and measurement of financial assets and will replace the relevant sections of IAS 39.
Classification
The standard requires that financial assets be classified as either measured at:
• amortized cost; or
• fair value.
A financial asset is measured at amortized cost if:
• the objective of the business model is to hold assets in order to collect contractual cash flows; and
• the contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the
principal outstanding.
All other financial assets are measured at fair value, with fair value changes recognized in profit or loss. The standard eliminates
the existing IAS 39 categories of held to maturity, available for sale and loans and receivables. Classification takes place on
initial recognition and subsequent changes are expected to be rare and subject to certain conditions. Embedded derivatives are no
longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for
classification using the principles above. IAS 39 continues to apply to derivatives embedded in financial liabilities.
F-12
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
New accounting standards (continued)
IFRS 9 – Financial Instruments (continued)
Fair value options
An entity may designate a financial instrument on initial recognition as measured at fair value through profit or loss only if it
eliminates or significantly reduces a measurement or recognition inconsistency (“accounting mismatch”).
Investments in Equity Instruments
Investments in equity instruments are generally measured at fair value with gains and losses recognized in profit or loss. For an
investment in an equity instrument that is not held for trading, an entity may on initial recognition elect to present all fair value
changes from the investment in other comprehensive income (OCI). No amount recognized in OCI is ever reclassified to profit or
loss at a later date. Dividends on such investments are recognized in profit or loss, rather than OCI, in accordance with IAS 18
Revenue unless they clearly represent a recovery of the cost of the investment.
IFRS 9 eliminates the exception in IAS 39 that allows investments in unquoted equity instruments, and related derivatives, for
which a fair value cannot be determined reliably, to be measured at cost. These instruments are now measured at fair value
although the standard notes that in some limited circumstances cost may be an appropriate estimate of fair value. The guidance in
IAS 39 on impairments of financial assets and on hedge accounting continues to apply. However, as a result of the simplified
classification requirements, the numerous impairment methods in IAS 39 have been reduced to a single impairment method.
IFRS 7 amendments – Disclosures – Transfers of Financial Assets
The amendment introduces new disclosure requirements about transfers of financial assets, including disclosures for:
• financial assets that are not derecognized in their entirety; and
• financial assets that are derecognized in their entirety but for which the entity retains continuing involvement.
IAS 1 amendments – Presentation of Items of Other Comprehensive Income
The amendments:
• require that an entity presents separately the items of other comprehensive income that would be reclassified to
profit or loss in the future if certain conditions are met, from those that would never be classified to profit or loss;
• do not change the existing option to present profit or loss and other comprehensive income in two statements; and
• change the title of the statement of comprehensive income to the statement of profit or loss and other
comprehensive income. However, an entity is still allowed to use other titles.
The amendments do not address which items are presented in other comprehensive income or which items need to be reclassified.
The requirements of other IFRSs continue to apply in this regard.
IFRS 10 – Consolidated Financial Statements
IFRS 10 introduces a new approach to determining which investees should be consolidated and provides a single model to be
applied in the control analysis for all investees.
An investor controls an investee when:
• it is exposed or has rights to variable returns from its involvement with that investee;
• it has the ability to affect those returns through its power over that investee; and
• there is a link between power and returns.
Control is reassessed as facts and circumstances change.
F-13
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
New accounting standards (continued)
IFRS 11 – Joint Arrangements
IFRS 11 focuses on the rights and obligations of joint arrangements, rather than the legal form (as is currently the case). It:
• distinguishes joint arrangements between joint operations and joint ventures; and
• always requires the equity method for jointly controlled entities that are now called joint ventures. They are stripped
of the free choice of using the equity method or proportionate consolidation.
IFRS 11 supersedes IAS 31 and SIC-13 Jointly Controlled Entities—Non-Monetary Contributions by Venturers.
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint
operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to enable users to
evaluate:
• the nature of, and risks associated with, an entity’s interests in other entities; and
• the effects of those interests on the entity’s financial position, financial performance and cash flows.
IFRS 13 – Fair Value Measurement
IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value
measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure
requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other IFRSs.
It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability of
exceptions to fair value measurements that currently exist in certain standards.
IAS 19 amended 2011 – Employee Benefits
The amended IAS 19 includes the following requirements:
• actuarial gains and losses are recognized immediately in other comprehensive income; this change will remove the
corridor method and eliminate the ability for entities to recognize all changes in the defined benefit obligation and
in plan assets in profit or loss, which currently is allowed under IAS 19; and
• expected return on plan assets recognized in profit or loss is calculated based on the rate used to discount the
defined benefit obligation.
IAS 27 – Separate Financial Statements
IAS 27 (2011) supersedes IAS 27 (2008). IAS 27 (2011) carries forward the existing accounting and disclosure requirements for
separate financial statements, with some minor clarifications.
IAS 28 – Investments in Associates and Joint Ventures
IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) makes the following amendments:
• IFRS 5 applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the
criteria to be classified as held for sale; and
• on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in
a joint venture or vice versa, the entity does not remeasure the retained interest.
F-14
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
BASIS OF CONSOLIDATION
Subsidiaries
Subsidiaries are entities controlled by the group. Control exists when the group has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights
that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
Changes in the group’s interest in a subsidiary which does not lead to loss of control are recorded as a transaction with equity
owners in their capacity as equity owners and no profit or loss is recognized. Subsequent changes to an exercise price of an option
or forward price forming part of the aforementioned transaction is recognized in profit or loss. When control is lost, the gain or
loss is recognized in profit or loss and any remaining interest is recorded at the fair value on the transaction date, which is deemed
to be the cost price, and, depending on the nature of the remaining investment, is either recognized as an associate, joint venture
or as a financial instrument.
Subsidiaries with a year-end on a date other than June 30 are included in the consolidated financial statements using the most
recent financial results with no more than a three-month difference if it is impracticable to prepare financial statements at the
group reporting date. Adjustments are made for material transactions and events between the group and subsidiary in the
intervening period.
The accounting policies of subsidiaries have been changed, where necessary, to align them with the policies adopted by the group.
Special purpose entities
The group has established a special purpose entity for investment purposes. The group has a direct shareholding in the entity. A
special purpose entity is consolidated if, based on evaluation of the substance of its relationship with the group and the special
purpose entity’s risks and rewards, the group concludes that it controls the special purpose entity. The special purpose entity
controlled by the group was established under terms that impose strict limitations on the decision-making powers of the special
purpose entity’s management and that result in the group receiving the majority of the benefits related to the special purpose
entity’s operations and net assets, being exposed to the majority of risks incident to the special purpose entity’s activities, and
retaining the majority of the residual or ownership risks relating to the special purpose entity or its assets.
Associates
Associates are those entities in which the group has significant influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the group holds between 20% and 50% of the voting power of another
entity. Associates are accounted for using the equity method and are initially recognized at cost. The group's investment in
associates includes goodwill identified on acquisition and is presented net of any accumulated impairment losses. The
consolidated financial statements include the group's share of the total recognized income and expenses and equity movements of
associates, after adjustments to align the accounting policies with those of the group, from the date that significant influence
commences until the date that significant influence ceases.
When the group's share of losses exceeds its interest in an associate, the group's carrying amount is reduced to nil and recognition
of further losses is discontinued except to the extent that the group has incurred legal or constructive obligations or made
payments on behalf of an associate.
Joint ventures
Joint ventures (jointly controlled entities) are those entities for which the group has joint control over their activities. They are
established by contractual agreement and require unanimous consent for strategic financial and operating decisions. The
consolidated financial statements include the group's proportionate share of the entities' assets, liabilities, revenue and expenses,
with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control
ceases.
F-15
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
BASIS OF CONSOLIDATION (continued)
Transactions eliminated on consolidation
Intra-group balances, transactions and any unrealized gains and losses or income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with
associates and jointly controlled entities are eliminated to the extent of the group's interest in the entity. Unrealized losses are
eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder which controls
the group is accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later,
at the date that common control was established. For this purpose comparatives are restated. The assets and liabilities acquired are
recognized at the carrying amounts recognized previously in the group controlling shareholder’s consolidated financial
statements. The components of equity of the acquired entities are added to the same components within the group equity except
that any share capital of the acquired entities is recognized as part of share premium. Any cash paid for the acquisition is
recognized directly in equity.
Allocation of losses to non-controlling interests
In the absence of an agreement with non-controlling interest shareholders’ applicable losses in subsidiaries are allocated to non-
controlling interest even if doing so causes the non-controlling interest to have a deficit balance.
FOREIGN CURRENCY
Functional currency
The functional currency is the currency of the primary economic environment in which the entity operates. This is determined by
all companies in the group after analyzing all sources and influences of various currencies on their respective financial position
and performance, in order to establish the currency with the most dominant influence as its functional currency.
Each entity in the group has determined its own functional currency in accordance with the above process. The functional
currency of the company is the South African Rand.
Foreign currency transactions
Transactions in foreign currencies undertaken by group entities are translated at the foreign exchange rates ruling at the dates of
these transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the
functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets
and liabilities denominated in foreign currencies, measured at fair value, are translated at foreign exchange rates ruling at the date
that the fair value was determined. Foreign exchange differences arising on translation are recognized in profit or loss.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated
into South African Rands at the foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign
operations are translated to South African Rands at rates approximating the foreign exchange rates ruling at the dates of the
transactions. Foreign exchange differences arising on retranslation are recognized in other comprehensive income and presented
within equity in the foreign exchange translation reserve. When a foreign operation is disposed of the relevant amount in the
foreign exchange translation reserve is transferred to profit or loss as part of the profit or loss on disposal. On partial disposal of a
subsidiary that includes a foreign operation, the relevant portion of such cumulative amount is reattributed to non-controlling
interest.
F-16
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY (continued)
Net investment in foreign operations
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement
of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign
operation and are recognized in other comprehensive income and presented within equity in the foreign exchange translation
reserve in the consolidated financial statements.
FINANCIAL INSTRUMENTS
Financial instruments recognized in the statement of financial position include investments, available-for-sale financial
instruments, trade and other receivables, cash and cash equivalents, long- and short-term interest-bearing borrowings, trade and
other payables and bank overdrafts. Financial instruments are initially recognized at fair value and include any directly
attributable transaction costs, except those financial instruments measured at fair value through profit or loss. Subsequent to initial
recognition, financial instruments are measured as described below.
Financial assets and liabilities are off-set and the net amount presented in the statement of financial position when, and only
when, the group has the legal right to off-set the amounts, and intends either to settle on a net basis, or to realize the assets and
settle the liabilities simultaneously.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or to the extent that
the company transfers substantially all the risks and rewards of ownership of the financial asset. Financial liabilities are
derecognized when the obligation specified in the contract is discharged or cancelled or has expired. Any gain or loss on
derecognition is taken to profit or loss.
Loans and receivables
Loans and receivables (which include trade and other receivables) are measured at amortized cost, using the effective interest
method, less any impairment losses.
Available-for-sale financial assets
The group's investments in equity securities and certain debt securities are classified as available-for-sale financial assets.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign
exchange gains and losses on available-for-sale monetary items are recognized in other comprehensive income and presented
within equity in the revaluation and other reserves. When an investment is derecognized, the cumulative gain or loss in other
comprehensive income is transferred to profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and highly liquid investments with an original maturity of
three months or less. Subsequent to initial recognition, cash and cash equivalents are measured at amortized cost, which is
equivalent to their fair value. Bank overdrafts that are repayable on demand and form an integral part of the group's cash
management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Interest-bearing borrowings
Interest-bearing borrowings (including the preference share liabilities) are subsequently measured at amortized cost with any
difference between the initial amount and the redemption value being recognized in profit or loss over the period of the
borrowings on an effective interest basis. If the group revises its estimates of payments, the carrying amount of the liability is
adjusted to reflect actual and revised estimated cash flows. The carrying amount is recalculated by computing the current value of
estimated future cash flows at the liability's original effective interest rate. The adjustment is recognized as income or expense in
profit or loss.
F-17
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
Trade and other payables
Subsequent to initial recognition, trade and other payables are measured at amortized cost, using the effective interest method.
PROPERTY, PLANT AND EQUIPMENT
Owned assets
The group's property, plant and equipment consist mainly of mining assets which comprise mining properties (including mineral
rights), mine development costs, mine plant facilities, exploration assets and equipment and vehicles.
Development costs, which are capitalized, consist primarily of expenditure that gives access to proved and probable Ore
Reserves. Capitalized development costs include expenditure incurred to develop new ore bodies, to define future mineralization
in existing ore bodies and to expand the capacity of a mine. Mine development costs to maintain production are expensed as
incurred. Where funds have been borrowed specifically to finance a project, the amount of interest capitalized represents the
actual borrowing costs incurred (refer to accounting policy on borrowing costs capitalized). Mine development costs include
acquired proved and probable Ore Reserves at the acquisition date.
Exploration and evaluation costs, including the costs of acquiring licenses, property and qualifying borrowing costs, are
capitalized as exploration assets on a project-by-project basis, pending determination of the technical feasibility and commercial
viability of the project. The capitalized costs are presented as tangible assets according to the nature of the assets acquired. When
a license is relinquished or a project is abandoned, the related costs are recognized in profit or loss immediately. Pre-license costs
are recognized in profit or loss as incurred.
Items of property, plant and equipment are measured at cost, less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes
the cost of materials and direct labor, any other costs directly attributable to bringing an asset to a working condition for its
intended use, as well as the costs of dismantling and removing an asset and restoring the site on which it is located.
Where parts of an item of property, plant and equipment, with costs that are significant in relation to the total cost of the item,
have different useful lives, they are accounted for as separate items of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the net proceeds from
disposal with the carrying amount of property, plant and equipment, and are recognized in profit or loss. When assets are sold
which have been revalued on acquisition for consolidated purposes, the amounts included in the revaluation reserve are
transferred to retained earnings.
Leased assets
Leases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance leases.
Upon initial recognition, the leased asset and liability are measured at amounts equal to the lower of the fair value of the leased
asset and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in the
same manner as owned property, plant and equipment.
Subsequent costs
The group recognizes in the carrying amount of an item of property, plant and equipment, the cost of replacing part of an item
when that cost is incurred, if it is probable that the future economic benefits embodied within the part will flow to the group and
the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other costs are
recognized in profit or loss as an expense as incurred.
F-18
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
PROPERTY, PLANT AND EQUIPMENT (continued)
Depreciation
Depreciation of mining properties (including mineral rights), mine development and mine plant facilities relating to underground
operations are computed using the units-of-production method based on estimated proved and probable Ore Reserves, which are
calculated using the group’s life-of-mine business plans and a gold price at the end of each financial year. Proved and probable
Ore Reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future from known
mineral deposits. Exploration assets that are available for use are depreciated over their estimated useful lives. Changes in
management’s estimates of the quantities of the economically recoverable reserves impact depreciation on a prospective basis.
The prevailing market price of gold at the end of the financial year was R236,227, R306,081 and R328,155 per kilogram for the
fiscal years ended June 30, 2009, 2010 and 2011, respectively.
Other assets are depreciated using the straight-line basis over the estimated useful lives of each part of an item of property, plant
and equipment. Leased assets are depreciated over the shorter of the lease term and their estimated useful lives, unless it is
reasonably certain that the group will obtain ownership by the end of the lease term. Land is not depreciated.
The current estimated useful lives for the current and comparative periods are:
• mining properties – life of mine for each operation, currently between 7 (2010: 5 and 2009: 2) and 30 (2010: 27 and
2009: 27) years;
• mine development – life of mine for each operation, currently between 7 (2010: 5 and 2009: 2) and 30 (2010: 27 and
2009: 27) years;
• mine plant facilities – life of mine for each operation, currently between 7 (2010: 5 and 2009: 2) and 30 (2010: 27 and
2009: 27) years; and
• equipment and vehicles – 3 to 5 years.
The residual values, estimated useful lives and depreciation methods are reassessed annually and adjusted if appropriate.
INTANGIBLE ASSETS
Acquisition and goodwill arising thereon
The group measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-
controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and
liabilities assumed, all measured as of the acquisition date. In the case of a bargain purchase, the resulting gain is recognized in
profit or loss on the acquisition date. Goodwill relating to equity-accounted investments is included within the carrying value of
the investment and tested for impairment when indicators exist.
Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders
and therefore no goodwill is recognized as a result of such transactions.
Goodwill relating to subsidiaries is tested annually for impairment and measured at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is
allocated to cash-generating units for the purposes of impairment testing.
IMPAIRMENT
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A
financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on
the estimated future cash flows of that asset.
Financial assets measured at amortized cost
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows discounted at the original effective interest rate, that is, the
effective interest rate computed at initial recognition of these financial assets.
F-19
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
IMPAIRMENT (continued)
Available-for-sale financial assets
An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. When a decline in
the fair value of an available-for-sale financial asset has been recognized directly in other comprehensive income, and there is
objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is
recognized in profit or loss even though the financial asset has not been derecognized. The amount of the cumulative loss that is
recognized in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that
financial asset previously recognized in profit or loss. Financial assets that are individually significant are tested for impairment
on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk
characteristics. All impairment losses are recognized in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was
recognized. For financial assets measured at amortized cost and available-for-sale financial assets that are debt securities, the
reversal is recognized in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognized
in other comprehensive income.
Non-financial assets
The carrying amounts of the group's assets, other than inventories and deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. Future cash flows are estimated
based on quantities of recoverable minerals, expected gold prices, production levels and cash costs of production, all based on life
of mine business plans. The term "recoverable minerals" means proved and probable Ore Reserves which are calculated using our
life of mine business plans and a gold price at the end of each financial year. The prevailing market price of gold at the end of the
financial year was R236,227, R306,081 and R328,155 per kilogram for the fiscal years ended June 30, 2009, 2010 and 2011,
respectively. For purposes of impairment testing, assets are grouped together into the smallest group of assets which generates
cash flows from continuing use that is largely independent of the cash inflows of other assets or groups of assets (‘cash-generating
units’).
An impairment loss is recognized directly against the carrying amount of the asset whenever the carrying amount of an asset, or
its cash-generating unit, exceeds its recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses
recognized in respect of cash-generating units are allocated to the carrying amounts of the assets in the unit (group of units) on a
pro rata basis. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss
has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.
Exploration assets
Exploration assets are assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the
recoverable amount. For purposes of impairment testing, exploration assets are allocated to cash-generating units consistent with
the determination of reportable segments. The technical feasibility and commercial viability of extracting a Mineral Resource is
considered to be determinable when proven reserves are determined to exist. Upon determination of proven reserves, exploration
assets attributable to those reserves are first tested for impairment and then reclassified from exploration assets to a separate
category within tangible assets. Expenditure deemed to be unsuccessful is recognized in profit or loss immediately.
INVENTORIES
Gold in process is stated at the lower of cost and net realizable value. Costs are assigned to gold in process on a weighted average
cost basis. Costs comprise all costs incurred to the stage immediately prior to smelting, including costs of extraction and
processing as they are reliably measurable at that point. Selling, refining and general administration costs are excluded from
inventory valuation. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs
of completion and selling expenses.
Consumable stores are stated at the lower of cost and net realizable value. Cost of consumables is based on the weighted average
cost principle and includes expenditure incurred in acquiring inventories and bringing them to their existing location and
condition.
F-20
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
INVENTORIES (continued)
Bullion is stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated cost of completion and selling expenses.
TAXATION
Income tax expense comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it
relates to a business combination, or to items recognized directly in equity or other comprehensive income.
Current taxation
Current taxation is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted,
at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred taxation
Deferred taxation is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities
to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for
taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are
expected to be applied to the temporary differences, based on the expected manner of realization or settlement of the carrying
amount of assets and liabilities, and based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, if these
relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities, if the group intends
to settle current tax liabilities and assets on a net basis, or if their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be realized.
Additional income taxes that arise from the distribution of dividends, such as secondary tax on companies, are recognized at the
same time as the liability to pay the related dividend is recognized.
SHARE CAPITAL
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a
deduction from equity, net of any tax effect.
Preference share capital
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the company's option, and any
dividends are discretionary. Dividends on preference share capital classified as equity are recognized as distributions within
equity. Preference share capital is classified as a liability if it is redeemable on a specified date or at the option of the
shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss
as accrued.
Dividends
Dividends are recognized as a liability in the period in which they are declared.
F-21
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
EMPLOYEE BENEFITS
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further amounts. Pension plans, which are multi-employer plans in the
nature of defined contribution plans, are funded through monthly contributions to these defined contribution plans. Obligations
for contributions are recognized as an employee benefit expense in profit or loss as incurred.
Long-service benefits
The group makes long-service bonus payments (long-service awards) for certain eligible employees, under the Chamber of Mines
of South Africa Long Service Award Scheme. The amount of the award is based on both the employee's skill level and years of
service with gold mining companies that qualify for the scheme. The obligation is accrued over the service life of the employees
and is calculated using a projected unit credit method. Any actuarial gains or losses are recognized in profit or loss in the period in
which they arise.
Share-based payment transactions
The group grants share options to certain employees under an employee share plan to acquire shares of the company. The fair
value of options granted is recognized as an employee expense with a corresponding increase in equity. The fair value is
measured at grant date and spread over the period during which the employees become unconditionally entitled to the options.
The fair value of the options granted is measured using the Black-Scholes option pricing model, taking into account the terms and
conditions upon which the options were granted. The amount recognized as an expense is adjusted to reflect the actual number of
share options that vest except where forfeiture is only due to market conditions such as share prices not achieving the threshold
for vesting.
Post-retirement medical benefits
Post-retirement medical benefits in respect of qualifying employees are recognized as an expense over the expected remaining
service lives of relevant employees and the remaining life expectancies of retirees. The group has an obligation to provide
medical benefits to certain of its pensioners and dependants of ex-employees. These liabilities are provided in full, calculated on
an actuarial basis and discounted using the projected unit credit method. The discount rate is the yield at the reporting date on
corporate bonds that have maturity dates approximating the terms of the group's obligations and that are denominated in the same
currency in which the benefits are expected to be paid. Periodic valuation of these obligations is carried out by independent
actuaries using appropriate mortality tables, long-term estimates of increases in medical costs and appropriate discount rates. The
fair value of any plan assets is deducted. Actuarial gains and losses are recognized immediately in profit or loss. When the
calculation results in a benefit to the group, the recognized asset is limited to the net total of any unrecognized past service costs
and the present value of any future refunds from the plan or reductions in future contributions to the plan.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized
in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits
vest immediately, the expense is recognized immediately in profit or loss.
Termination benefits
Termination benefits are recognized as an expense when the group is demonstrably committed, without realistic possibility of
withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are
recognized as an expense if the group has made an offer for voluntary redundancy, it is probable that the offer will be accepted,
and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period,
they are discounted to their present value.
PROVISIONS
A provision is recognized in the statement of financial position when the group has present legal or constructive obligations
resulting from past events that can be estimated reliably and it is probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
F-22
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
PROVISIONS (continued)
Decommissioning liabilities
The provision for decommissioning represents the cost that will arise from rectifying damage caused before production
commenced. Accordingly, an asset is recognized and included within mining properties. Decommissioning liabilities are
measured at the present value of the expenditures expected to settle the obligation, using estimated cash flows based on current
prices. The unwinding of the decommissioning obligation is included in profit or loss. Estimated future costs of decommissioning
obligations are reviewed regularly and adjusted as appropriate for new circumstances or changes in law or technology. Changes in
estimates are capitalized or reversed against the relevant asset. Gains or losses from the expected disposal of assets are not taken
into account when determining the provision.
Restoration liabilities
The provision for restoration represents the cost of restoring site damage after the start of production. Increases in the provision
are recognized in profit or loss as a cost of production. Gross restoration liabilities are estimated at the present value of the
expenditures expected to settle the obligation.
Rehabilitation trust funds
Annual contributions are made to dedicated rehabilitation trust funds to fund the estimated cost of rehabilitation during and at the
end of the life of the relevant mine. These contributions are recognized as a right to receive reimbursement from the fund and
measured at the fair value of the fund assets. Changes in the carrying value of the fund assets, other than contributions to and
payments from the fund, are recognized in profit or loss.
REVENUE RECOGNITION
Gold bullion and by-products
Revenue from the sale of gold bullion and by-products is measured at the fair value of the consideration received or receivable.
Revenue is recognized in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing management
involvement with the goods, and the amount of revenue can be measured reliably.
Government grants
Government grants are not recognized until there is reasonable assurance that the entity will comply with the conditions attaching
to them and the grant will be received. Grants that compensate the group for expenses incurred are recognized in profit or loss as
a deduction against the related expense.
Finance income
Finance income includes dividends received, interest received, growth in the environmental rehabilitation trust funds, net gains on
financial instruments measured at amortized cost, net foreign exchange gains, and other profits and losses arising on disposal of
investments.
Dividends are recognized when the group's right to receive payment is established. Interest is recognized on a time proportion
basis taking account of the principal outstanding and the effective rate to maturity on the accrual basis.
EXPENSES
Operating lease payments
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the period of the lease.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability.
F-23
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
1. ACCOUNTING POLICIES (continued)
EXPENSES (continued)
Finance expenses
Finance expenses comprise interest payable on borrowings calculated using the effective interest method, unwinding of the
discount of the provision for environmental rehabilitation, net foreign exchange losses, net losses on financial instruments
measured at amortized cost, and interest on finance leases.
Borrowing costs capitalized
Interest on borrowings relating to the financing of qualifying major capital projects under construction is capitalized during the
construction phase as part of the cost of the project. Such borrowing costs are capitalized over the period during which the asset is
being acquired or constructed and borrowings have been incurred. Capitalization ceases when construction is interrupted for an
extended period or when the asset is substantially complete. Other borrowing costs are expensed as incurred.
SEGMENT REPORTING
Operating segments are identified on the basis of internal reports that the group’s Chief Operating Decision Maker (CODM)
reviews regularly in allocating resources to segments and in assessing their performance. The CODM for the group has been
identified as the group’s Executive Committee. Reportable segments are identified based on quantitative thresholds of revenue,
profit or loss, and assets. The amounts disclosed for each reportable segment are the measures reported to the CODM, which are
not necessarily based on the same accounting policies as the amounts recognized in the financial statements. Aggregation of
operating segments is implemented where disclosure of information enables users of the group’s financial statements to evaluate
the nature and effects of the business activities in which it engages and the economic environment in which it operates, where the
operating segments have characteristics so similar that they can be expected to have essentially the same future prospects and
where they are similar in the following respects:
• the nature of products and services;
• the nature of the production process;
• the type or class of customer for their products and services;
• the methods used to distribute their products or provide their services; and
• if applicable, the nature of the regulatory environment.
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
A held-for-sale asset is classified as such if it is a non-current asset, or disposal group comprising assets and liabilities, that is
expected to be recovered primarily through sale rather than through continuing use. Immediately before classification as held-for-
sale, the assets (or components of a disposal group) are remeasured in accordance with the group's accounting policies.
Thereafter, in general, the non-current assets or disposal groups are measured at the lower of carrying amount and fair value less
costs to sell. Impairment losses on initial classification as held-for-sale are included in profit or loss. The same applies to gains
and losses on subsequent measurement. Gains are not recognized in excess of any cumulative impairment loss.
A discontinued operation in the group is a component of the group's business that represents a separate major line of business, a
geographical area of operations which has been disposed of or is held-for-sale, or a subsidiary acquired exclusively for resale.
When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is restated as if
the operation had been discontinued from the start of the comparative period.
EARNINGS OR LOSS PER SHARE
The group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings or loss per share are calculated
based on the net profit or loss after taxation for the year attributable to ordinary shareholders of the company, divided by the
weighted average number of ordinary shares in issue during the year. Diluted earnings or loss per share are presented when the
inclusion of ordinary shares that may be issued in the future which comprises share options granted to employees has a dilutive
effect on earnings or loss per share.
F-24
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS
The group has three reportable segments, as described below, which are the group's strategic divisions. The strategic divisions
reflect different operational locations reported on separately to the Executive Committee (chief operating decision maker or
CODM). The group's revenue stream consists of the sale of gold bullion.
The following summary describes the operations in each of the group’s reportable operating segments:
- Blyvoor: which incorporates the Doornfontein mine, is situated on the north-western edge of the Witwatersrand Basin. The
mine has underground and surface operations.
- Crown: is a surface retreatment operation and treats old slime and sand dumps to the south of Johannesburg's CBD. The
facility consists of three plants known as Crown, City Deep and Knights. Included in the Crown segment is the surface
operation of ERPM consisting of the Cason dump.
- Ergo: consists of Phase one of the Ergo Project known as ErgoGold and is a surface retreatment operation which is currently
treating ERPM's old slime dumps. The facility consists of one plant known as the Brakpan plant together with the Brakpan
tailings facility. Phase one has been established as a surface retreatment operation to retreat the Elsburg dump owned by
ERPM. Phase two of the Ergo project is to explore, evaluate and process surface uranium- and sulphur bearing tailings on the
East and Central Rand goldfields of South Africa.
F-25
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2011
Blyvoor
R’000
Crown(2)
R’000
Ergo(3)
R’000
Corporate head
office and all (4)
other expenses
R’000
Total
R’000
Financial performance
Segmental revenue
1,185,860
910,867
468,592
-
2,565,319
Cash operating costs
(1,091,941)
(671,770)
(308,976)
-
(2,072,687)
Movement in gold in process
(23,879)
9,464
(1,197)
-
(15,612)
Operating profit
70,040 248,561 158,419
- 477,020
Interest and other investment income
3,103
1,778
164 14,548 19,593
Interest expense
(842)
(14)
(6) (10,533) (11,395)
Retrenchment costs
-
-
-
(839)
(839)
Administration expenses and general costs
(1,781)
(1,956)
(9,438) (74,911) (88,086)
Taxation charge (1)
(27) (222)
- (6,011) (6,260)
Working profit/(loss) before capital expenditure
70,493 248,147 149,139 (77,746) 390,033
Capital expenditure (5)
(95,683) (166,354)
(68,046)
(9,981) (340,064)
Working (loss)/profit after capital expenditure
(25,190) 81,793 81,093
(87,727) 49,969
(1) The taxation charge excludes deferred tax.
(2) Crown includes ERPM’s Cason surface retreatment operations.
(3) Includes 100% of ErgoGold and the Ergo JV.
(4) Corporate head office expenses are taken into consideration in the strategic decision-making process of the CODM and are therefore included in the disclosure here, even though they do not earn revenue.
(5) Includes adjustments to the provision for environmental rehabilitation resulting from changes to estimates.
Operating results (6)
Ore milled
- underground
t’000 732
-
-
-
732
-
surface
t’000 3,129
7,120 13,206
- 23,455
-
total
t’000 3,861
7,120 13,206
- 24,187
Average yield
- underground
g/t 3.89
-
-
-
3.89
-
surface
g/t 0.29
0.42
0.11
-
0.23
-
total
g/t 0.98
0.42
0.11
-
0.34
Gold dispatched
- underground
kg 2,845
-
-
-
2,845
-
surface
kg 922 2,977 1,504
- 5,403
-
total
kg 3,767
2,977
1,504
-
8,248
-
underground
oz 91,469
-
-
-
91,469
-
surface
oz 29,645
95,713
48,352
- 173,710
-
total
oz 121,114
95,713
48,352
-
265,179
Cash operating costs - underground
R/kg 342,123
-
-
-
342,123
-
surface
R/kg 128,636
225,653
205,436
-
203,470
-
total
R/kg 289,870
225,653
205,436
-
251,296
-
underground
$/oz 1,523
-
-
-
1,523
-
surface
$/oz 573 1,002
915
-
906
-
total
$/oz 1,290
1,002
915
-
1,119
(6) Unaudited
F-26
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2011
Blyvoor
R’000
Crown(1)
R’000
Ergo(2)
R’000
Corporate head
office and all (3)
other expenses
R’000
Total
R’000
Reconciliation of assets
Reportable segment assets
26,046 330,154
1,125,162 58,641
1,540,003
Other assets
148,096 150,262 116,437 333,863 748,658
Total assets
174,142 480,416
1,241,599 392,504
2,288,661
Reconciliation of liabilities
Reportable segment liabilities
174,115 322,647 206,673 243,299 946,734
Taxation and deferred taxation
27
7,715
114,806 213
122,761
Total liabilities
174,142 330,362 321,479 243,512
1,069,495
Other material information
Depreciation
(32,638) (11,247) (86,917)
(117) (130,919)
Impairment of assets
(546,566)
-
-
(1,090) (547,656)
Reconciliation of revenues
Total revenues for reportable segments
1,185,860
910,867
468,592
-
2,565,319
Statement of cash flows
Cash flows from operating activities
89,400 203,508 126,093
(94,988) 324,013
Cash flows from investing activities
(94,323) (152,399) (78,497) (9,946) (335,165)
Cash flows from financing activities
- - -
81,346
81,346
Reconciliation of (loss)/profit
Segment working profit/(loss) before capital expenditure
70,493 248,147 149,139
(77,746) 390,033
- Depreciation
(32,638) (11,247) (86,917)
(117) (130,919)
- Movement in provision for environmental rehabilitation
(5,649) (27,198) (9,154) (10,566) (52,567)
- Impairments
(546,566)
-
-
(1,090) (547,656)
- Net gain/(loss) on financial liabilities measured at amortized cost
30,856
-
- (6,048) 24,808
- Growth in environmental rehabilitation trust funds
1,769 3,096
- 3,526 8,391
- Unwinding of provision for environmental rehabilitation
(1,049) (3,631) (3,672) (1,053) (9,405)
- Unwinding of discount on financial liabilities measured at amortized cost
(3,550)
-
- (4,117) (7,667)
- Borrowing costs capitalized
-
1,011 -
5,409
6,420
- Ongoing rehabilitation expenditure
(1,453) (25,197) (7,114) (9,214) (42,978)
- Actuarial gain on post-retirement and other employee benefits
-
5,651 - -
5,651
- Net other operating (costs)/income
(8,559) (3,552)
2,279 (23,764) (33,596)
- Deferred tax
(2,532) (18,502) 53,332 (58,191) (25,893)
(Loss)/profit for the year
(498,878)
168,578
97,893 (182,971) (415,378)
(1) Crown includes ERPM’s Cason surface retreatment operations.
(2) Includes 100% of ErgoGold and the Ergo JV.
(3) Corporate head office expenses are taken into consideration in the strategic decision-making process of the CODM and are therefore included in the disclosure here, even though they do not earn revenue.
F-27
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2011
Revenues
Non-
current
assets(1)
R’000 R’000
Geographical Information
South Africa
2,565,319 1,534,428
Zimbabwe
- 15,674
Total
2,565,319 1,550,102
(1) Non-current assets consist of property, plant and equipments and non-current inventory.
Information about major customers
The group has only one major customer regarding the sale of gold ore in each geographical area due to regulatory authority.
F-28
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2010
Blyvoor
R’000
Crown(2)
R’000
Ergo(3)
R’000
Corporate head
office and all (4)
other expenses
R’000
Total
R’000
Financial performance
Segmental revenue
861,409
834,788
294,325
- 1,990,522
Cash operating costs
(878,888)
(615,726)
(254,192)
- (1,748,806)
Movement in gold in process
33,766 (9,040)
5,215 - 29,941
Operating profit
16,287 210,022
45,348
- 271,657
Interest and other investment income
412
901
814 15,802 17,929
Interest expense
(1,064)
(66)
(2)
(3,730)
(4,862)
Retrenchment costs
(10,925)
-
-
(9,202)
(20,127)
Administration expenses and general costs
12,007
(2,136)
(6,169) (60,728) (57,026)
Taxation charge (1)
-
(7,509)
-
(2,799)
(10,308)
Working profit/(loss) before capital expenditure
16,717 201,212
39,991 (60,657) 197,263
Capital expenditure(5)
(79,552) (45,949) (68,584) (6,320) (200,405)
Working (loss)/profit after capital expenditure
(62,835) 155,263 (28,593) (66,977) 3,142)
(1) The taxation charge excludes deferred tax.
(2) Crown includes ERPM’s Cason surface retreatment operations.
(3) With effect from May 1, 2010, Ergo represents 100% of ErgoGold and the Ergo JV.
(4) Corporate head office expenses are taken into consideration in the strategic decision-making process of the CODM and are therefore included in the disclosure here, even though they do not earn revenue.
(5) Includes adjustments to the provision for environmental rehabilitation resulting from changes in estimates.
Operating results (6)
Ore milled
- underground
t’000 633
-
-
-
633
-
surface
t’000 2,968
7,122 11,867
- 21,957
-
total
t’000 3,601
7,122 11,867
- 22,590
Average yield - underground
g/t 3.79
-
-
-
3.79
-
surface
g/t 0.31
0.43
0.09
-
0.23
-
total
g/t 0.92
0.43
0.09
-
0.33
Gold dispatched
- underground
kg 2,402
-
-
-
2,402
-
surface
kg 909 3,092 1,099
- 5,100
-
total
kg 3,311
3,092
1,099
-
7,502
-
underground
oz 77,226
-
-
-
77,226
-
surface
oz 29,226
99,410
35,332
- 163,968
-
total
oz 106,452
99,410
35,332
-
241,194
Cash operating costs - underground
R/kg 324,736
-
-
-
324,736
-
surface
R/kg 108,771
199,135
231,294
-
189,959
-
total
R/kg 265,445
199,135
231,294
-
233,112
-
underground
$/oz 1,327
-
-
-
1,327
-
surface
$/oz 444
814
945
-
776
-
total
$/oz 1,085 814 945 - 953
(6) Unaudited
F-29
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2010
Blyvoor
R’000
Crown(1)
R’000
Ergo(2)
R’000
Corporate head
office and all (3)
other expenses
R’000
Total
R’000
Reconciliation of assets
Reportable segment assets
510,883 171,390 1,144,036
31,337 1,857,646
Other assets
120,838 136,396 96,508 368,904 722,646
Total assets
631,721 307,786 1,240,544 400,241 2,580,292
Reconciliation of liabilities
Reportable segment liabilities
144,160 276,881 207,542 133,195 761,778
Taxation and deferred taxation
- - 168,138 414 168,552
Total liabilities
144,160 276,881 375,680 133,609 930,330
Other material information
Depreciation
(32,616) (61,005) (95,418)
(1,730) (190,769)
Reversal of impairment/(impairment) of assets
- 12,514 - (18,738) (6,224)
Reconciliation of revenues
Total revenues for reportable segments
861,409 834,788 294,325
- 1,990,522
Statement of cash flows
Cash flows from operating activities
(24,585)
198,498
(21,013)
(99,288)
53,612
Cash flows from investing activities
(79,553)
(50,066)
(72,848)
(23,914)
(226,381)
Cash flows from financing activities
- - (4,202) 11,985 7,783
Reconciliation of profit/(loss)
Segment working profit/(loss) before capital expenditure
16,717 201,212 39,991 (60,657) 197,263
- Depreciation
(32,616) (61,005) (95,418)
(1,730) (190,769)
- Movement in provision for environmental rehabilitation
(1,246) 16,994
(578) 72,864 88,034
- Reversal of impairment/(impairment)
-
12,514 -
(18,738)
(6,224)
- Net gain/(loss) on financial liabilities measured at amortized cost
33,887
-
- (19,244) 14,643
- Growth in environmental rehabilitation trust funds
2,011 3,384 - 4,057 9,452
- Profit on disposal of subsidiaries
- - -
156,749
156,749
- Profit on disposal of joint venture
- - -
1,500
1,500
- Unrealized foreign exchange loss
- - - (5) (5)
- Unwinding of provision for environmental rehabilitation
(1,139) (5,050) (2,573) (2,035) (10,797)
- Unwinding of discount on financial liabilities measured at amortized cost
(7,039) - - (1,429) (8,468)
- Ongoing rehabilitation expenditure
(1,942) (20,924) (5,272) (6,713) (34,851)
- Actuarial gain on post-retirement and other employee benefits
- 35,290 - -
35,290
- Net other operating (costs)/income
(7,350) (14,371)
493 (29,271) (50,499)
- Deferred tax
14,934 (33,108) 14,012 6,207 2,045
Profit/(loss) for the year
16,217 134,936 (49,345) 101,555 203,363
(1) Crown includes ERPM’s Cason surface retreatment operations.
(2) With effect from May 1, 2010, Ergo represents 100% of ErgoGold and the Ergo JV.
(3) Corporate head office expenses are taken into consideration in the strategic decision-making process of the CODM and are therefore included in the disclosure here, even though they do not earn revenue.

F-30
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2010
Revenues
Non-
current
assets
(1)
R’000 R’000
Geographical Information
South Africa
1,990,522 1,858,005
Zimbabwe
- 5,220
Total
1,990,522 1,863,225
(1) Non-current assets consist of property, plant and equipment and non-current inventory.
Information about major customers
The group has only one major customer regarding the sale of gold ore in each geographical area due to regulatory authority.
F-31
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2009
Blyvoor
R’000
Crown(2)
R’000
Ergo(3)
R’000
Corporate head
office and all (4)
other expenses
R’000
Total
R’000
Financial performance
Segmental revenue
1,018,527
733,990
24,178
134,043
1,910,738
Cash operating costs
(830,336)
(525,516)
(66,442)
(212,712) (1,635,006)
Movement in gold in process
(9,445) 5,231 11,232 - 7,018
Operating profit/(loss)
178,746
213,705
(31,032)
(78,669)
282,750
Interest and other investment income
3,185
2,347
5 74,454 79,991
Interest expense
(521)
(5)
(1) (3,078) (3,605)
Retrenchment costs
-
-
-
(34,922)
(34,922)
Administration expenses and general costs
(1,719)
(4,980)
(2,810) (74,074) (83,583)
Taxation charge (1)
- (41,529) - (4,660) (46,189)
Working profit/(loss) before capital expenditure
179,691
169,538
(33,838) (120,949)
194,442
Capital expenditure (5)
(97,537) (43,115) (174,154) (31,862) (346,668)
Working profit/(loss) after capital expenditure
82,154 126,423 (207,992) (152,811) (152,226)
(1) The taxation charge excludes deferred tax.
(2) Crown includes ERPM’s Cason surface retreatment operations.
(3) Includes 50% of the Ergo JV and with effect from April 1, 2009, 100% of ErgoGold.
(4) Corporate head office expenses are taken into consideration in the strategic decision-making process of the CODM and are therefore included in the disclosure here, even though they do not earn revenue.
The underground operations of ERPM, which were placed under care and maintenance during the year ended June 30, 2009 are also included in this segment.
(5) Includes adjustments to the provision for environmental rehabilitation provision resulting from changes to estimates.
Operating results (6)
Ore milled
- underground
t’000 603
-
-
184
787
-
surface
t’000 3,433
8,007
2,296
- 13,736
-
total
t’000 4,036
8,007
2,296
184 14,523
Average yield
- underground
g/t 4.56
-
-
3.20
4.26
-
surface
g/t 0.37
0.37
0.05
-
0.32
-
total
g/t 1.00
0.37
0.05
3.20
0.53
Gold dispatched
- underground
kg 2,765
-
-
589
3,354
-
surface
kg 1,262
2,974
114
-
4,350
-
total
kg 4,027
2,974
114
589
7,704
-
underground
oz 88,898
-
-
18,935 107,833
-
surface
oz 40,575
95,616
3,666
- 139,857
-
total
oz 129,473
95,616
3,666
18,935
247,690
Cash operating cost - underground
R/kg 255,517
-
-
361,141
274,066
-
surface
R/kg
98,124 188,320 644,053
- 164,549
-
total
R/kg
209,170 188,320 644,053 361,141 219,024
-
underground
$/oz 878
-
- 1,287
842
-
surface
$/oz 337
647 2,077
-
566
-
total
$/oz 719
647 2,077 1.287 753
(6) Unaudited
F-32
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2009
Blyvoor
R’000
Crown(1)
R’000
Ergo (2)
R’000
Corporate head
office and all (3)
other expenses
R’000
Total
R’000
Reconciliation of assets
Reportable segment assets
463,947
150,947 1,039,667
78,658 1,733,219
Other assets
96,536 183,235
95,275 517,507 892,553
Total assets
560,483
334,182 1,134,942
596,165 2,625,772
Reconciliation of liabilities
Reportable segment liabilities
182,783
297,498
150,546
215,475
846,302
Taxation and deferred taxation
12,403
650 182,150
288 195,491
Total liabilities
195,186
298,148
332,696
215,763 1,041,793
Other material information
Depreciation
(29,273)
(38,112)
(30,784)
(1,048)
(99,217)
Impairment of assets
-
(19,426)
-
(55,712)
(75,138)
Reconciliation of Revenues
Total revenues for reportable segments
1,018,527
733,990
24,178
134,043
1,910,738
Statement of cash flows
Cash flows from operating activities
165,751
113,358
(83,708)
12,831
208,232
Cash flows from investing activities
(97,158)
(46,352) (332,840) (117,069) (593,419)
Cash flows from financing activities
-
(30,402)
(45,265)
(10,155)
(85,822)
Reconciliation of profit/(loss)
Segment working profit/(loss) before capital expenditure
179,691
169,538
(33,838) (120,949)
194,442
- Depreciation
(29,273)
(38,112)
(30,784)
(1,048)
(99,217)
- Movement in provision for environmental rehabilitation
426
(11,002) 2,825
(11,794)
(19,545)
- Recognition of negative goodwill on acquisition of subsidiary
-
-
-
53,006
53,006
- Impairments
-
(19,426)
-
(55,712)
(75,138)
- Net gain/(loss) on financial liabilities measured at amortized cost
36,141 (1,403)
- 27,262 62,000
- Loss on realization of investment
-
-
-
(1,873)
(1,873)
- Growth in environmental rehabilitation trust funds
2,929
4,441
-
5,497 12,867
- Unrealized foreign exchange loss
-
-
-
(10,318)
(10,318)
- Unwinding of provision for environmental rehabilitation
(1,119)
(4,137)
(2,365)
(2,176)
(9,797)
- Unwinding of discount on financial liabilities measured at amortized cost
(10,388)
(3,237)
-
(4,398)
(18,023)
- Ongoing rehabilitation expenditure
(4,971) (13,084)
(3,419)
(9,657) (31,131)
- Actuarial loss on post-retirement and other employee benefits
-
(18,226)
-
-
(18,226)
- Net other operating (costs)/income
(7,022)
(3,238)
(3,561)
10,825
(2,996)
- Deferred tax
(43,154) 25,594 3,491 88,702 74,633
Profit/(loss) after taxation
123,260 87,708 (67,651) (32,633) 110,684
(1)
Crown includes ERPM’s Cason surface retreatment operations.
(2)
Includes 50% of the Ergo JV and with effect from April 1, 2009 100% of ErgoGold
.
(3)
Corporate head office expenses are taken into consideration in the strategic decision-making process of the CODM and are therefore included in the disclosure here, even though they do not earn revenue. The underground operations
of ERPM, which were placed under care and maintenance during the year ended June 30, 2009, are also included in this segment.
F-33
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2. OPERATING SEGMENTS (continued)
2009
Revenues
Non-
current
assets
(1)
R’000 R’000
Geographical Information
South Africa
1,910,738 1,737,457
Total
1,910,738 1,737,457
(1) Non-current assets consist of property, plant and equipment and non-current inventory.
Information about major customers
The group has only one major customer regarding the sale of gold ore in each geographical area which is due to regulatory authority.
.
F-34
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011
2010
2009
R’000
R’000
R’000
3. REVENUE
Revenue consists of the following principal categories:
Gold revenue
2,541,226
1,976,778
1,870,574
By-product revenue
24,093
13,744
40,164
Total revenue
2,565,319
1,990,522
1,910,738
4. RESULTS FROM OPERATING ACTIVITIES INCLUDE
THE FOLLOWING:
Auditors' remuneration
(10,065)
(9,859)
(10,520)
Audit fees – current year
(8,950)
(9,581)
(10,246)
Under provision – prior year
(1,115)
(278)
(116)
Fees for other services
-
-
(158)
Management, technical, administrative and secretarial
service fees
(3,671)
(8,283)
(12,916)
Staff costs
Included in staff costs are:
(762,236)
(633,301)
(681,717)
Salaries and wages
(723,166)
(603,210)
(582,509)
Share-based payments
(3,519)
(4,115)
(7,873)
Retrenchment costs
(839)
(20,127)
(34,922)
Post-retirement and other employee benefit contributions
(34,712)
(5,849)
(56,413)
Profit on disposal of property, plant and equipment
3,255
13,722
10,266
Impairments
(547,656)
(6,224)
(75,138)
Property, plant and equipment
(546,566)
12,514
(72,438)
Investments in and loans to associates
-
-
(2,700)
Rehabilitation trust fund
(1,090)
(18,738)
-
During the year ended June 30, 2011, the group recorded an impairment of R546.6 million against Blyvoor's property, plant and
equipment (recoverable amount determined based on value in use) due to the uncertainties pertaining to Blyvoor's current
distressed financial position (refer note 10). Blyvoor represents one cash generating unit. A discount rate of 14.4% (2010: 13.7%),
together with further risk adjustments to future cash flows were, used in determining the impairment. Management also took into
consideration as part of their reasonableness assessment, a sensitivity analysis and the fact that Blyvoor is under business rescue
proceedings, with the business rescue plan not being approved as at June 30, 2011. Further considerations included the group’s
market capitalization in comparison to the group’s net asset value.
The group recorded an impairment of R1.1 million against the West Witwatersrand Gold Mines (Pty) Limited's rehabilitation
trust fund due to the disposal of the relating mining rights over the West Wits mining lease area (refer note 11).
During the year ended June 30, 2010, the group reversed an impairment of R12.5 million against Crown's property, plant and
equipment. The reversal of impairment was due to the recoverable amount (value in use) of these assets being higher than their
carrying amount due to the extension of the Knights life-of-mine plan. The group recorded an impairment of R18.7 million
against the West Witwatersrand Gold Mine (Pty) Limited's rehabilitation trust fund due to the transfer of the related mining rights
over the West Wits mining lease area (refer note 11).
During the year ended June 30, 2009, impairments of R53.0 million and R19.4 million were recorded against ERPM’s and
Crown’s property, plant and equipment, respectively. The impairments were due to the recoverable amount of these assets being
less than their carrying amount for ERPM due to closure of underground operations and for Crown due to restriction of deposition
capacity. The Crown plant, City plant and ERPM’s underground operations are separate cash-generating units. Furthermore, an
impairment relating to the investment in West Wits SA (Pty) Limited amounting to R2.7 million was recognized. The
impairment was due to the recoverable amount of this asset being less than its carrying amount.
F-35
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
2009
R’000 R’000
R’000
4. RESULTS FROM OPERATING ACTIVITIES INCLUDE
THE FOLLOWING: (continued)
Operating leases
(1,456)
(1,243)
(2,670)
Mining royalty
(4,365)
(1,240)
-
Pumping subsidy received
-
-
9,000
5. DIRECTORS' AND PRESCRIBED OFFICERS’ EMOLUMENTS
Executive directors
Services rendered as directors of the company
Salaries
(7,080)
(6,636)
(6,130)
Bonuses
(5,314)
(4,102)
(2,907)
Services rendered by directors as directors of subsidiaries
Salaries
-
-
(1,429)
Bonuses
-
-
(1,399)
End-of-contract payments
-
-
(747)
Non-executive directors
Services rendered as directors of the company
Directors fees and bonuses
(3,186)
(3,023)
(3,787)
(15,580)
(13,761)
(16,399)
Prescribed officers
Salaries
(3,682)
(3,296)
(2,538)
Bonuses
(1,867)
(1,741)
(602)
Pension/provident fund contributions
(224)
(188)
(173)
Included in administration and general costs
(21,353)
(18,986)
(19,712)
6. FINANCE INCOME
Dividends received
6,013
-
4,829
Interest received
13,291
17,704
75,035
Net gain on financial liabilities measured at amortized cost (refer note 22)
24,808
14,643
62,000
Loss on realization of investment
-
-
(1,873)
Profit on disposal of subsidiaries (refer note 12)
-
156,749
-
Profit on disposal of joint venture
-
1,500
-
Growth in environmental rehabilitation trust funds (refer note 11)
8,391
9,452
12,867
Recognition of negative goodwill on acquisition of subsidiary
-
-
53,006
Other finance income
289
225
127
52,792
200,273
205,991
F-36
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
2009
R’000 R’000
R’000
7. FINANCE EXPENSES
Interest paid on bank loans and overdrafts
(10,459)
(3,687)
(2,219)
Interest paid on overdue accounts
(156)
(848)
(865)
Realized and unrealized foreign exchange loss
-
(5)
(10,318)
Unwinding of provision for environmental rehabilitation (refer note 19)
(9,405)
(10,797)
(9,797)
Unwinding of discount on financial liabilities measured
at amortized cost
(7,667)
(8,468)
(18,023)
Other finance expenses
(780)
(359)
(521)
Borrowing costs capitalized (refer note 10)
6,420
32
-
(22,047)
(24,132)
(41,743)
8. INCOME TAX
Mining tax
(28,940)
471
20,729
Non-mining tax
1,882
(6,972)
11,332
Secondary tax on companies
(5,094)
(1,762)
(3,617)
(32,152)
(8,263)
28,444
Comprising:
South African
Current tax - current year
(1,197)
(8,476)
(43,321)
- prior year
32
(70)
749
Deferred tax
(25,893)
2,045
74,633
Secondary tax on companies
(5,094)
(1,762)
(3,617)
(32,152)
(8,263)
28,444
In South Africa, mining tax on mining income is determined based on a formula which takes into account the profit and revenue
from a gold mining company during the year. Non-mining income, which consists primarily of interest, is taxed at a standard rate
of 28% (2010: 28%) (2009: 28%).
The tax rates applicable to mining and non-mining income of a gold mining company depend on whether the company has elected
to be exempt from secondary tax on companies (STC). STC is a tax on dividends declared, which is payable by the company
declaring the dividend and, at present, the STC tax rate is equal to 10% (2010: 10%) (2009: 10%) of the amount of income
declared as a dividend. In 1993, all existing gold mining companies had the option to elect to be exempt from STC. If the election
was made, a higher tax rate would apply to both mining and non-mining income. As from April 1, 2012, STC will be replaced by
a dividend tax of 10%, which will be incurred by the person receiving the dividend.
In 2011, the tax rates for taxable mining and non-mining income for companies that elected the STC exemption were 43% (2010:
43%) (2009: 43%) and 35% (2010: 35%) (2009: 35%) respectively. During those same years, the tax rates for companies that did
not elect the STC exemption were 34% (2010: 34%) (2009: 34%) and 28% (2010: 28%) (2009: 28%), for taxable mining and
non-mining income respectively.
In 1993, the company elected not to be exempt from STC, as this would have meant that the company would be subject to normal
taxation at the higher rates of 43% for mining income and 35% for non-mining income. The company, having chosen not to be
subject to the STC exemption, is subject to 34% (2010: 34%) (2009: 34%) tax on mining income and 28% (2010: 28%) (2009:
28%) for non-mining income. With the exception of Crown, all of the South African subsidiaries elected not to be exempt from
STC.
F-37
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
8. INCOME TAX (continued)
The formulae for determining the South African gold mining tax rates for both the current and prior years are:
Y = 43 – 215/X (elect not to pay STC)
Y = 34 – 170/X (elect to pay STC)
Where Y is the percentage rate of tax payable and X is the ratio of taxable income, net of any qualifying capital expenditure that
bears to mining incomes derived, expressed as a percentage.
During the year ended June 30, 2011, the group changed the deferred tax rate applied from the maximum statutory mining tax
rates to the expected average effective tax rates. The effective tax rates are based on the group's current estimate of future
profitability when temporary differences will reverse. Depending on the profitability of the operations, the tax rate can
consequently be significantly different from year to year. This change has been accounted for as a change in estimate and is
therefore applied prospectively. The change reduced the expense through profit or loss and the net deferred tax liability by R39.9
million. If a one percentage point increase in the effective tax rate is applied it would increase the movement in profit or loss by
R2.9 million to a R28.8 million expense (refer note 21).
Each company is taxed as a separate entity and no tax set-off is allowed between the companies.
2011
2010 2009
R’000
R’000 R’000
Estimated unredeemed capital expenditure at year-end (available for deduction
against future mining income)
2,183,572
2,171,299 1,907,048
Estimated tax losses at year-end (available to reduce future taxable income)
743,970
844,903
914,057
Estimated tax losses and unredeemed capital expenditure carried forward
2,927,542
3,016,202 2,821,105
Estimated future tax relief at applicable statutory rates
778,793
991,082
922,492
Tax reconciliation
Major items causing the group's income tax provision to
differ from the statutory rate were:
Taxation on net loss/(profit) before taxation at South African corporate tax rate
of 28%
107,303
(59,256)
(23,027)
Rate adjustment to reflect the actual realized company tax rates
19,018
2,854
(1,549)
Non-deductable expenditure
(1,746)
(6,344)
(10,219)
Exempt income
9,095
27,502
36,541
Additional tax benefit/(charge) relating to the prior year
3,658
(70)
(1,373)
Tax incentives
410
2,410
2,114
Secondary tax on companies
(5,094)
(1,762)
(3,617)
Temporary differences including tax losses recognized for which deferred tax
assets were previously unrecognized
3,608
26,507
27,027
Current year losses for which no deferred tax asset was recognized (a)
(166,642)
-
-
Other
(1,762)
(104)
2,547
Taxation (charge)/relief
(32,152)
(8,263)
28,444
(a) The current year losses for which no deferred tax asset was recognized relates to the impairment of Blyvoor (refer note 4 and
10).
F-38
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
9. EARNINGS PER SHARE
Basic
The calculation of earnings per ordinary share is based
on the following:
Basic (loss)/earnings attributable to equity owners of the parent
(287,915)
207,815
129,124
Weighted average number of ordinary shares in issue
384,884,379
380,407,239
376,678,974
Diluted
Basic (loss)/earnings attributable to equity owners of the parent
(287,915)
207,815
129,124
Dilutive effect on earnings
-
-
-
Diluted basic (loss)/earnings
(287,915)
207,815
129,124
Reconciliation of weighted average number of ordinary shares to diluted
weighted average number of ordinary shares
Weighted average number of ordinary shares in issue
384,884,379
380,407,239
376,678,974
Number of staff options allocated
-
221
223,547
Diluted weighted average number of ordinary shares
384,884,379
380,407,460
376,902,521
Basic (loss)/earnings per ordinary share (cents)
(75)
55
34
Diluted basic (loss)/earnings per ordinary share (cents)
(75)
55
34
At June 30, 2011, 21.6 million options (2010: 19.5 million and 2009: 17.3 million) were excluded from the diluted weighted
average number of ordinary shares calculation as their effect would have been anti-dilutive.
2011 2010 2009
R’000 R’000 R’000
F-39
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
R’000 R’000
10. PROPERTY, PLANT AND EQUIPMENT
Total
Cost
3,548,479
3,191,996
Opening balance
3,191,996
2,901,436
Acquired through purchase of subsidiaries
-
131,205
Additions
340,064
200,405
Borrowing costs capitalized
6,420
32
Disposals
(4,766)
(41,082)
Transfer from non-current assets held-for-sale (refer note 17)
15,000
-
Foreign exchange movement
(235)
-
Accumulated depreciation and impairment
(2,008,476)
(1,334,350)
Opening balance
(1,334,350)
(1,168,217)
Current depreciation
(130,919)
(190,769)
(Impairment)/reversal of impairment (refer note 4)
(546,566)
12,514
Disposals
3,359
12,122
Carrying value
1,540,003
1,857,646
F-40
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011
2010
R’000
R’000
10. PROPERTY, PLANT AND EQUIPMENT (continued)
Mining property
Cost
332,197
314,309
Opening balance
314,309
284,800
Acquired through purchase of subsidiaries
-
21,656
Additions
4,204
7,853
Disposals
(1,316)
-
Transfer from non-current assets held-for-sale (refer note 17)
15,000
-
Accumulated depreciation and impairment
(219,720)
(159,179)
Opening balance
(159,179)
(151,527)
Current depreciation
(5,407)
(7,652)
Impairment
(55,134)
-
Carrying value
112,477
155,130
Mine development
Cost
2,095,084
1,970,999
Opening balance
1,970,999
1,806,500
Acquired through purchase of subsidiaries
-
54,384
Additions (b)
127,107
122,174
Disposals
(3,022)
(12,059)
Accumulated depreciation and impairment
(1,237,325)
(717,586)
Opening balance
(717,586)
(614,272)
Current depreciation
(104,923)
(115,373)
Impairment
(417,838)
-
Disposals
3 022
12 059
Carrying value
857,759
1,253,413
F-41
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
R’000 R’000
10. PROPERTY, PLANT AND EQUIPMENT (continued)
Mine plant facilities
Cost
917,564
734,422
Opening balance
734,422
679,049
Acquired through purchase of subsidiaries
-
1,243
Additions
176,875
54,130
Borrowing costs capitalized
6,420
-
Disposals
(153)
-
Accumulated depreciation and impairment
(530,291)
(439,227)
Opening balance
(439,227)
(386,457)
Current depreciation
(17,569)
(65,284)
(Impairment)/reversal of impairment
(73,594)
12,514
Disposals
99
-
Carrying value
387,273
295,195
Equipment and vehicles
Cost
30,622
27,131
Opening balance
27,131
21,557
Acquired through purchase of subsidiaries
-
1,181
Additions
3,766
4,607
Disposals
(275)
(214)
Accumulated depreciation and impairment
(21,140)
(18,358)
Opening balance
(18,358)
(15,961)
Current depreciation
(3,020)
(2,460)
Disposals
238
63
Carrying value
9,482
8,773
Exploration Assets (a)
Cost
173,012
145,135
Opening balance
145,135
109,530
Acquired through purchase of subsidiaries
-
52,741
Additions (b)
28,112
11,641
Borrowing cost capitalized
-
32
Disposal of interest in joint venture
-
(28,809)
Foreign exchange movement
(235)
-
Carrying value
173,012
145,135
(a) Exploration assets relates to phase two of the Ergo project and include property, plant, borrowing costs and the tailings
complex as well as exploration costs incurred in the feasibility studies conducted in Zimbabwe.
(b) Included in additions are rehabilitation adjustments amounting to R10.9 million (2010: R6.4 million) and R18.1 million
(2010: Rnil) relating to exploration assets and mining development, respectively.
F-42
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
10. PROPERTY, PLANT AND EQUIPMENT (continued)
Borrowing costs are capitalized to qualifying assets at the rate applicable to the specific financing obtained (refer note 22).
In assessing the recoverability of the above assets, where there are indicators of possible impairment, the estimated cash flows
have been calculated using the following estimates:
• recoverable proved and probable Ore Reserves;
• gold price estimates are based on a gold price of R350,649 per kilogram of gold (US$1,500 per ounce) in year one,
escalating at an average of 6.1% per annum, and a base exchange rate of R7.2775 = US$1.00, with the Rand weakening
in future years based on the expected differential between the local South African interest rates in those years over the
United States interest rates in those years.
• working cost estimates are based on current working costs per kilogram at June 30, 2011, escalated for expected South
African inflationary increases of approximately 6.0% per annum; and
• capital cost estimates are based on current estimates of future development costs to mine the current proved and probable
Ore Reserves, escalated for expected South African inflationary increases of approximately 6.0% per annum.
2011 2010
R’000 R’000
11. NON-CURRENT INVESTMENTS AND OTHER ASSETS
Unlisted investments
14,987
14,712
Loan to DRDSA Empowerment Trust (a)
10,078
10,078
Loan to Khumo Gold SPV (Pty) Ltd (a)
-
23,364
Investments in environmental rehabilitation trust funds
134,247
126,069
Opening balance
126,069
129,682
Impairment
(1,090)
(18,738)
Payments
(339)
-
Contributions
1,216
5,673
Growth in environmental rehabilitation trust funds (refer note 6)
8,391
9,452
Total non-current investments and other assets
159,312
174,223
Unlisted investments consist of:
Fair
Carrying
Carrying
Number value
value value
of 2011
2011 2010
% Held
shares
R'000
R'000
R'000
Rand Mutual Assurance Company
†
37,515
8
8
8
Rand Refinery Limited
4
16,157
14,979
14,979
14,704
14,987
14,987
14,712
† Represents a less than 1% shareholding.
Unlisted investments comprise investments in unlisted companies in South Africa. The valuations are based on the net asset value
of these investments which constitutes the instruments’ fair value.
The monies in the environmental rehabilitation trust funds are invested primarily in low-risk interest-bearing debt securities and
may be used only for environmental rehabilitation purposes.
(a) The terms and conditions of the loans to the black empowerment entities are linked to the payments of preference share
dividends (refer note 22).
F-43
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
12. INVESTMENT IN SUBSIDIARIES
Acquisition of subsidiaries
Blyvooruitzicht Gold Mining Company Limited (Blyvoor)
On September 8, 2010 DRDGOLD acquired a 74% interest in Blyvoor from Ergo Mining Operations (Pty) Limited (Ergo Mining
Operations) for a total consideration of R75.7 million settled against Ergo Mining Operations' inter-company loan with
DRDGOLD. The acquisition has been accounted for as an acquisition of an entity under common control. IFRS 3 Business
Combinations was therefore not applied. The transaction was recognized with effect September 30, 2011.
The carrying amounts of the assets and liabilities on the statement of financial position at acquisition of Blyvoor have been set out
below.
Statement of financial position
As at September
30, 2010
R’000
Non-current assets
Property, plant and equipment 510,411
Non-current investments and other assets
40,874
Non-current inventories
3,893
Deferred tax asset
6,898
Current assets
Inventory
57,568
Trade and other receivables 25,376
Cash and cash equivalents
6,285
Total carrying amount of assets
651,305
Non-current liabilities
Amounts owing to group companies
(485,444)
Provision for environmental rehabilitation (38,946)
Post-retirement and other employee benefits
(810)
Loans and borrowings
(24,305)
Current liabilities
Trade and other payables
(101,800)
Total carrying amount of liabilities
(651,305)
Consolidated carrying amount of net assets on date of acquisition excluding amounts
owing to group companies
485,444
Non-controlling interest in the consolidated carrying amount of net assets
(42,402)
F-44
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
12. INVESTMENT IN SUBSIDIARIES (continued)
Ergo Mining (Pty) Limited (Ergo JV)
On January 21, 2010, DRDGOLD, signed an agreement to acquire Mintails’ remaining 50% interest in the Ergo JV for a total
consideration of R82.1 million: R62.1 million settled in cash and the balance in shares in Witfontein Mining (Pty) Limited, valued
at R20 million (refer note 13). The Ergo JV was consolidated effective May 1, 2010.
The acquisition was recorded as an asset acquisition due to the Ergo JV not being capable of operating as a business. IFRS 3
Business Combinations was therefore not applied.
The relative fair values of the assets and liabilities on the statement of financial position at acquisition of the Ergo JV have been
set out below.
Statement of financial position
As at April 30,
2010
R’000
Non-current assets
Property, plant and equipment
290,420
Current assets
Inventory
59
Trade and other receivables
12,611
Cash and cash equivalents
44,084
Total relative fair value of assets
347,174
Non-current liabilities
Rehabilitation provision
(157,935)
Loans and borrowings
(261,128)
Current liabilities
Trade and other payables
(4,252)
Total relative fair value of liabilities
(423,315)
Purchase consideration of 50% of the net assets on the date of acquisition
82,438
Non-controlling interest in relative fair value of net assets
(3,886)
Disposal of subsidiaries
All DRDGOLD’s foreign subsidiaries, which were holding companies of DRDGOLD’s foreign operations, have been placed into
voluntary liquidation as at June 30, 2010. A foreign currency translation reserve has accumulated over the life of these foreign
subsidiaries. The voluntary liquidation constitutes a disposal, therefore any accumulated foreign currency translation reserves
have been realized in profit or loss.
2011 2010
R’000 R’000
DRD (Offshore) Limited
-
130,022
DRD International APS (Pty) Limited
-
(30,035)
DRD Australia APS
-
111,409
DRD Australasia (Pty) Limited
-
(103,472)
Dome Resources (Pty) Limited -
48,825
Total profit on disposal of foreign subsidiaries
-
156,749
F-45
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
R’000 R’000
13. INVESTMENT IN JOINT VENTURES
The joint ventures for which the statement of comprehensive income and statement of
financial position have been proportionately consolidated were as follows:
Chizim Gold (Pvt) Limited – percentage held
50%
-
Ergo Mining (Pty) Limited – percentage held (refer note 12)
100%
100%
Chizim Gold (Pvt) Limited
During the year ended June 30, 2011 the group acquired a 50% interest in a start-up company
called Chizim Gold (Pvt) Limited (Chizim Gold) for a nominal cash consideration, pursuant
to a joint venture agreement entered into on December 9, 2009 with Chizim Investments
(Pvt) Limited. Chizim Gold is registered in Zimbabwe and is currently conducting feasibility
studies on certain exploration tenements in Zimbabwe. The group has a contingent liability as
at June 30, 2011, amounting to R35.7 million in terms of the joint venture agreement and
capital commitments amounting to R16.9 million.
Ergo Mining (Pty) Limited
In the year ended June 30, 2009, the group acquired a 50% interest in Ergo Mining (Pty)
Limited (Ergo JV) with effect from May 6, 2008. The Ergo JV was previously jointly
controlled by the group and Mintails Limited. In the year ended June 30, 2010 the group
acquired the remaining 50% interest in the Ergo JV on April 15, 2010. The transaction was
accounted for as an asset acquisition for a total consideration of R82.1 million and the Ergo
JV has subsequently been consolidated as a subsidiary from May 1, 2010 (refer note 12).
The group’s effective share of income, expenses, assets and liabilities of the joint ventures,
which are included in the consolidated financial statements, are as follows:
Statement of comprehensive income
Revenue
- -
Cost of sales
- (11,825)
Gross loss from operating activities
- (11,825)
Other income, administration and general costs
- (4,568)
Loss before taxation
- (16,393)
Statement of financial position
Non-current assets
15,674 -
Current assets
552 -
Total assets
16,226 -
Shareholders’ equity
16,226 -
Total equity and liabilities
16,226
-
14. INVESTMENT IN ASSOCIATE
The associate has been accounted for using the equity method in the statement of comprehensive income and statement of
financial position. An impairment has been provided against this investment.
West Wits SA (Pty) Limited – percentage held
28.33%
28.33%
Investment in associate – at cost
2,700
2,700
Impairment of investment in associate
(2,700)
(2,700)
Carrying value of investment in associate
-
-
F-46
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
R’000 R’000
15. INVENTORIES
Current
Gold in process
41,760
36,402
Consumable stores
65,633
59,834
Finished stock - bullion
15,529
36,400
122,922
132,636
Non-current
Consumable stores (strategic spares) 10,099
5,579
Total inventories
133,021
138,215
Inventory includes gold in process carried at net realizable value amounting to R18.7 million (2010: R14.0 million) and finished
stock – bullion amounting to R1.5 million (2010: R27.6 million).
16. TRADE AND OTHER RECEIVABLES
Trade receivables (gold)
50,131
12,430
Value added tax
51,427
23,028
Prepayments
9,266
-
Receivables from related parties
438
60
Interest receivable
888
692
Other receivables
21,526
41,193
Allowance for impairment
(7,266)
(12,882)
126,410
64,521
17. ASSETS CLASSIFIED AS HELD FOR SALE
Mining property of R15.0 million, being the DRDGOLD mine village, was presented as held for sale following the decision of
the group’s management to sell this disposal group as part of the closure of the old Durban Deep mine. A sale was initially
expected by June 30, 2011, however this did not take place due to ongoing litigation between Dino Properties (Pty) Limited and
the group (refer note 23). The group does not believe that a sale of the property is highly probable within the next year and it has
therefore been reclassified to property, plant and equipment.
For the year ended June 30, 2010, the disposal group was carried at the lower of carrying amount or fair value less costs to sell
and was included within ‘Corporate head office and all other expenses’ for operating segmental reporting purposes (refer note 2).
Assets classified as held for sale
Property, plant and equipment
-
15,000
-
15,000
F-47
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011 2010
2009
R’000 R’000
R’000
18. EQUITY OF THE OWNERS OF THE PARENT
Details of equity of the owners of the parent are provided in the statements
of changes in equity on page F-5.
Authorized share capital
600,000,000 (2010: 600,000,000) ordinary shares of no par value
5,000,000 (2010: 5,000,000) cumulative preference
shares of 10 cents each
500
500
500
Issued share capital
384,884,379 (2010: 384,884,379) ordinary shares of no
par value
4,132,604
4,133,318
4,104,480
5,000,000 (2010: 5,000,000) cumulative preference shares
of 10 cents each
500
500
500
4,133,104
4,133,818
4,104,980
Share capital
Unissued shares
The group operates a share option scheme as an incentive tool for its executive directors and senior employees whose skills and
experience are recognized as being essential to the group's performance. In terms of the scheme rules, a maximum of 40 million
(2010: 15% and 2009: 15%) of the issued ordinary shares is reserved for issuance thereunder and no participant may hold options
at any time, which if exercised in full, would exceed 2 million (2010: 2% and 2009: 2%) of the company's issued share capital at
that time. The number of issued and exercisable share options is 5.61% (2010: 5.1% and 2009: 4.6%) of the issued ordinary share
capital, representing 21.6 million of the available 40.0 million share options.
In addition, the participants in the scheme are fully taxed at their marginal tax rate on any gains realized on the exercise of their
options.
In terms of an ordinary resolution passed at the previous annual general meeting, the remaining unissued ordinary shares in the
group are under the control of the directors until the next general meeting.
Cumulative preference shares
The terms of issue of the cumulative preference shares were that they carried the right, in priority to the company's ordinary
shares, to receive a dividend equal to 3% of the gross future revenue generated by the exploitation or the disposal of Argonaut's
mineral rights acquired from Randgold and Exploration Company Limited in September 1997. In 2005, the Argonaut mineral
rights reverted to the South African Government after no application for conversion was lodged within the stipulated period of
one year, under the provisions of the Mineral and Petroleum Resources Development Act (MPRDA).
Option instruments
The company currently has one class of options authorized but not issued, namely Durban Deep ‘C’ options. There are
10,000,000 authorized option instruments at year-end which entitle the holder to subscribe for one ordinary share per option
instrument at a subscription price of R15 per ordinary share. These are exercisable at any time during the period from the date on
which the option is issued by the company to a date no later than five years from the date of issue.
F-48
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
18. EQUITY OF THE OWNERS OF THE PARENT (continued)
2011 2010
2009
R’000 R’000
R’000
Revaluation and other reserves
Foreign exchange translation reserve (a)
747
- 156,538
Asset revaluation reserve (b)
143,049
142,835 138,953
Share-based payments reserve (c)
59,553
56,034 51,919
203,349
198,869 347,410
(a) The foreign exchange translation reserve represents the cumulative translation effect arising on the translation of the financial
statements of the group’s foreign operations. During the year ended June 30, 2010, the company disposed (placed into voluntary
liquidation) all of its foreign subsidiaries and the foreign exchange translation reserve relating thereto has been transferred to
profit or loss.
(b) Certain items of property, plant and equipment that were revalued to fair value on or prior to July 1, 2004, the date of
transition to IFRS, were measured on the basis of deemed cost, being the revalued amount at the date of the revaluation. A
revaluation adjustment of R5.0 million was recognized in the asset revaluation reserve.
The reserve also includes a R4.7 million (2010: R4.5 million and 2009: R0.6 million) fair value adjustment on available-for-sale
financial instruments.
On the acquisition of ErgoGold, in the year ended June 30, 2009, an amount of R133.3 million was taken to the asset revaluation
reserve. This amount represented the increase in the fair value of ErgoGold’s net assets after the acquisition of the group’s initial
interest, which is attributable to that initial interest.
(c) The company issues equity-settled instruments to certain qualifying employees under an employee share option scheme to
purchase shares in the company’s authorized but unissued ordinary shares. Equity share-based payments are measured at the fair
value of the equity instruments at the date of the grant. Deferred share-based compensation is expensed over the vesting period,
based on the company’s estimate of the shares that are expected to eventually vest. A deferred share-based compensation expense
of R3.5 million (2010: R4.1 million and 2009: R7.9 million), was charged to profit or loss (refer to note 4).
2011 2010
R’000 R’000
Dividends
The following dividends were declared and paid by the group:
5 cents per qualifying ordinary share (2010: 5 cents)
(19,244)
(18,954)
After June 30, 2011 a dividend of 7.5 cents per qualifying share (R28.9 million) was approved by the directors for 2011. The
dividend has not been provided for, nor was a provision made for the secondary tax on companies which is charged at 10% of
the dividend which is declared and is estimated to amount to R2.9 million.
19. PROVISION FOR ENVIRONMENTAL REHABILITATION
Opening balance
420,604
412,454
Acquired through purchase of subsidiary
-
78,968
Increase in provision
29,010
6,419
Unwinding of provision (refer note 7)
9,405
10,797
Utilization of provision
(21,361)
-
Charge/(benefit) to profit or loss
52,567
(88,034)
Closing balance
490,225
420,604
Amounts have been contributed to irrevocable trusts (refer to note 11)
The group intends to fund the ultimate rehabilitation costs from the money invested with the trust funds as well as, at the time of
mine closure, the proceeds on sale of remaining assets and gold from plant clean-up. The rehabilitation is expected to occur
progressively towards the end of life of the respective mines.
The credit to profit or loss for the year ended June 30, 2010, includes credits of R63.4 million and R4.8 million relating to the
derecognition of the provisions of Durban Roodepoort Deep and West Witwatersrand Gold Mines (Pty) Limited, respectively
(refer note 23).
F-49
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
20. POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS
2011 2010
R’000 R’000
Liability for post-retirement medical benefits (a)
5,540
12,507
Liability for long-service awards (b)
728
858
6,268
13,365
Contribution funds
In South Africa, the group participates in a number of multi-employer, industry-based retirement plans. All plans are
governed by the Pension Funds Act, 1956.
The group pays fixed contributions to external institutions and will have no legal or constructive obligation to pay further
amounts. Pension plans, which are multi-employer plans in the nature of defined contribution plans, are funded through
monthly contributions to these defined contribution plans. Obligations for contributions are recognized as an employee
benefit expense in profit or loss as incurred.
Amounts recognized in profit or loss are as follows:
Contribution payments
(38,772)
(35,557)
(a) Post-retirement medical benefits
The group has an obligation to fund a portion of the medical aid contributions of certain of its employees after they have
retired. A provision for post-retirement medical benefits has been raised, based on the latest calculations using a projected
unit credit method, of independent actuaries performed as at June 30, 2010. Post-retirement medical benefits are actuarially
valued every three years. The obligation is unfunded.
During the year ended June 30, 2011, settlement offers were made to all participants of the post-retirement medical benefit
scheme. This offer was accepted by some participants, which resulted in an actuarial gain of R5.7 million.
As a result of a project initiated during the year ended June 30, 2010 to optimize the synergies of the group’s surface
retreatment operations, management revised the assumptions used in the calculation of this provision. The resulting decrease
in the provision for post-retirement medical benefits of approximately R30 million was treated, for accounting purposes, as a
change in estimate and was included in administrative expenses and general costs.
Amounts recognized in the statement of financial position are as follows:
Opening balance
12,507
42,498
Current service cost
349
2,075
Actuarial gain
(5,651)
(35,290)
Settlements
(2,543)
-
Benefits paid
(364)
(283)
Interest costs
1,242
3,507
Closing balance
5,540
12,507
Amounts recognized in profit or loss are as follows:
Current service cost and interest
(349)
(2,075)
Net actuarial gain
5,651
35,290
Interest costs
(1,242)
(3,507)
4,060
(29,708)
Principal actuarial assumptions at the reporting date:
Health care cost inflation
7.8%
7.8%
Discount rate
9.3%
9.3%
Real discount rate
1.4%
1.4%
Normal retirement age
60
60
Expected average retirement age
59.8
59.8
Spouse age gap
3 years
3 years
Continuation at retirement
100%
100%
Proportion married at retirement
85%
85%
F-50
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
20. POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (continued)
Historical information:
2011
2010
2009
2008
2007
R’000
R’000
R’000
R’000
R’000
Unfunded liability
5,540
12,507
42,498
21,504
19,009
Actuarial (gain)/loss
(5,651)
(35,290)
18,226
-
-
There are currently no long-term assets set aside in respect of post-retirement medical benefit liabilities.
Assuming all other variables remain constant a one percentage point change in the stated assumptions would have the following
effects:
Sensitivity analysis:
Health care
Variation cost inflation
Mortality Resignation rate
R’000
R’000
R’000
Effect on the aggregate
+1%
264
(202)
(60)
service and interest cost
-1%
(216)
237
67
Effect in past-service
+1%
859
(670)
(177)
contractual liability
-1%
(704)
787
194
The group expects to pay contributions of R0.2 million during 2012.
(b) Long-service awards
The group participates in the Chamber of Mines of South Africa Long Service Awards Scheme (the scheme). The scheme does
not confer on any employee or other persons any right of payment of any award.
In terms of the scheme, bonus payments may be made to certain employees, usually semi-skilled, upon reaching the age of 55,
who have completed 15 years of continuous service in South African gold mining companies which are members of the Chamber
of Mines of South Africa and The Employment Bureau of Africa, provided such service is not pensionable service. The scheme
lays down the rules under which an employee may be eligible for the award. The award is paid by the company for which the
employee works upon becoming eligible for the award and electing to receive payment. All awards must be confirmed by the
Chamber of Mines of South Africa before payment.
The amount of the award is based on both the employee's skill level and years of service with gold mining companies that qualify
for the scheme.
2011
2010
R’000
R’000
Amounts recognized in the statement of financial position are as follows:
Opening balance
858
1,141
Benefits paid
(130)
(283)
Closing balance
728
858
Share option scheme
a) Details of the scheme
The company operates a share option scheme, DRDGOLD (1996) Share Scheme (the scheme) as an incentive tool for its
executive directors and senior employees whose skills and experience are recognized as being essential to the group's
performance. In terms of the scheme rules, a maximum of 40 million (2010: 15%) of the issued ordinary shares of the group is
reserved for issuance thereunder and no participant may hold options at any time, which, if exercised in full, would exceed 2
million (2010: 2%) of the company's issued share capital at that time. The number of issued and exercisable share options is
approximately 5.61% (2010: 5.1%) of the issued ordinary share capital, representing 21.6 million of the available 40 million share
options. In addition, the participants in the scheme are fully taxed at their marginal tax rate on any gains realized on the exercise
of their options.
F-51
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
20. POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (continued)
Share option scheme (continued)
The price at which an option may be granted will be, in respect of each share which is the subject of the option, the volume
weighted average price of a share on the JSE for the seven days on which the JSE is open for trading, preceding the day on which
the employee is granted the option. The allocation date will be the date when the directors approve allocation of share options.
Each option remains in force for five years after the date of grant, subject to the terms of the option plan. Options granted under a
plan vest primarily according to the following schedule over a maximum of a three year period:
Percentage vested in each period
grant:
Period after the original
date of the option:
25% 6 months
25% 1 year
25% 2 years
25% 3 years
Any options not exercised within a period of 5 years (issued prior to 2009: 10 years) from the original date of the option will
expire and may not thereafter be exercised.
b) Share options activity in respect of the DRDGOLD (1996) Share Scheme was as follows:
Outstanding Vested
Average
Average
price per
price per
Number of
share
Number of
share
shares
R
shares
R
Balance at July 1, 2009
17,304,929
11.75
11,611,308
10.43
Granted 3,654,307
5.35
Exercised (262,663)
3.83
Forfeited/lapsed (1,202,172)
6.88
Balance at June 30, 2010
19,494,401
10.96
14,110,206
13.45
Granted 4,127,478
3.69
Forfeited/lapsed (2,038,952)
5.70
Balance at June 30, 2011
21,582,927
10.07
16,011,187 12.13
Options to acquire the company’s ordinary shares that were granted post November 7, 2002 and which remain unvested at
January 1, 2005, are measured at fair value at grant date. This fair value is recognized as an employee expense over the vesting
period, adjusted to reflect actual levels of vesting, with the corresponding credit to a revaluation and other reserve, which is part
of equity.
The fair value of the options granted is measured using the Black–Scholes option pricing model, taking into account the terms and
conditions upon which the options were granted.
Analysis of share options:
Range of exercise prices
Years
Vested
Unvested
to
June 30,
June 30,
June 30,
June 30,
expiry 2011
2012
2013
2014
R5< 4 - 7
6,371,878
1,918,035
1,012,544
1,012,546
R5>R10 3 - 5
5,251,670
814,273
814,342
-
R10>R15 3
1,091,000
-
-
-
R15>R20 1 - 3
2,841,339
-
-
-
R20>R30 1
455,300
-
-
-
16,011,187 2,732,308 1,826,886
1,012,546
F-52
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
20. POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (continued)
2011
2010
R’000
R’000
c) The fair value of the options determined using the Black - Scholes option pricing model.
Significant inputs into the model were:
Market price at date of grant (Rand per share)
November 1, 2004 option grant
10.93
10.93
April 15, 2005 option grant
5.13
5.13
June 17, 2005 option grant
5.50
5.50
October 25, 2005 option grant
5.94
5.94
October 30, 2006 option grant
9.93
9.93
October 29, 2007 option grant
5.50
5.50
October 20, 2008 option grant
4.70
4.70
October 20, 2009 option grant
5.30
5.30
October 18, 2010 option grant
3.66
Vesting periods (years)
November 1, 2004 option grant
3
3
April 15, 2005 option grant
3
3
June 17, 2005 option grant
3
3
October 25, 2005 option grant
3
3
October 30, 2006 option grant
3
3
October 29, 2007 option grant
3
3
October 20, 2008 option grant
3
3
October 20, 2009 option grant
3
3
October 18, 2010 option grant
3
Option strike price (Rand per share)
November 1, 2004 option grant
11.70
11.70
April 15, 2005 option grant
4.84
4.84
June 17, 2005 option grant
7.10
7.10
October 25, 2005 option grant
8.78
8.78
October 30, 2006 option grant
9.08
9.08
October 29, 2007 option grant
3.88
3.88
October 20, 2008 option grant
3.50
3.50
October 20, 2009 option grant
5.35
5.35
October 18, 2010 option grant
3.69
Risk-free rate
November 1, 2004 option grant
8.56%
8.56%
April 15, 2005 option grant
7.81%
7.81%
June 17, 2005 option grant
7.58%
7.58%
October 25, 2005 option grant
7.94%
7.94%
October 30, 2006 option grant
8.39%
8.39%
October 29, 2007 option grant
8.79%
8.79%
October 20, 2008 option grant
9.55%
9.55%
October 20, 2009 option grant
8.72%
8.72%
October 18, 2010 option grant
6.74%
Volatility
(1)
November 1, 2004 option grant
29%
29%
April 15, 2005 option grant
37%
37%
June 17, 2005 option grant
38%
38%
October 25, 2005 option grant
36%
36%
October 30, 2006 option grant
44%
44%
October 29, 2007 option grant
28%
28%
October 20, 2008 option grant
31%
31%
October 20, 2009 option grant
25%
25%
October 18, 2010 option grant
31%
(1)
The volatility is measured at the standard deviation of the expected share price returns and is based on statistical analysis of
daily share prices over the last three years.
F-53
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
21. DEFERRED TAX
2011 2010
R’000 R’000
Balances arose from the following temporary differences:
Deferred tax asset
Property, plant and equipment
295,557
256,710
Provisions, including rehabilitation provision
97,048
169,583
Estimated assessed losses
56,817
91,886
Capital losses
151,450
151,450
Other temporary differences
-
27,329
Deferred tax asset not recognized
(531,640)
(556,216)
69,232
140,742
Deferred tax liability
Property, plant and equipment
(144,244)
(168,138)
Provisions, including rehabilitation provision
21,722
-
Other temporary differences
(3)
(4)
(122,525)
(168,142)
Net deferred mining and income tax liability
(53,293)
(27,400)
Reconciliation between deferred taxation opening and closing balances
Opening balance
(27,400)
(29,445)
Profit or loss (expense)/credit
(25,893)
2,045
Closing balance
(53,293)
(27,400)
The group provides for deferred tax at the rates which are expected to apply for temporary differences. During the year ended
June 30, 2011 the group changed from using the maximum statutory rates to the expected average effective tax rates, resulting
from the mining tax formula for mining income based on forecasts per individual entity. This change has been accounted for as a
change in estimate and is therefore applied prospectively. The change reduced the expense through profit or loss and the net
deferred tax liability by R39.9 million. If a one percentage point increase in the effective tax rate is applied, the deferred tax
liability would amount to R56.2 million compared to the current R53.3 million (refer note 8).
Deferred tax assets have not been recognized in respect of tax losses of R18.4 million (2010: R8.1 million), unredeemed capital
expenditure of R361.8 million (2010: R396.7 million) and capital losses of R151.4 million (2010: R151.4 million).
The deferred tax relating to the group’s investment in subsidiaries, joint venture and associate is Rnil (2010: Rnil), resulting from
the fact that these investments are to be realized through dividend distributions which are exempt under current South African tax
legislation. As a result there are no temporary differences.
22. LOANS AND BORROWINGS
Unsecured
Absa Domestic Medium Term Note Programme (a)
109,636
-
Preference shares held by Khumo Gold SPV (Pty) Limited and the DRDSA
Empowerment Trust (b)
10,137
58,977
119,773
58,977
Less: payable within one year included under current liabilities
(79,345)
-
40,428
58,977
Loans and borrowings expected repayment schedule for capital amounts payable in
the twelve months to:
June 30, 2012
79,345 -
June 30, 2013
30,291 -
Thereafter
10,137 58,977
119,773 58,977
Analysis of gross loans and borrowings by currency:
South African Rand
119,773
58,977
Effective interest rates:
Unsecured liabilities
Absa Domestic Medium Term Note Programme
9.6% - 10.6%
-
F-54
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
22. LOANS AND BORROWINGS (continued)
(a) On September 30, 2010 the group entered into a R500 million Domestic Medium Term Note Programme (DMTN
Programme) with ABSA Capital, a division of ABSA Bank Limited, under which DRDGOLD may from time to time issue notes.
R108 million was issued on October 1, 2010, consisting of R78 million and R30 million respectively, under the DMTN
Programme. The different notes issued mature 12 and 24 months from the date of issue and bear interest at the three month
Johannesburg Inter-bank Acceptance Rate plus a margin ranging from 4% to 5% per annum. The DMTN Programme is
unsecured.
(b) On November 18, 2005, the group issued Class A cumulative participating preference shares to Khumo Gold SPV (Pty)
Limited (Khumo Gold), for a subscription price of R10.6 million. Class B and Class C cumulative participating preference shares,
for a subscription price of R7.1 million and R8.6 million, were issued to Khumo Gold and the DRDSA Empowerment Trust
respectively on November 30, 2006. The preference shares entitle Khumo Gold and the employee trust to receive a dividend of
R0.26 for every R0.74 paid by Crown, ERPM and Blyvoor to DRDGOLD towards capital and interest on their outstanding
intragroup loans as at November 30, 2005. Crown repaid its loan to DRDGOLD during the year ended June 30, 2009 and a
preference dividend of R31.8 million was paid to Khumo Gold and the employee trust. There were no further obligations pursuant
to the Crown preference shares and they were cancelled.
The preference shares are measured at amortized cost based on the effective interest method. As these financial instruments do
not have fixed terms, the repayment schedules for the loans are based on an estimated repayment schedule, calculated using the
available cash flows of the relevant operations with reference to their respective life-of-mine plans. The impairment of Blyvoor's
property, plant and equipment resulted in a positive adjustment of R30.8 million (2010: R33.9 million), which is based on the
expected cash flows of the Blyvoor life-of-mine plan. The payment of a R31.7 million dividend and reduction of the repayment
period at ERPM resulted in a negative adjustment of R6.0 million (2010: R19.3 million).
F-55
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
23. COMMITMENTS AND CONTINGENT LIABILITIES
2011 2010
R’000 R’000
Capital commitments
Contracted for but not provided for in the annual financial statements
50,370
36,744
Authorized by the directors but not contracted for
119,110
176,744
169,480
213,488
This capital expenditure will be financed from existing cash resources, cash generated from operations and negotiated funding
facilities.
Operating lease commitments
The group leases its office building in terms of an operating lease. The group does not have an option to acquire the building at
the termination of the lease. There is an escalation of 8% per annum imposed by the lease agreement.
Crown leases its vehicles under various operating leases. There is an average escalation of 2.5% per annum imposed by these
lease agreements.
The future minimum lease payments under non-cancellable operating leases are as
follows:
Not later than 1 year
1,414
1,058
Between 1 and 5 years
3,310
3,815
Contingent liabilities
Environmental
At Durban Roodepoort Deep mine, rehabilitation and other responsibilities like the National Nuclear Regulator Certificate of
Registration requirements have been taken over by DRD (Pty) Ltd (a subsidiary of Mintails). An official liability transfer in terms
of section 58 of the Mineral and Petroleum Resources Development Act (MRPDA) has been submitted to the Department of
Mineral Resources (DMR). DRDGOLD retains only the DRD Village that has no assessed liability associated with it. The legal
transfer of the liability would be dependant on the DMR's assessment of Mintail's financial capability. DRDGOLD therefore still
has a contingent liability until such legal transfer is affected, amounting to R63.4 million. We are still awaiting a response from
the DMR on their assessment of the transfer.
At West Witwatersrand Gold Mine (Pty) Limited mine, responsibility for the mine, including the environmental rehabilitation
liability, has been taken over contractually by Mintails although the legal transfer thereof would be dependant on the DMR's
assessment of Mintail's financial capability. DRDGOLD, therefore, still has a contingent liability until such legal transfer is
affected, amounting to R4.8 million. We are still awaiting a response from the DMR on their assessment of the transfer.
Mine residue deposits have a potential pollution impact on ground water through seepage. The group has taken certain
preventative actions as well as remedial actions in an attempt to minimize the group’s exposure and environmental contamination.
No reliable estimate can be made for the potential obligation.
DRDGOLD has identified a flooding and future pollution risk posed by deep groundwater at Blyvoor (Far West Rand gold
fields), West Witwatersrand Gold Mines (Pty) Ltd (Western Basin) and ERPM (Central Basin) mines. Due to the interconnected
nature of mining operations, any proposed solution needs to be supported by all the mines located in these areas. The DMR and
affected mining companies are involved in the development of a ‘Regional Mine Closure Strategy’ in the gold fields’ area. The
government has appointed Trans-Calendon Tunnel Authority (TCTA) to propose solutions for the various basins. They have also
provided funding for the interim solution in the Western and Central Basins. In view of the limitation of current information for
the accurate estimation of a potential liability, no reliable estimate can be made for the potential obligation.
F-56
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
23. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Dispute at the DRD Village
Dino Properties (Pty) Limited has instituted action against DRDGOLD seeking to enforce an agreement of sale of the DRD
Village entered into on July 21, 2005 or, alternatively payment of R195 million which is alleged to represent the market value of
the property. DRDGOLD is defending this action. There is a dispute on the quantification of the possible damages or
determination of the possible market value. The amount of the alleged market value cannot be measured with sufficient reliability.
Dispute with the Ekurhuleni Municipality
The Ekurhuleni Municipality has brought an action against ERPM claiming an amount of R42 million in respect of outstanding
rates and taxes which are allegedly owing. ERPM has employed experts to investigate the allegations and it appears that this
claim is unfounded. ERPM is defending this action and has employed Norton Rose Attorneys to represent it. There are sufficient
defences to repel the claim, therefore the probability of an outflow of resources is not probable.
24. FINANCIAL INSTRUMENTS
Overview
The group has exposure to credit risk, liquidity risks, as well as other market risks from its use of financial instruments. This note
presents information about the group’s exposure to each of the above risks, the group’s objectives and policies and processes for
measuring and managing risk. The group’s management of capital is disclosed in note 25. Further quantitative disclosures are
included throughout these consolidated financial statements.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the group's risk management framework.
The board has established the Risk Committee, which is responsible for developing and monitoring the group's risk management
policies. The committee reports regularly to the Board of Directors on its activities.
The group's risk management policies are established to identify and analyze the risks faced by the group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes to market conditions and the group's activities. The group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and
obligations.
The Audit Committee oversees management’s monitoring of compliance with the group's risk management policies and
procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the group. The Audit
Committee is assisted in its oversight role by the internal audit function. The internal audit function undertakes both regular and
ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
CREDIT RISK
Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the group’s receivables from customers and investment securities.
The group's financial instruments do not represent a concentration of credit risk, because the group deals with a variety of major
banks and financial institutions located in South Africa after evaluating the credit ratings of the representative financial
institutions. Furthermore, its trade receivables and loans are regularly monitored and assessed for recoverability. Where
appropriate, an impairment loss is raised.
In addition, the group's operations all deliver their gold to Rand Refinery Limited (Rand Refinery), which refines the gold to
saleable purity levels and then sells the gold, on behalf of the South African operations, on the bullion market. The gold is usually
sold by Rand Refinery on the same day as it is delivered and settlement is made within two days.
F-57
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
The following represents the maximum exposure to credit risk for all financial assets at June 30:
Carrying
Carrying
value
value
2011 2010
R'000
R'000
Financial assets
Unlisted investments (refer note 11)
14,987
14,712
Loans to black empowerment entities (refer note 11)
10,078
33,442
Investments in environmental rehabilitation trust funds (refer note 11) 134,247 126,069
Trade and other receivables (refer note 16)
65,717 41,493
Cash and cash equivalents
259,112 188,152
484,141 403,868
The following represents the maximum exposure to credit risk for trade and other receivables at June 30:
Carrying
Carrying
value
value
2011 2010
R'000 R'000
Trade receivables (gold) (refer note 16)
50,131 12,430
Receivables from related parties (refer note 16)
438 60
Other receivables (refer note 16)
15,148 29,003
65,717 41,493
The ageing of trade and other receivables at June 30:
Gross Impair-
Gross Impair-
value ment
value ment
2011 2011
2010 2010
R'000 R'000
R'000 R'000
Not past due
60,334 (159)
28,562 (315)
Past due 0-30 days
840 (53)
3,385 (345)
Past due 31-120 days
975 (496)
2,594 (1,490)
More than 120 days
10,834 (6,558)
19,834 (10,732)
72,983 (7,266)
54,375 (12,882)
Impairments were raised due to the uncertainty around the recoverability and timing of the cash flows.
Movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:
Impairment
Impairment
2011
2010
R'000
R'000
Balance at July 1
(12,882)
(8,314)
Impairment reversed/(recognized)
5,616
(4,568)
Balance at June 30
(7,266)
(12,882)
The group has no significant credit risk as the majority of the group’s receivables are from debtors with a good track record. The
impairment raised for debtors older than 120 days largely relates to the leasing of hostels.
F-58
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
LIQUIDITY RISK
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation.
The group ensures that it has sufficient cash on demand to meet expected operational expenses, including the servicing of
financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as
natural disasters.
Unless otherwise stated, the following are the contractual maturities of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements:
Carrying Contractual
6
months
6-12
More than
amount
cash flows
or less
months
2-5 years
5 years
R’000 R’000
R’000
R’000
R’000
R’000
June 30, 2011
Unsecured
Absa Domestic Medium Term Note
Programme
109,636 (116,517)
(84,135)
(1,582)
(30,800)
-
Preference shares held by Khumo
Gold SPV (Pty) Limited and the
DRDSA Empowerment Trust
(expected repayments)
10,137 (162,937)
-
-
-
(162,937)
Trade and other payables
325,737 (325,737) (325,737) - - -
445,510 (605,191)
(409,872)
(1,582)
(30,800)
(162,937)
June 30, 2010
Unsecured
Preference shares held by Khumo
Gold SPV (Pty) Limited and the
DRDSA Empowerment Trust
(expected repayments)
58,977
(197,803)
-
-
(34,722)
(163,081)
Trade and other payables
268,616 (268,616) (268,616) - - -
327,593 (466,419) (268,616) - (34,722) (163,081)
F-59
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
MARKET RISK
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
group's income or the value of its holding of financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while optimizing returns.
Commodity price sensitivity
The profitability of the group's operations, and the cash flows generated by those operations, are affected by changes in the
market price of gold which is predominantly sold in US Dollar. DRDGOLD does not enter into forward sales, derivatives or other
hedging arrangements to establish a price in advance for the sale of future gold production.
Interest rate risk
Fluctuations in interest rates impact on the value of short-term cash investments and financing activities, giving rise to interest
rate risks. In the ordinary course of business, the group receives cash from its operations and is obliged to fund working capital
and capital expenditure requirements. This cash is managed to ensure surplus funds are invested in a manner to achieve maximum
returns while minimizing risks. Funding deficits for the group's mining operations have been financed through the issue of
additional shares and external borrowings. Lower interest rates result in lower returns on investments and deposits and may also
have the effect of making it less expensive to borrow funds at then current rates. Conversely, higher interest rates result in higher
interest payments on loans and overdrafts.
The following represents the interest rate risk profile for the group's interest-bearing financial instruments:
2011
2010
Carrying
Carrying
value
value
2011
2010
R’000
R’000
Variable interest rate instruments
Financial assets
393,359
314,221
Financial liabilities
(109,636)
-
283,723
314,221
Cash flow sensitivity analysis for variable rate instruments:
A change of 100 basis points (bp) in interest rates at the reporting date would have increased/(decreased) profit/(loss) by the
amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The
analysis is performed on the same basis for 2010.
2011 2010
Profit/(loss)
Profit/(loss)
100 bp
100 bp
100 bp
100 bp
increase
decrease
increase decrease
June 30
R’000
R’000
R’000 R’000
Variable interest rate instruments
2,837
(2,837)
3,142 (3,142)
Cash flow sensitivity
2,837
(2,837)
3,142 (3,142)
F-60
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
Foreign currency risk
The group’s reporting currency is the South African Rand. Although gold is sold in US Dollars, the group is obliged to convert
this into South African Rand. The group is thus exposed to fluctuations in the US Dollar/South African Rand exchange rate. The
group conducted its operations in South Africa during the current year. Foreign exchange fluctuations affect the cash flow that it
will realize from its operations as gold is sold in US Dollars, while production costs are incurred primarily in South African
Rands. The group's results are positively affected when the US Dollar strengthens against the Rand and adversely affected when
the US Dollar weakens against the Rand.
The group's cash and cash equivalent balances are held in US Dollars and South African Rands; holdings denominated in other
currencies are relatively insignificant. The group does not hedge against foreign currency fluctuations and considers the risk to be
low due to foreign currency normally being disposed of on the same day. The group is also exposed to certain by-product
commodity price risk.
The following represents the exposure to foreign currency risks:
USD
USD
2011
2010
’000
’000
Cash and cash equivalents
30
-
Trade and other receivables
7,390
1,624
Net statement of financial position exposure
7,420
1,624
The following significant exchange rates applied during the year:
Spot rate at year-end
Average rate
2011
2010
2011
2010
1 US Dollar
6.8295
7.6529
6.9865
7.6117
Sensitivity analysis
A 10% strengthening of the Rand against the currencies mentioned at June 30, would have increased/(decreased) equity and
profit/(loss) by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain
constant. The analysis is performed on the same basis for 2010.
USD
USD
2011
2010
R’000
R’000
Equity
(55)
-
Loss
(5,013)
(1,243)
A 10% weakening of the Rand against the above currencies at June 30, would have had the equal but opposite effect on the above
currencies to the amounts shown above, on the basis that all other variables remain constant.
F-61
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
Other market price risk
Equity price risk arises from available-for-sale equity securities fair value adjustments accounted for in other comprehensive
income. Investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the
Risk Committee when significant.
CATEGORIES OF FINANCIAL INSTRUMENTS
The following table represents the carrying amounts and net gain/(loss), finance income and finance expense per category of
financial instruments at June 30:
Net gain/(loss),
finance income
Net gain/(loss),
finance income
Carrying
value
and finance
expense
Carrying
value
and finance
expense
2011
2011
2010
2010
R'000
R'000
R'000
R'000
Financial assets
Available-for-sale financial assets
14,987
6,013
14,712
-
Loans and receivables
469,154
20,421
389,156
22,519
484,141
26,434
403,868
22,519
Financial liabilities
Financial liabilities measured at amortized cost
445,510
13,716
327,593
6,175
445,510
13,716
327,593
6,175
FAIR VALUE HIERARCHY
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined
as follows:
-
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
-
Level 2: inputs other than quoted prices included within Level 1 that are observed for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
-
Level 3: inputs for the asset or liability that are not based on observed market data (unobserved inputs).
Level 1
Level 2
Level 3
Total
R'000 R'000 R'000 R'000
June 30, 2011
Available-for-sale financial assets
- -
14,987
14,987
- -
14,987
14,987
June 30, 2010
Available-for-sale financial assets
- -
14,712 14,712
- -
14,712 14,712
There have been no transfers in either direction between the different levels (2010: no transfers in either direction).
Reconciliation of fair value measurements in Level 3 during the year:
2011 2010
Level 3
Level 3
R'000
R'000
Available-for-sale financial assets
Balance at beginning of year
14,712
9,556
Purchases during the year
-
2
Gain on fair value adjustment
275
5,154
Balance at end of year
14,987
14,712
Gains recognized in other comprehensive income
275
5,154
The gain or loss on the fair value adjustment is recognized in other comprehensive income net of deferred tax.
F-62
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
FAIR VALUE HIERARCHY (continued)
The available-for-sale financial assets comprise investments in unlisted shares for which no reasonable alternative measure for
fair value is deemed appropriate. Therefore no sensitivity analysis has been prepared. The fair value of the Rand Refinery
Limited's unlisted shares is a director's valuation, which was made by using the net asset value of the group. The Rand Mutual
Assurance Company's fair value is also based on a directors' valuation of which the value per share is fixed at R0.20 between
shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table represents the carrying amounts and fair values of the group's financial instruments at June 30:
Carrying Fair
Carrying
Fair
value value
value
value
2011 2011
2010
2010
R’000 R’000
R’000
R’000
Financial assets
Unlisted investments (refer note 11)
14,987 14,987
14,712
14,712
Loans to black empowerment entities (refer note 11)
10,078 10,078
33,442
33,442
Investments in environmental rehabilitation trust funds
(refer note 11)
134,247
134,247
126,069
126,069
Trade and other receivables (refer note 16)
65,717 65,717
41,493
41,493
Cash and cash equivalents
259,112
259,112
188,152
188,152
484,141
484,141
403,868
403,868
Financial liabilities
Loans and borrowings (refer note 22)
– non-current
40,428 40,022
58,977
55,953
– current
79,345 79,345
-
-
Trade and other payables
325,737
325,737
268,616
268,616
445,510
445,104
327,593
324,569
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged between
knowledgeable, willing parties in an arm's length transaction.
Fair values
Trade and other receivables
The fair value approximates the carrying value due to their short-term maturities.
Loans to black empowerment entities
The fair value of these loans cannot be reliably estimated due to the unavailability of market information.
Preference shares held by Khumo Gold SPV (Pty) Limited and the DRDSA Empowerment Trust
Preference shares are measured at amortized cost based on expected future discounted cash flows. The original risk adjusted
discount rate of 13% is used when estimating the possible future liability and are re-measured on an annual basis. The original
risk adjusted discount rate is replaced with a risk adjusted market rate to determine a fair value on an annual basis.
Loans from Absa Domestic Medium Term Programme
Loans from the ABSA Domestic Medium Term Note Programme are measured at amortized cost using the three month
Johannesburg Inter-bank Acceptance Rate plus a margin ranging from 4% to 5% per annum. The loan bears interest at the three
month Johannesburg Inter-bank Acceptance Rate plus a margin ranging from 4% to 5% per annum. Fair value is calculated by
reference to quoted prices for floating interest instruments.
Cash and cash equivalents and environmental trust funds
The carrying value of cash and cash equivalents approximates their fair value due to the short-term maturity of these deposits.
The carrying value of the environmental trust funds approximates their fair value due to these investments being cash in nature.
F-63
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
24. FINANCIAL INSTRUMENTS (continued)
Fair values (continued)
Trade and other payables
The fair value approximates the carrying value due to their short-term maturities.
Unlisted investments
The valuations are based on the net asset values of these investments which constitutes the investments’ fair value.
25. CAPITAL MANAGEMENT
The primary objective of the Board of Directors in managing the group's capital is to ensure that there is sufficient capital
available to support the funding requirements of the group, including capital expenditure, in a way that optimizes the cost of
capital, maximizes shareholders' returns, and ensures that the group remains in a sound financial position. There were no changes
to the group's overall capital management approach during the current year. The group manages and makes adjustments to the
capital structure as opportunities arise in the market place, as and when borrowings mature, or as and when funding is required.
This may take the form of raising equity, market or bank debt or hybrids thereof.
The board monitors the return on capital, which the group defines as net operating income divided by total shareholders' equity,
excluding non-redeemable preference shares and non-controlling interest from continued operations, and seeks to maintain a
balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security
afforded by a sound capital position. The board also monitors the level of dividends to ordinary shareholders.
The group’s net debt to equity ratio as at June 30, was as follows:
2011
2010
R’000
R’000
Total liabilities
1,069,495
930,331
Less: Cash and cash equivalents
(259,112)
(188,152)
Net liabilities
810,383
742,179
Total equity
1,219,166
1,649,961
Net debt to equity ratio June 30
0.66
0.45
26. RELATED PARTY TRANSACTIONS
The group has related party relationships with its associates, joint ventures, subsidiaries, and with its directors and key
management personnel. Key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the group, directly or indirectly, including any director (whether executive or otherwise) of the
group. For the year ended June 30, 2011, total directors’ remuneration (short-term benefits) amounted to R15.6 million (2010:
R13.8 million and 2009: R16.4 million) which includes no end-of-contract payments (2010: Rnil and 2009: R1.4 million) long-
service awards consist of share-based payment expense amounting to R0.4 million (2010: R0.4 million and 2009: R0.8 million) as
well as a post-retirement medical benefit contributions of Rnil (2010: Rnil and 2009: Rnil) (refer note 5). Key management
personnel remuneration (short-term benefits) of R52.0 million (2010: R58.8 million and 2009: R58.6 million). For key
management, long-service awards consist of share-based payment expense amounting to R3.1 million (2010: R3.7 million and
2009: R7.0 million) as well as a post-retirement medical benefit liability of R5.5 million (2010: R12.5 million and 2009: R6.8
million).
Prior to the awarding of a contract to a related party for the supply of goods and services the group procurement manager reviews
both the pricing, quality and the reliability of that party. The contract terms are compared to similar suppliers of goods and
services to ensure that the contract is on market related terms.
The group’s executive directors review the terms and conditions of all loans to ensure that the terms of the loans are similar to
those offered by financial institutions.
Transactions with associates, joint ventures and subsidiary companies
During the year ended June 30, 2011, the company earned management fees from Ergo Mining Operations (Pty) Ltd (formerly
known as DRDGOLD South African Operations (Pty) Ltd) (Ergo Mining Operations) amounting to R23.3 million (2010: R34.6
million and 2009: R15.6 million) and interest of R26.8 milllion (2010: R33.3 million and 2009: R26.6 million), and from Blyvoor
amounting to R12.3 million (2010: Rnil and 2009: Rnil) and received interest amounting to R3.2 million (2010: Rnil and 2009:
Rnil), respectively. Transactions with associates are priced on an arm’s length basis.
F-64
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
26. RELATED PARTY TRANSACTIONS (continued)
Subsidiaries
The following information relates to the group’s financial interest in its subsidiaries at June 30, 2011:
ISSUED ORDINARY SHARE
CAPITAL
SHARES AT COST
LESS
IMPAIRMENTS
R’000
EFFECTIVE
DATE OF
ACQUISITION
INDEBTEDNESS
NET OF
IMPAIRMENTS
R’000
NUMBER OF
SHARES
% HELD
South Africa
Argonaut Financial Services (Pty) Limited 100
100
-
Oct
1, 1997
(1,055)
Crown Consolidated Gold Recoveries Limited 51,300,000
100
-
Sep 14, 1998
(245,316)
Ergo Mining Operations (Pty) Limited
1
1,000,000
74
113,177
Nov 14 , 2005
852,365
Hartebeestfontein Gold Mining Company Limited 1
100
-
Aug 16, 1999
-
Rand Leases (Vogelstruisfontein) Gold Mining
Company Limited
118,505,000
100
-
Jan 1, 1996
(42,092)
Roodepoort Gold Mine (Pty) Limited 1
100
-
Jan
1, 1996
-
West Witwatersrand Gold Holdings Limited
99,000,000
100
-
Apr 1, 1996
(22,996)
Guardrisk Insurance Company Limited (2) 20
100
100
Jul
1, 2008
-
ErgoGold -
35
52,551
Mar 31, 2009
161,450
Blyvooruitzicht Gold Mining Company Limited(3) 38 079 728 74 Sep 30, 2010
-
Total
165,828
702,356
1
2
3
Ergo Mining Operations (Pty) Limited (formerly DRDGOLD South African Operations (Pty) Limited) holds the following investments: 100% of East Rand
Proprietary Mines Limited (ERPM), 100% of Crown Gold Recoveries (Pty) Limited (Crown) and 100% of Ergo Mining (Pty) Limited (Ergo JV) and 65% of the
ErgoGold (formerly Elsburg Gold Mining Joint Venture) (unincorporated).
Guardrisk Insurance Company Limited is consolidated as a special purpose entity.
On September 30, 2010 following a restructuring exercise DRDGOLD now directly holds 74% interest in Blyvooruitzicht Gold Mining Company Limited.
F-65
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
26. RELATED PARTY TRANSACTIONS (continued)
Joint Ventures
The joint ventures for which the statement of comprehensive income and statement of financial position have been
proportionately consolidated are disclosed in note 13.
Rand Refinery agreement
The group has entered into an agreement with Rand Refinery Limited (Rand Refinery), for the refining and sale of all of its gold
produced in South Africa. Under the agreement, Rand Refinery performs the final refining of the group’s gold and casts it into
troy ounce bars. Rand Refinery then usually sells the gold on the same day as delivery for the London afternoon fixed price on
the day the gold is sold. In exchange for this service, the group pays Rand Refinery a variable refining fee plus fixed marketing,
loan and administration fees. Mr. Gwebu, Executive Officer: Legal, Compliance and Company Secretary of DRDGOLD, is a
director of Rand Refinery and a member of the Audit Committee and Remuneration Committee. Mr. Pretorius, CEO of
DRDGOLD, is also an alternate director of Rand Refinery. The group currently owns shares in Rand Refinery (which is jointly
owned by South African mining companies) (refer note 11). Trade receivables to the amount of R50.1 million (2010: R12.4
million) relate to metals sold. The group received a dividend of R6.0 million (2010: Rnil) from Rand Refinery.
Consultancy agreement
On June 23, 2008 Ergo Mining Operations approved a consultancy agreement with Khumo Gold, which owns 20% of Ergo
Mining Operations and Blyvoor. The agreement provides for a monthly retainer of R200,000.
During the year ended June 30, 2011, consultancy fees were paid to Mr. P Judge who is a shareholder of Khumo Gold amounting
to R0.5 million.
2011
2010
2009
R’000 R’000
R’000
Shares at cost, less impairment loss
165,828 165,828
165,828
Net indebtedness, less impairment loss
702,356
1,246,103
1,036,417
Amounts owing by subsidiaries
1,659,529 1,701,478
1,622,795
Impairments
(645,714)
(143,916)
(275,974)
Amounts owing to subsidiaries
(311,459) (311,459)
(310,404)
Net investment in subsidiaries
868,184 1,411,931
1,202,245
The non-operating entity loans are interest free and the operational
entity loans bear interest at prime minus four. The loans are unsecured
and without any fixed re-payment arrangements.
The interest of the company in the (loss)/profit after taxation
of its subsidiaries is:
Aggregate losses
(792,992) (84,845)
(163,271)
Aggregate profits
193,919 151,004
270,175
F-66
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
27. CASH GENERATED BY OPERATIONS
2011 2010 2009
R’000 R’000 R’000
(Loss)/profit before taxation
(383,226)
211,626 82,240
Adjusted for:
Depreciation
130,919
190,769 99,217
Movement in provision for environmental rehabilitation
52,567
(88,034) 19,545
Movement in gold in process
15,612
(29,941) (7,018)
Impairments
547,656
6,224 75,138
Profit on disposal of property, plant and equipment
(3,255)
(13,722) (10,266)
Share-based payments
3,519
4,115 7,873
Rehabilitation trust fund adjustment
339
- -
Post-retirement and other employee benefits
(3,038)
5,015 2,673
(Reversal of impairment)/impairment on trade receivables
(5,617)
4,568 113
Actuarial (gain)/loss on post-retirement and employee benefits
(5,651)
(35,290) 18,226
Finance income
(52,792)
(200,273) (205,991)
Finance expenses
22,047
24,132 41,743
Operating cash flows before working capital changes
319,080
79,189 123,493
Working capital changes
(3,277)
(31,453) 41,440
Change in trade and other receivables
(56,087)
19,650 156,042
Change in inventories
(10,417)
(10,070) (16,648)
Change in trade and other payables
63,227
(41,033) (97,954)
Cash generated by operations
315,803
47,736 164,933
F-67
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
28. CASH FLOW ON ACQUISITION OF SUBSIDIARIES, NET OF CASH
2011
2010
2009
R’000
R’000
R’000
Total net cash flow on acquisition of subsidiaries
DRDGOLD Limited (Cell No. 170)
-
-
(100)
ErgoGold
-
-
(277,721)
Ergo Mining (Pty) Limited
-
(40,396)
-
Blyvooruitzicht Gold Mining Company Limited
-
-
-
-
(40,396)
(277,821)
Acquisition of DRDGOLD Limited (Cell No. 170)
On July 1, 2008, DRDGOLD acquired 100% of a separate class of share in
Guardrisk Insurance Company Limited known as DRDGOLD Limited (Cell
No 170).
Cash flow on acquisition of subsidiary
-
- (100)
Acquisition of ErgoGold
On March 31, 2009, East Rand Proprietary Mines Limited and DRDGOLD
acquired 15% and 35% respectively, of ErgoGold from Mogale Gold
(Proprietary) Limited.
The fair value of the net assets acquired net of non-controlling interest were
as follows:
Property, plant and equipment
-
- 409,118
Inventories
-
- 8,236
Trade and other receivables
-
- 438
Amounts owing by group companies
-
- 13,975
Cash and cash equivalents
-
- 768
Deferred tax liability
-
- (85,586)
Trade and other payables
-
- (15,389)
Carrying value at time of acquisition
-
- 331,560
Less: Cash and cash equivalents acquired
-
- (833)
Negative goodwill on acquisition
-
- (53,006)
Cash flow on acquisition of subsidiary net of cash acquired
-
- (277,721)
Acquisition of Ergo Mining (Pty) Limited
On April 30, 2010 DRDGOLD acquired the remaining 50% interest in Ergo
Mining (Pty) Limited (Ergo JV) from Ergo Uranium (Pty) Limited for a total
consideration of R82.1 million, R62.1 million settled in cash and the balance
in shares in Witfontein Mining (Pty) Limited. A further R0.3 million was
incurred on transaction cost. DRDGOLD has consolidated 100% of the Ergo
JV from May 1, 2010. Prior to the acquisition, the Ergo JV was accounted for
as a joint venture (refer note 13).
Total cash consideration paid
-
(62,438) -
Add: Cash and cash equivalents of acquired entity
-
22,042 -
Cash flow on acquisition of subsidiary, net of cash acquired
-
(40,396) -
Acquisition of Blyvooruitzicht Gold Mining Company Limited (Blyvoor)
Effective September 30, 2010, DRDGOLD acquired a 74% interest in Blyvoor
from Ergo Mining Operations for a total consideration of R75.7 million settled
against Ergo Mining Operation’s inter-company loan with DRDGOLD. The
acquisition has been accounted for as an acquisition of an entity under common
control (refer note 12).
Total cash consideration paid
- -
-
F-68
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
29. CASH FLOW ON ACQUISITION/DISPOSAL OF JOINT VENTURES, NET OF CASH
2011
2010
2009
R’000
R’000
R’000
Acquisition of Witfontein Mining (Pty) Limited
On February 28, 2009, DRDGOLD through its subsidiary Argonaut Financial
Services (Pty) Limited acquired a 50% interest in Witfontein Mining (Pty)
Limited and entered into a joint venture agreement with Mintails SA (Pty)
Limited which owns the remaining 50%.
Cash flow on acquisition of joint venture
-
-
(20,000)
Disposal of Witfontein Mining (Pty) Limited
On April 30, 2010, Argonaut Financial Services (Pty) Limited disposed of its
50% interest in the Witfontein Mining (Pty) Limited joint venture for R20.0
million. No cash consideration was received as this disposal formed part of the
purchase consideration paid (value of R20.0 million) for the acquisition of the
remaining 50% interest in the Ergo JV.
The carrying value of the net asset disposed of were as follows:
Property, plant and equipment
-
28,809
-
Trade and other receivables
-
47
-
Cash and cash equivalents
-
166
-
Trade and other payables
-
(10,522)
-
Carrying value at time of disposal
-
18,500
-
Total cash consideration received
-
-
-
Less: Cash and cash equivalents of disposed entity
-
(166)
-
Cash flow on disposal of joint venture
-
(166)
-
Acquisition of Chizim Gold (Pvt) Limited
During the year ended June 30, 2011, the group entered into a 50:50 joint
venture in a start-up company called Chizim Gold (Pvt) Limited for a
nominal cash consideration amounting to $1 (refer note 13).
Cash flow on acquisition of joint venture
-
-
-
30. CASH FLOW ON ACQUISITION OF ASSOCIATE
Acquisition of West Wits SA (Pty) Limited
In January 2009, DRDGOLD acquired a 28.33% interest in West Wits SA
(Pty) Limited.
Cash flow on investment in associate
-
-
(2,700)
F-69
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
2011
2010
2009
R’000
R’000
R’000
31. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand, demand deposits and
highly liquid investments with an original maturity of three months or less.
Included in cash and cash equivalents is restricted cash in a form of a
guarantee relating to the rehabilitation of the Brakpan tailings dam, given to
AngloGold Ashanti Limited amounting to R43.0 million (2010: R43.0
million and 2009: R34.4 million). Further guarantees are held by Guardrisk
amounting to R8.3 million (2010: R8.3 million and 2009: R9.7 million), and
by Standard Bank of South Africa Limited, amounting to R24.3 million
(2010: R17.9 million and 2009: R18.1 million).
Cash and cash equivalents
259,112
188,152
353,555
Bank overdrafts
-
-
(824)
259,112
188,152
352,731
32. CASH FLOWS RELATING TO EXPLORATION ASSETS
Investing cash flow
17,210
57,993
27,401
33. SUBSEQUENT EVENTS
Extension granted for publication of Blyvoor rescue plan
On 17 August 2011, DRDGOLD Limited has announced that its 74%-owned subsidiary, Blyvooruitzicht Gold Mining Company
Limited (Blyvoor), currently involved in a business rescue process in terms of Chapter 6 of the Companies Act, has been granted
an extension by the Southern Gauteng High Court of South Africa (Johannesburg) until 1 November 2011 to publish a business
rescue plan. On 20 October 2011, further extension has been granted till 2 December 2011, for the business rescue process in terms
of section 132(3) of the Companies Act 2008; further extension may, however, be granted.
Interested parties had until 13 September 2011 to show cause why the order granting the extension should not be confirmed.
In court papers motivating for the extension, Blyvoor’s registered business rescue practitioner, Peter van den Steen, stated that
various processes critical to finalisation of the business rescue plan were ongoing and would require additional time to conclude.
These included:
• discussions on terms with key creditors;
• wage negotiations with unions and associations;
• negotiations with neighbouring mining companies regarding asset acquisitions; and
• on-mine measures to improve labour, energy and water efficiencies.
Anglogold Ashanti offers to sell Savuka mining area to Blyvoor
On 14 July 2011, Blyvoor received an indicative offer from AngloGold Ashanti Limited (AngloGold Ashanti), which was subject
to the finalisation of a definitive agreement. The AngloGold Ashanti offer involves the sale to Blyvoor of some 390 000 square
metres of its neighbouring Savuka mining area for R35.0 million. The area is not within AngloGold Ashanti’s current mine
planning. Pending the necessary regulatory approvals and subject to the finalisation of a binding agreement, Blyvoor will mine
the area under contract.
Blyvoor gives notice of intention to reduce employee numbers
On September 27, 2011, DRDGOLD announced that the Business Rescue Practitioner overseeing business rescue proceedings at
its 74%-owned Blyvooruitzicht Gold Mining Company Limited (“Blyvoor”) has given notice of Blyvoor’s intention to enter a 60-
day consensus-seeking process in terms of Section 189 (3) of the Labour Relations Act with the National Union of Mineworkers
and UASA – The Union, to consider reducing employee numbers by approximately 500 people.
The reason for the need to consider the reduction is that Blyvoor – under business rescue proceedings in terms of Chapter 6 of the
Companies Act since June this year – has been unable to meet production and financial targets, a situation exacerbated by higher
utility costs.
F-70
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended June 30, 2011
33. SUBSEQUENT EVENTS (continued)
Blyvoor gives notice of intention to reduce employee numbers (continued)
Blyvoor is proposing voluntary separation and application of the principle of “last in, first out” as among the mechanisms to be
applied to effect the required reduction in employee numbers.
Measures currently under consideration to achieve a targeted 30% improvement in the cost of production in R/kg terms, and thus
to avoid employee reduction, include:
• a reduction in overtime expenditure;
• an increase in available face time and subsequent re-organisation of shifts;
• a re-evaluation of the profitability of 6 Shaft, 4 Shaft and the Reef Picking Project;
• a reduction of departmental costs by 10%; and
• revised mining plans.
116
ITEM 19. EXHIBITS
The following exhibits are filed as a part of this Annual Report:
1.1
(1)
Memorandum of Association of DRDGOLD Limited.
1.2
(7)
Articles of Association of DRDGOLD Limited, as amended on November 8, 2002.
1.3
(1)
Excerpts of relevant provisions of the South African Companies Act.
1.4
(2)
Durban Roodepoort Deep (1996) Share Option Scheme as amended.
2.1
(1)
Excerpts of relevant provisions of the Johannesburg Stock Exchange Listings Requirements.
2.2
(7)
Indenture between DRDGOLD Limited, as Issuer, and The Bank of New York, as Trustee, dated November 12, 2002.
2.3
(7)
Purchase Agreement between DRDGOLD Limited and CIBC World Markets Corp., dated November 4, 2002.
2.4
(7)
Registration Rights Agreement between DRDGOLD Limited and CIBC World Markets Corp., dated
November 12, 2002.
2.5
(7)
DRDGOLD Limited 6% Senior Convertible Note Due 2006 in the amount of $61,500,000 issued pursuant to Rule
144A of the Securities Act of 1933, as amended.
2.6
(7)
DRDGOLD Limited 6% Senior Convertible Note Due 2006 in the amount of $4,500,000 issued pursuant to
Regulation S under the Securities Act of 1933, as amended.
4.1
(1)
Tribute Agreement, dated October 9, 1992, between DRDGOLD Limited and Rand Leases.
4.2
(1)
Service Agreement, dated July 27, 1995, between DRDGOLD Limited and Randgold.
4.3
(1)
Agreement, dated September 28, 1995, among First Westgold Mining (Proprietary) Limited, DRDGOLD Limited and
Rand Leases in respect of purchase of assets of First Westgold by Rand Leases.
4.4
(2)
Pumping Assistance, dated October 14, 1997, for the 1997/1998 fiscal year from the Minister of Mineral and Energy
Affairs – Republic of South Africa to DRDGOLD Limited.
4.5
(3)
Deposit Agreement among DRDGOLD Limited, The Bank of New York as Depositary, and owners and holders of
American Depositary Receipts, dated as of August 12, 1996, as amended and restated as of October 2, 1996, as further
amended and restated as of August 6, 1998, as further amended and restated July 23, 2007.
4.6
(4)
Security Agreement, dated November 5, 1998, between The Chase Manhattan Bank, DRDGOLD Limited, Blyvoor,
Buffels and West Wits.
4.7
(4)
Loan Agreement, dated June 8, 1999, between Industrial Development Corporation of South Africa Limited, Crown
and DRDGOLD Limited.
4.8
(4)
Lender Substitution Deed, dated August 18, 1999, between DRDGOLD Limited, DRD Australasia, NM Rothschild &
Sons (Singapore) Limited, NM Rothschild & Sons (Australia) Limited, as agent in its own capacity, and Rothschild
Nominees (Pty) Limited.
4.9
(4)
A $10m Facility Agreement, dated September 10, 1999, between DRDGOLD Limited, DRD Australasia and NM
Rothschild & Sons (Australia) Limited.
4.10
(4)
Facility Agreement, dated August 9, 1996, between PT Barisan Tropical Mining, Rothschild Australia Limited and the
Participants.
4.11
(4)
Deposit Agreement, dated September 30, 1999, between Buffels and BOE Merchant Bank, a division of BOE Bank
Limited.
4.12
(4)
Undertaking and Security Agreement, dated November 17, 1999, between BOE Bank Limited, through its division
BOE Merchant Bank, and Buffels.
4.13
(4)
Guarantee and Indemnity Agreement, dated November 17, 1999, between DRDGOLD Limited, Blyvoor, Argonaut
Financial Services (Proprietary) Limited, West Wits, Crown and BOE Bank Limited, through its division BOE
Merchant Bank.
4.14
(4)
Loan Security Agreement, dated November 17, 1999, between FBCF Equipment Finance (Proprietary) Limited and
Buffels.
4.15
(4)
Sale of Business Agreement in respect of Harties, dated August 16, 1999, between Avgold Limited, Buffels and
DRDGOLD Limited.
4.16
(4)
Form of Restraint Agreement.
4.17
(4)
Sale of Shares Agreement, dated September 29, 1997, between RMP Properties Limited, Randgold, Crown, City Deep
Limited, Consolidated Main Reef Mines and Estate Limited, Crown Mines Limited, RMP Properties SA Limited and
Industrial Zone Limited.
4.18
(5)
Form of Non-Executive Employment Agreement.
4.19
(5)
Form of Executive Employment Agreement.
4.20
(5)
Share Sale Option Agreement, dated March 12, 1993, between Newmont Proprietary Limited, Ballimore No. 56
Proprietary Limited, Clayfield Proprietary Limited and Dome Resources N.L.
4.21
(5)
Convertible Loan Agreement, dated November 19, 1997, between Tolukuma Gold Mines Proprietary Limited, Dome
Resources N.L. and Mineral Resources Development Company Proprietary Limited.
4.22
(5)
First Deed of Variation of Loan Agreement, between Mineral Resources Development Company Pty Limited, Dome
Resources N.L. and Tolukuma Gold Mines Pty Limited.
4.23
(5)
Agreement, dated February 21, 2000, between DRDGOLD Limited and Western Areas Limited.
4.24
(5)
Independent Auditor’s Report from PricewaterhouseCoopers to the Board of Directors and Shareholders of Crown
Consolidated Gold Recoveries Limited, dated August 28, 2000.
117
4.25
(5)
Shareholders’ Agreement, dated September 29, 2000, between DRDGOLD Limited, Fraser Alexander Tailings
(Proprietary) Limited and Mine Waste Solutions (Proprietary) Limited.
4.26
(5)
First Addendum to the Agreement, dated November 15, 2000, between DRDGOLD Limited and Western Areas
Limited.
4.27
(5)
Second Addendum to the Agreement, dated December 21, 2000, between DRDGOLD Limited and Western Areas
Limited.
4.28
(6)
Agreement between DRDGOLD Limited, Western Areas Limited, Consolidated African Mines Limited and JCI Gold
Limited, dated April 25, 2001.
4.29
(6)
Addendum to the Agreement between DRDGOLD Limited, Western Areas Limited, Consolidated African Mines
Limited and JCI Gold Limited, dated August 31, 2001.
4.30
(6)
Addendum to the Agreement between DRDGOLD Limited, Western Areas Limited, Consolidated African Mines
Limited and JCI Gold Limited, dated September 26, 2001.
4.31
(6)
Guarantee and Cession in Securitatem Debiti Agreement between DRDGOLD Limited and Investec Bank Limited,
dated October 9, 2001.
4.32
(6)
Second Deed of Variation of Loan Agreement between Tolukuma Gold Mines Limited, Dome Resources NL and
Mineral Resources Development Company Limited, dated June 28, 2001.
4.33
(6)
Principal Terms and Conditions for Waiving Right to Declare Default and Enforce Security Deed under 1993 Purchase
Agreement between Newmont Second Capital Corporation, Tolukuma Gold Mines (Pty.) Limited, Dome Resources
(PNG) Pty. Limited, Dome Resources NL and DRDGOLD Limited, dated July 16, 2001.
4.34
(6)
Loan Agreement between Bank of South Pacific Limited and Tolukuma Gold Mines Limited, dated November 8,
2001.
4.35
(7)
Master Finance Lease between Volvo Truck Finance Australia (Pty) Ltd and Dome Resources N.L., dated
November 1, 2000.
4.36
(7)
Agreement between DRDGOLD Limited and Rand Refinery Ltd, dated October 12, 2001.
4.37
(7)
Share Purchase Agreement between Crown Consolidated Gold Recoveries Ltd, The Industrial Development
Corporation of South Africa Ltd, Khumo Bathong Holdings (Pty) Ltd and DRDGOLD Limited, dated June 12, 2002.
4.38
(7)
Shareholder’s Agreement between The Industrial Development Corporation of South Africa Limited, Khumo Bathong
Holdings (Pty) Ltd, Crown Consolidated Gold Recoveries Ltd, and Crown Gold Recoveries (Pty) Ltd and DRDGOLD
Limited, dated June 12, 2002.
4.39
(7)
Addendum to Shareholder’s Agreement between The Industrial Development Corporation of South Africa Limited,
Khumo Bathong Holdings (Pty) Ltd, Crown Consolidated Gold Recoveries Ltd, Crown Gold Recoveries (Pty) Ltd and
DRDGOLD Limited, dated June 14, 2002.
4.40
(7)
Subscription Agreement between Khumo Bathong Holdings (Pty) Limited and DRDGOLD Limited, dated
June 12, 2002.
4.41
(7)
Loan Agreement between DRDGOLD Limited and Khumo Bathong Holdings (Pty) Ltd, dated June 12, 2002.
4.42
(7)
Memorandum of Loan Agreement No. 1 between Durban Roodepoort Deep and Crown Gold Recoveries (Pty) Ltd,
dated June 12, 2002.
4.43
(7)
Memorandum of Loan Agreement No. 2 between DRDGOLD Limited and Crown Gold Recoveries (Pty) Ltd, dated
June 12, 2002.
4.44
(7)
Memorandum of Loan Agreement No. 3 between Crown Consolidated Gold Recoveries Ltd and Crown Gold
Recoveries (Pty) Ltd, dated June 12, 2002.
4.45
(7)
Loan Agreement between Industrial Development Corporation of South Africa Ltd and Blyvooruitzicht Gold Mining
Company Ltd, dated July 18, 2002.
4.46
(7)
Agreement of Loan and Pledge between DRDGOLD Limited and East Rand Proprietary Mines Limited, dated
September 12, 2002.
4.47
(7)
Management Services Agreement between DRDGOLD Limited, Khumo Bathong Holdings (Pty) Ltd and Crown Gold
Recoveries (Pty) Ltd, dated October 1, 2002.
4.48
(7)
Agreement amongst DRDGOLD Limited, West Witwatersrand Gold Mines Limited and Bophelo Trading (Pty) Ltd,
dated June 12, 2002.
4.49
(7)
Letter Agreement between DRDGOLD Limited and The Standard Bank of South Africa, represented by its Standard
Corporate and Merchant Bank Division, dated October 7, 2002.
4.50
(7)
Memorandum of Agreement between Daun Et Cie A.G., Courthiel Holdings (Pty) Ltd, Khumo Bathong Holdings
(Pty) Ltd, Claas Edmond Daun, Paul Cornelis Thomas Schouten, Moltin Paseka Ncholo, Michelle Patience Baird,
Derek Sean Webbstock, as sellers, and Crown Gold Recoveries (Pty) Ltd, as purchaser, dated October 10, 2002.
4.51
(7)
Memorandum of Loan Agreement between DRDGOLD Limited and Crown Gold Recoveries (Pty) Ltd, dated
October 10, 2002.
4.52
(7)
Letter Agreement Relating to Consultancy Arrangement between DRDGOLD Limited and Nicolas Goodwin, dated
October 15, 2002.
4.53
(7)
Management Services Agreement between DRDGOLD Limited and East Rand Proprietary Mines Ltd, dated October
10, 2002.
4.54
(7)
Agreement for sale of shares in Emperor Mines Limited, between DRD (Isle of Man) Limited and Kola Ventures
Limited, dated December 13, 2002.
4.55
(8)
Confirmation, dated August 14, 2003, between DRDGOLD Limited and Investec Bank (Mauritius) Limited.
4.56
(8)
Amendment to Confirmation, dated September 4, 2003, between DRDGOLD Limited and Investec Bank (Mauritius)
Limited.
118
4.57
(9)
Deed of Amalgamation for the Corporate Restructuring of Orogen Minerals (Porgera) Limited, Mineral Resources
Porgera Limited and Dome Resources (PNG) Limited, dated October 14, 2003.
4.58
(9)
Undertaking, between Oil Search Limited and DRD (Isle of Man) Limited, dated October 14, 2003.
4.59
(9)
Loan Assignment Agreement between Orogen Minerals Limited, DRD (Isle of Man) Limited and Orogen Minerals
(Porgera) Limited, dated October 14, 2003.
4.60
(9)
Agreement between Orogen Minerals Limited and DRD (Isle of Man) Limited, dated October 14, 2003.
4.61
(9)
Loan Assignment Agreement, between Dome Resources (PNG) Limited, Dome Resources Pty Limited, DRD (Isle of
Man) Limited and Tolukuma Gold Mines Limited, dated November 21, 2003.
4.62
(9)
Memorandum of Agreement made and entered into between DRDGOLD Limited, West Witwatersrand Gold Mines
Limited, Mogale Gold (Proprietary) Limited and Luipaards Vlei Estates (Proprietary) Limited dated June 6, 2003.
4.63
(10)
Porgera Joint Venture Operating Agreement between Placer (P.N.G.) Pty Limited and Highlands Gold Properties Pty.
Limited and PGC (Papua New Guinea) Pty Limited, dated November 2, 1988.
4.64
(10)
Agreement of Employment between DRDGOLD Limited and Mr. D.J.M. Blackmur, dated as of October 21, 2003.
4.65
(10)
Banking Facilities Agreement made and entered between DRDGOLD Limited and Standard Bank of South Africa,
Limited, dated November 14, 2003.
4.66
(10)
Agreement of Employment between DRDGOLD Limited and Mr. M.M. Wellesley-Wood, dated as of December 1,
2003.
4.67
(10)
Service Agreement between DRD (Isle of Man) Limited and Mr. M.M. Wellesley-Wood, dated as of December 1,
2003.
4.68
(10)
Agreement of Employment between DRDGOLD Limited and Mr. I.L. Murray, dated as of December 1, 2003.
4.69
(10)
Service Agreement between DRD (Isle of Man) Limited and Mr. I.L. Murray, dated as of December 1, 2003.
4.70
(10)
Subscription and Option Agreement made and entered between DRD (Isle of Man) Limited, Net-Gold Services
Limited and G.M. Network Limited, dated January 26, 2004.
4.71
(10)
Forward Bullion Transaction Agreements made and entered between DRDGOLD Limited and Investec Bank Limited,
dated February 4, 2004, February 6, 2004, February 10, 2004, February 11, 2004 and February 12, 2004.
4.72
(10)
Loan Agreement made and entered between DRDGOLD Limited and Investec Bank Limited, dated June 24, 2004.
4.73
(10)
Termination Agreement made and entered between DRDGOLD Limited, Eskom Holdings Limited and Investec Bank
Limited, dated June 24, 2004.
4.74
(10)
Novation Agreement made and entered between J Aron & Company, Eskom Holdings Limited and Investec Bank
Limited, dated June 24, 2004.
4.75
(10)
Memorandum of Understanding made and entered between Buffelsfontein Gold Mines Limited, Buffelsfontein
Division and The National Union of Mineworkers, The United Association of South Africa, The Mine Workers
Union (Solidarity) and The South African Electrical Workers Association regarding retrenchments associated with
No. 9, 10 and 12 Shafts of Buffelsfontein Division, dated August 6, 2004.
4.76
(10)
CCMA Settlement Agreement made and entered between Blyvooruitzicht Gold Mining Company Limited and The
United Association of South Africa, South African Equity Workers’ Association, Solidarity and The National
Union of Mineworkers regarding the retrenchment of up to 2,000 employees of the Blyvooruitzicht Gold Mining
Company, dated September 2, 2004.
4.77
(10)
Loan Agreement made and entered between DRDGOLD Limited and Investec Bank Limited, dated September 15,
2004.
4.78
(10)
Subscription Agreement made and entered between DRD (Isle of Man) Limited and DRDGOLD Limited, dated
September 21, 2004.
4.79
(10)
Common Terms Agreement of Loan made and entered between DRD (Isle of Man) Limited and Investec Bank
(Mauritius) Limited, dated October 14, 2004.
4.80
(10)
Facility A Loan Agreement made and entered between DRD (Isle of Man) Limited and Investec Bank (Mauritius)
Limited, dated October 14, 2004.
4.81
(11)
Loan Agreement made and entered between DRDGOLD Limited and Investec Bank Limited, dated December 10,
2004.
4.82
(11)
Subscription Agreement between DRDGOLD Limited and Baker Steel Capital Managers LLP (BSCM), dated April 7,
2005.
4.83
(11)
Underwriting Agreement between DRDGOLD Limited, the Baker Steel Capital Managers LLP (BSCM) and certain
underwriters, dated April 5, 2005.
4.84
(11)
Memorandum of Agreement between DRDGOLD Limited, Simmer & Jack Mines Limited and Simmer & Jack
Investments (Proprietary) Limited (S&J Companies), dated August 31, 2005.
4.85
(11)
Cession Agreement entered into among The Industrial Development Corporation of South Africa Limited (IDC),
DRDGOLD Limited, Business Ventures Investment No. 750 (Pty) Ltd and Business Ventures Investment No. 751
(Pty) Ltd (the BVI Companies), dated July 13, 2005.
4.86
(11)
Share Sale Agreement entered into among The Industrial Development Corporation of South Africa Limited (IDC),
DRDGOLD Limited, Business Ventures Investment No. 750 (Pty) Ltd (BVI 1) and Business Ventures Investment No.
751 (Pty) Ltd (BVI 2), dated July 13, 2005.
4.87
(11)
Term Sheet concluded between DRDGOLD Limited and Khumo Bathong Holdings (Pty) Ltd (KBH), dated
July 6, 2005.
4.88
(11)
Facility B Loan Agreement between Investec Bank (Mauritius) Limited and DRD (Isle of Man)
Limited (DRDIOM), dated March 3, 2005.
119
4.89
(11)
Convertible Loan Facility Agreement between DRDGOLD Limited and Emperor Mines Limited (Emperor), dated
July 8, 2005.
4.90
(11)
Agreement of Employment between DRDGOLD Limited and Mr. J.W.C. Sayers, dated as of August 10, 2005.
4.91
(11)
Option Agreement entered into by and between DRDGOLD Limited and M5 Developments (Pty) Limited, dated July
21, 2005.
4.92
(11)
Share Sale Agreement between DRD (Offshore) Limited, DRDGOLD Limited and Emperor Mines Limited, dated
November 16, 2005.
4.93
(12)
Deed of Loan, Cession, Payment and Set-Off entered into between DRDGOLD Limited, East Rand Proprietary
Mines Limited, Crown Gold Recoveries (Pty) Limited and Blyvooruitzicht Gold Mining Company Limited, dated
November 7, 2005.
4.94
(12)
Share Sale Agreement between Business Venture Investments 750 (Pty) Ltd and DRDGOLD South African
Operations (Pty) Limited, dated November 8, 2005.
Share Sale Agreement between Business Venture Investments 751 (Pty) Limited and DRGOLD South African
Operations (Pty) Limited, dated November 8, 2005.
4.95
(12)
Subscription Agreement between DRDGOLD Limited and DRDGOLD South African Operations (Pty) Limited,
dated November 9, 2005.
4.96
(12)
Share Sale Agreement between Crown Consolidated Gold Recoveries Limited and DRDGOLD South African
Operations (Pty) Limited, dated November 14, 2005.
4.97
(12)
Subscription Agreement between DRDGOLD South African Operations (Pty) Limited and Khumo Gold SPV (Pty)
Limited, dated November 18, 2005.
4.98
(12)
Subscription Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited, dated
November 18, 2005.
4.99
(12)
Cession Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited and Khumo Bathong
Holdings (Pty) Limited, dated November 18, 2005.
4.100
(12)
Cession Agreement between DRDGOLD Limited and The Industrial Development Corporation of South Africa
Limited and Business Venture Investments No. 750 (Pty) Limited and Business Venture Investments No. 751 (Pty)
Limited, dated November 18, 2005.
4.101
(12)
Option Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited and DRDGOLD South
African Operations (Pty) Limited, dated November 18, 2005.
4.102
(12)
Offer of Class A Preference Share between Khumo Gold SPV (Pty) Limited and East Rand Proprietary Mines
Limited, dated November 18, 2005.
4.103
(12)
Offer of Class A Preference Share between Khumo Gold SPV (Pty) Limited and Blyvooruitzicht Gold Mining
Company Limited, dated November 18, 2005.
4.104
(12)
Offer of Class A Preference Share between Khumo Gold SPV (Pty) Limited and Crown Gold Recoveries (Pty)
Limited, dated November 18, 2005.
4.105
(12)
Shareholders’ Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited and DRDGOLD
South African Operations (Pty) Limited, dated November 24, 2005.
4.106
(12)
Sale and Subscription Agreement between DRDGOLD Limited and DRD (Offshore) Limited, dated
January 4, 2006.
4.107
(12)
Share Sale Agreement between DRD (Isle of Man) Limited and DRD (Offshore) Limited, dated February 22, 2006.
4.108
(12)
Restructure Deed between DRD (Offshore) Limited and DRD (Isle of Man) Limited and Emperor Mines Limited
and Emperor Gold Mining Company Limited and Australia and New Zealand Banking Group Limited, dated
February 24, 2006.
4.109
(12)
Facility Agreement between DRD (Porgera) Limited and Tolukuma Gold Mines Limited and Australia and New
Zealand Banking Group Limited, dated March 20, 2006.
4.110
(12)
Settlement of Loans Agreement between DRD (Isle of Man) Limited and DRD (Offshore) Limited, dated March
23, 2006.
4.111
(14)
Option Exercise Agreement between DRDGOLD Limited, Khumo Gold SPV (Pty) Limited and the Trustees for the
time being of the DRDSA Empowerment Trust dated October 10, 2006.
4.112
(14)
Class B Preference Share Subscription Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty)
Limited dated October 24, 2006.
4.113
(14)
Three Class B Preference Share Subscription Agreements between Khumo Gold SPV (Pty) Limited and
Blyvooruitzicht Gold Mining Company Limited, Crown Gold Recoveries (Pty) Limited and East Rand Proprietary
Mines Limited, dated October 24, 2006.
4.114
(14)
Three Class C Preference Share Subscription Agreements between the Trustees for the time being of the DRDSA
Empowerment Trust and Blyvooruitzicht Gold Mining Company Limited, Crown Gold Recoveries (Pty) Limited
and East Rand Proprietary Mines Limited, dated October 24, 2006.
4.115
(14)
Share Sale Agreement between Emperor Mines Limited and Westech Gold (Pty) Limited, dated March 22, 2007,`
regarding the disposal of its Fijian assets.
4.116
(14)
Joint Venture Interest Sale Deed – Procurement Deed between Barrick Gold Corporation, or Barrick, and Emperor
Mines Limited, dated April 12, 2007.
4.117
(14)
Subscription Agreement between Emperor Mines Limited and Barrick Gold Corporation, dated April 12, 2007.
4.118
(14)
Joint Venture Interest Sale Deed between Barrick Gold Corporation, Barrick (Niugini) Limited, Emperor Mines
Limited and DRD (Porgera) Limited dated July 19, 2007.
120
4.119
(14)
Deed of Assignment and Assumption between Barrick (Niugini) Limited (“Buyer”), DRD (Porgera) Limited
(“Seller”), Barrick (Goldfields PNG Holdings) Limited (“Goldfields”) and Minerals Resources Enga Limited
(“MRE”) (collectively “the parties”) dated July 19, 2007.
4.120
(14)
Memorandum of Agreement between Anglo Gold Ashanti Limited, Friedshelf 849 (Proprietary) Limited (renamed
Ergo Mining (Pty) Limited), DRDGOLD South African Operations (Pty) Limited and Mintails SA (Pty) Limited,
dated August 6, 2007.
4.121
(14)
Merger Implementation Deed between Emperor Mines Limited and Intrepid Mines Limited, dated
September 18, 2007.
4.122
(14)
Mandate for the Placement of DRD (Offshore) Limited’s 78.72% Shareholding in Emperor Mines Limited, dated
September 28, 2007.
4.123
(14)
Term Sheet for the joint venture agreement entered into by Acorn Gold (Proprietary) Limited, DRDGOLD Limited,
Durban Roodepoort Deep (Proprietary) Limited, Friedshelf 850 (Proprietary) Limited, Geotorm Investments
Limited, Kgosi Resource Management (Proprietary) Limited, Minerals and Mining Reclamation Services
(Proprietary) Limited, Mintails SA (Proprietary) Limited, West Witwatersrand Gold Mines Limited, West
Witwatersrand Holdings Limited, West Wits Mining Limited, West Wits Mining SA (Proprietary) Limited, dated
November 9, 2007.
4.124
(15)
Third Addendum to Memorandum of Agreement between AngloGold Ashanti Limited (“AGA”), Ergo Mining
(Pty) Limited (formerly called Friedshelf 849 (Pty) Limited) (“Ergo”), DRDGOLD South African Operations (Pty)
(“DRDGOLD SA”) Mintails South Africa (Pty) Limited dated November 14, 2007.
4.125
(15)
Fifth Addendum to Memorandum of Agreement between AngloGold Ashanti Limited (“AGA”), Ergo Mining (Pty)
Limited (formerly called Friedshelf 849 (Pty) Limited (“Ergo”), DRDGOLD South African Operations (Pty)
(“DRDGOLD SA”) Mintails South Africa (Pty) Limited dated May 22, 2008.
4.126
(15)
Mining User Contract between Crown Gold Recoveries (Pty) Limited (“Crown”), East Rand Proprietary Mines
Limited (“ERPM”), Elsburg Gold Mining Joint Venture (“Elsburg JV”), Ergo Mining (Pty) Limited (“Ergo”), Ergo
Uranium (Pty) Limited (“Ergo Uranium”) and Mogale Gold (Pty) Limited (“Mogale Gold”) dated August 15, 2008
4.127
(15)
Ergo Uranium Sale Agreement of Brakpan Plants to Ergo Mining between Ergo Uranium (Pty) Limited (“Ergo
Uranium”) and Ergo Mining (Pty) Limited (“Ergo”) dated August 15, 2008.
4.128
(15)
Ergo Mining Shareholders’ Agreement between Crown Gold Recoveries (Pty) Limited (“Crown”) and Ergo
Uranium (Pty) Limited (“Ergo Uranium”) dated August 15, 2008.
4.129
(15)
Elsburg Gold Mining Joint Venture (“Elsburg JV”) Agreement between East Rand Proprietary Mines Limited
(“ERPM”) and Mogale Gold (Pty) Limited (“Mogale Gold”) dated August 15, 2008.
4.130
(15)
Mogale Sale of Part Venture Interest in the Elsburg Gold Mining Joint Venture (“Elsburg JV”) between East Rand
Proprietary Mines Limited (“ERPM”) and Mogale Gold (Pty) Limited (“Mogale Gold”) dated September 29, 2008.
4.131
(16)
Heads of Agreement entered into by Mintails Limited, Mogale Gold (Pty) Limited (“Mogale Gold”), Ergo Mining
(Pty) Limited (“Ergo Joint Venture”), DRDGOLD Limited (“DRDGOLD”) and East Rand Proprietary Mines
Limited (“ERPM”), dated December 8, 2008.
4.132
(16)
Loan Facility entered into by Mintails South Africa (Pty) Limited (“Borrower”), DRDGOLD Limited (“Lender”),
Mintails Limited (“Borrower’s Guarantor”), Mogale Gold (Pty) Limited (Mogale Gold”) Ergo Uranium (Pty)
Limited (“Ergo Uranium”) dated December 8, 2008.
4.133
(16)
Subscription and shareholders’ Agreement entered into by Mintails SA (Proprietary) Limited (“Mintails SA”),
Witfontein Mining (Proprietary) Limited (“Witfontein”) and Argonaut Financial Services (Proprietary) Limited
(“Argonaut”) dated December 9, 2008.
4.134
(16)
4.135
(17)
4.136
(17)
4.137
(17)
Facility Agreement between Investec Bank limited (“the Lender”) and DRDGOLD Limited (“the Borrower”) dated
March 31, 2009.
Final Heads of Agreement between Chizim Investments (Pvt) Limited (“Chizim”) and DRDGOLD Limited
(“DRDGOLD”) dated December 9, 2009.
Memorandum of Agreement between Ergo Uranium (Pty) Ltd (“Ergo Uranium”) and East Rand Proprietary Mines
Limited (“ERPM”) dated January 21, 2010.
Heads of Agreement between East Rand Proprietary Mines Limited (“ERPM”) and Aurora Empowerment System
(Pty) Limited (“Aurora”) dated January 22, 2010.
4.138
(17)
Domestic Medium Term Note Programme (“Programme”) entered into by DRDGOLD South African Operations
(Pty) Limited (“Issuer”) and DRDGOLD Limited (“guarantor’) dated September 30 2010.
8.1
(18)
List of Subsidiaries.
12.1
(18)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2
(18)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1
(18)
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2
(18)
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1
(10)
Crown Gold Recoveries (Pty) Limited Consolidated Financial Statements for the years ended June 30, 2004 and 2003.
15.2
(11)
Crown Gold Recoveries (Pty) Limited Consolidated Financial Statements for the years ended June 30, 2005, 2004 and
2003.
15.3
(13)
Crown Gold Recoveries (Pty) Limited Unaudited Consolidated Financial Statements for the period ended
December 1, 2005 and the years ended June 30, 2005 and 2004.
15.4
(13)
Emperor Mines Limited Unaudited Consolidated Financial Statements for the period ended April 6, 2006 and the years
ended June 30, 2005 and 2004.
16.1
(11)
Emperor Mines Limited Consolidated Financial Statements for the years ended June 30, 2005 and 2004.
___________
121
(1)
Incorporated by reference to our Registration Statement (File No. 0-28800) on Form 20-F.
(2)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 1997.
(3)
Incorporated by reference to Amendment No. 1 to our Registration Statement (File No.
333-140850
) on Form F-6.
(4)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 1999.
(5)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2000.
(6)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2001.
(7)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2002.
(8)
Incorporated by reference to Amendment No. 4 of our Annual Report on Form 20-F for the fiscal year ended June 30, 2002.
(9)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2003.
(10)
Incorporated by reference to Amendment No. 3 of our Annual Report on Form 20-F for the fiscal year ended June 30, 2004.
(11)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2005.
(12)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2006.
(13)
Incorporated by reference to Amendment No. 1 of our Annual Report on Form 20-F for the fiscal year ended June 30, 2006.
(14)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2007.
(15)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2008.
(16)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2009.
(17)
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2010.
(18)
Filed herewith.
122
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
DRDGOLD LIMITED
By:
/s/ D.J. Pretorius
D.J. Pretorius
Chief Executive Officer
By:
/s/ C.C. Barnes
C.C. Barnes
Chief Financial Officer
Date: October 28, 2011