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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
☑
ANNUAL REPORT
PURSUANT TO
SECTION 13
OR 15(d) OF
THE SECURITIES
EXCHANGE ACT
OF 1934 For
the fiscal
year
ended
June 30, 2021
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
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)
Constantia Office Park Cnr 14th Avenue and Hendrik Potgieter Road Cycad House, Building 17, Ground Floor
Weltevreden Park
1709
,
South Africa
(Address
of principal
executive offices)
Riaan Davel
, Chief Financial
Officer, Tel. no. +
27
11
470 2600
, Email
riaan.davel@drdgold.com
Mpho Mashatola,
Group Financial
Controller,
Tel. no. +27 11 470 2600,
Email mpho
.
mashatola@drdgold.com
(Name, Telephone,
Email and/or
Facsimile
number and Address
of Company Contact
Person)
Securities
registered or
to be registered
pursuant to Section
12(b) of the
Act
Title of each
class:
Trading symbol
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.)
DRD
The
New York Stock Exchange
, Inc.
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.
864,588,711
ordinary shares
of no par value
outstanding
as of June 30,
2021.
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 every Interactive Date File required to be submitted
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 such files).
Yes
☑
No
☐
Indicate
by check
mark whether
the registrant
is a
large accelerated
filer, an
accelerated
filer, a
non-accelerated
filer, or
an emerging
growth company.
See definition of
“large accelerated filer,” “accelerated filer,”
and “emerging growth
company” in Rule
12b-2 of
the
Exchange Act.
Large accelerated
filer
☐
Accelerated filer
☑
Non-accelerated
filer
☐
Emerging growth
company
☐
If any emerging
growth company
that prepares
its financial
statements in
accordance with
U.S. GAAP, indicate by check
mark if
the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards
provided pursuant
to Section 13(a)
of the Exchange
Act
☐
The term
“new or
revised
financial
accounting
standard”
refers to
any update
issued by
the Financial
Accounting
Standards
Board
to its Accounting
Standards Codification
after April
5, 2012.
Indicate by
check
mark
whether
the
registrant has
filed
a
report
on
and
attestation to
its
management’s
assessment of
the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the
registered
public accounting
firm that prepared
or issued its
audit report.
☐
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
International Accounting Standards Board
☑
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
☑
Indicate by check
mark whether the
registrant
has filed all
documents and reports
required to be
filed by Sections
12, 13 or 15(d)
of the Securities
Exchange Act of
1934 subsequent
to the distribution
of securities
under a plan confirmed
by a court.
Yes
☐
No
☐
TABLE OF CONTENTS
Page
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
6
ITEM 2.
OFFER STATISTICS
AND EXPECTED TIMETABLE
6
ITEM 3.
KEY INFORMATION
6
3A.
Selected Financial Data
6
3B.
Capitalization And Indebtedness
8
3C.
Reasons For The Offer And Use Of Proceeds
8
3D.
Risk Factors
8
ITEM 4.
INFORMATION ON THE COMPANY
22
4A.
History And Development Of The Company
22
4B.
Business Overview
25
4C.
Organizational Structure
33
4D.
Property, Plant And Equipment
34
ITEM 4A.
UNRESOLVED STAFF
COMMENTS
41
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
42
5A.
Operating Results
42
5B.
Liquidity And Capital Resources
52
5C.
Research And Development, Patents And Licenses, Etc
53
5D.
Trend Information
53
5E.
Off-Balance Sheet Arrangements
57
5F.
Tabular Disclosure Of Contractual Obligations
57
5G.
Safe Harbor
57
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
57
6A.
Directors And Senior Management
57
6B.
Compensation
60
6C.
Board Practices
63
6E.
Share Ownership
67
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
70
7A.
Major Shareholders
70
7B.
Related Party Transactions
71
7C.
Interests Of Experts And Counsel
71
ITEM 8.
FINANCIAL INFORMATION
71
8A.
Consolidated statements And Other Financial Information
71
8B.
Significant Changes
71
ITEM 9.
THE OFFER AND LISTING
72
9A.
Offer And Listing Details
72
9B.
Plan Of Distribution
72
9C.
Markets
72
9D.
Selling Shareholders
72
9E.
Dilution
72
9F.
Expenses Of The Issue
72
ITEM 10.
ADDITIONAL INFORMATION
72
10A.
Share Capital
72
10B.
Memorandum of Incorporation
72
10C.
Material Contracts
75
10D.
Exchange Controls
76
10E.
Taxation
78
10F.
Dividends And Paying Agents
81
10G.
Statement By Experts
81
10H.
Documents On Display
81
10I.
Subsidiary Information
81
ITEM 11.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
81
TABLE OF CONTENTS
Page
PART II
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
82
12A.
Debt Securities
82
12B.
Warrants and Rights
82
12C.
Other Securities
82
12D
American Depositary Shares
83
ITEM 13.
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
84
ITEM 14.
MATERIAL
MODIFICATIONS TO
THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
84
ITEM 15.
CONTROLS AND PROCEDURES
84
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
85
ITEM 16B.
CODE OF ETHICS
85
ITEM 16C.
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
85
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
86
ITEM 16F
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
86
ITEM 16G.
CORPORATE
GOVERNANCE
86
ITEM 16H.
MINE SAFETY DISCLOSURES
86
PART III
ITEM 17.
FINANCIAL STATEMENTS
88
ITEM 18.
FINANCIAL STATEMENTS
88
ITEM 19.
EXHIBITS
85
SIGNATURES
88
1
Preparation
of Financial
Information
We are a South African
company and
currently
all our operations
are located
in South Africa.
Accordingly, our books
of account
are
maintained
in South African
Rand. Our financial statements included in our corporate filings are prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
Our consolidated financial statements included in this Annual Report are prepared in accordance with IFRS as issued by the IASB.
All financial information, except as otherwise noted is prepared in accordance with IFRS as issued by the IASB.
We present our financial information in rand, which is our presentation and reporting currency.
All references
to “dollars”
or “$”
herein are
to United States
Dollars and
references
to “rand” or
“R” are to
South African
rands. Solely for your convenience, this Annual Report
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 R14.27 per $1.00, the year end exchange rate on June 30, 2021.
In this Annual Report, we present certain non-IFRS financial measures such as the financial items “cash operating costs per
kilogram”, “all-in sustaining costs per kilogram” and “all-in costs per kilogram” which have been determined using industry guidelines
promulgated by the World Gold Council, which we use to determine costs associated with producing gold, cash generating capacities of the
mines and to monitor performance of our mining operations. An investor should not consider these items in isolation or as alternatives to,
operating costs, profit/(loss) for the year or any other measure of financial performance presented in accordance with IFRS or as an indicator
of our performance. While the World Gold Council has provided definitions for the calculation of cash operating costs, the calculation of
cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in 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 operating costs, all-in sustaining costs and all-in costs” and
“Reconciliation of cash operating costs per kilogram, all-in sustaining costs per kilogram, all-in 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
as appropriate
in the context.
Acquisition
of gold assets
from Sibanye-Stillwater
and subsequent
exercise of
option to purchase
shares
On July 31, 2018, we completed the acquisition of the gold assets associated with Sibanye Gold Limited, trading as Sibanye-
Stillwater’s (“
Sibanye-Stillwater
”) West Rand Tailings
Retreatment Project (“
WRTRP
”), subsequently renamed Far West Gold Recoveries
Proprietary Limited (“
FWGR
”).
This acquisition significantly increased our assets and revenues and added 2.72 million ounces to our Ore
Reserves.
In connection with the acquisition, we issued to Sibanye-Stillwater new shares in the Company equal to 38.05% of outstanding
shares, and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective
date of the acquisition at a 10% discount to the prevailing market value (the “
Option
”). On January 8, 2020, Sibanye-Stillwater exercised the
Option. On January 22, 2020 Sibanye-Stillwater subscribed for 168,158,944 DRDGOLD shares at an aggregate subscription price of R1,086
million. These shares were issued at a price of R6.46 per share, being a 10% discount to the 30-day volume weighted average traded price.
Special Note
Regarding Forward-Looking
Statements
This Annual
Report contains
certain “forward-looking”
statements
within the meaning
of Section
21E of the
U.S. Securities
Exchange
Act of 1934,
regarding expected
future events,
circumstances,
trends and expected
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,
including statements in connection with, or relating
to, among other things:
●
our reserve calculations and underlying assumptions;
●
the trend information discussed in Item 5D.- Trend Information, including target gold production and cash operating costs;
●
life of mine and potential increase in life of mine;
●
estimated future throughput capacity and production;
●
expected trends in our gold production as well as the demand for and the price of gold;
●
our anticipated labor, electricity, water,
crude oil and steel costs;
●
our expectation that existing cash will be sufficient to fund our operations in the next 12 months including our anticipated
commitments;
●
estimated production costs, cash operating costs per ounce, all-in sustaining costs per ounce and all-in costs per ounce;
●
expectations on future gold price, supply and pricing trends, including long term trends, expected impact of the global environment
on gold prices;
●
expected gold production and cash operating costs expected in fiscal year 2022;
●
statements with respect to agreements with unions;
●
our prospects in litigation and disputes;
2
●
statements with respect to the legal review for increasing the deposition capacity of the Brakpan/Withok Tailings Storage Facility
(“
TSF
”), and expected potential increase in capacity and life of mine and statements with respect to our flotation fine-grind
(“
FFG
”) program;
●
expected deposition capacity from improvements in our dams and new dam construction; and
●
expected effective gold mining tax rate.
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:
●
the global
impact of
the COVID-19
pandemic and
potential announcement
of further
national lockdowns,
including in
South Africa;
●
adverse changes
or uncertainties
in general
economic conditions
in South Africa;
●
regulatory
developments
adverse to
us or difficulties
in maintaining
necessary
licenses or
other governmental
approvals;
●
future performance
relating to
the FWGR
Phase 2 assets;
●
challenges
in replenishing
mineral ore
reserves;
●
changes in
our competitive
position;
●
changes in,
or that affect
our business
strategy;
●
our ability
to achieve
anticipated
efficiencies
and other cost
savings in
connection
with past
and future
acquisitions;
●
the success
of our business
strategy, development
activities
and other initiatives,
●
adverse changes
in our gold
production
as well as
the demand
for and the
price of gold;
●
changes in
technical
and economic
assumptions
underlying DRDGOLD’
mineral reserve
estimates;
●
any major
disruption in
production
at our key
facilities;
●
adverse changes
in foreign
exchange rates;
●
adverse environmental
or environmental
regulatory changes;
●
adverse changes
in ore grades
and recoveries,
and to the
quality or quantity
of reserves;
●
unforeseen
technical
production issues,
industrial
accidents
and theft;
●
anticipated
or unanticipated
capital expenditure
on property, plant
and equipment;
●
the impact
of HIV/AIDS,
tuberculosis
and
the spread
of other contagious
diseases,
such as coronavirus
(COVID-19);
and
●
various other
factors,
including those
set forth in
Item 3D.
Risk Factors.
For a discussion
of such risks,
see Item
3D. Risk Factors.
The risk factors
described above
and in Item
3D. could affect
our future
results, causing
these results
to differ materially
from those
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.
Investors
are cautioned
not to place
undue reliance
on these forward-looking
statements,
which speak
only as of the
date thereof.
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.
Special Note
Regarding Links
to External,
or Third-party
Websites
Links to external,
or third-party
websites,
are provided
solely for
convenience.
We take no responsibility
whatsoever
for any third-
party information
contained in
such third-party
websites,
and we specifically
disclaim adoption
or incorporation
by reference
of such information
into this report.
3
Imperial units
of measure
and metric
equivalents
The table
below sets
forth units
stated in this
document, which
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 kilometers
1 meter
3.28084 feet
1 foot
0.3048 meters
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 centimeters
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
4
Glossary of Terms and Explanations
The table below sets forth a glossary of terms used in this Annual Report:
Adjusted EBITDA
Adjusted
EBITDA
means
earnings
before
interest,
tax,
depreciation,
amortisation,
share-based
payment
(benefit)/expense, change in estimate of environmental rehabilitation recognised in profit
or loss, gain/(loss) on
disposal
of
property,
plant
and
equipment,
gain/(loss)
on
financial
instruments,
IFRS
16
lease
payments,
transaction costs and retrenchment costs. This is a non-IFRS
financial measure and should not be considered a
substitute measure of net income reported by us in accordance with IFRS.
Administration expenses and
other costs excluding non-
recurring items
Administration
expenses
and
other
costs
excluding
loss
on
disposal
of
property,
plant
and
equipment
and
transaction costs.
All-in sustaining costs per
kilogram
All-in sustaining
costs is
a measure
on which
guidance is
provided by
the World
Gold Council
and includes
cash operating costs of production, plus movement in gold in process on a sales basis, corporate administration
expenses and other (costs)/income,
the accretion of rehabilitation
costs and sustaining
capital expenditure. Costs
other than those listed above are excluded. All-in sustaining costs per kilogram are calculated by dividing total
all-in sustaining costs by kilograms of
gold produced. 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.
All-in costs per kilogram
All-in costs is
a measure
on which
guidance is
provided by
the World Gold Council
and includes
all-in sustaining
costs,
retrenchment
costs,
care
and
maintenance
costs,
ongoing
rehabilitation
expenditure,
growth
capital
expenditure and capital recoupments.
Costs other than
those listed above
are excluded. All-in costs
per kilogram
are calculated by dividing
total all-in costs by
kilograms of gold
produced. 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.
Assaying
The chemical testing process of rock samples to determine mineral content.
$/oz
US dollar per ounce.
Called gold content
The theoretical gold content of material processed.
Care and maintenance
Costs to ensure that the Ore Reserves are open, serviceable
and legally compliant after active mining activity at
a shaft has ceased.
Cash operating costs of
production
Cash
operating
costs
of
production
are
operating
costs
less
ongoing
rehabilitation
expenses,
care
and
maintenance costs and net other operating costs/(income). 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.
Cash operating costs per kilogram
Cash operating
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 operating
costs per kilogram
are
calculated by dividing
cash operating costs
by kilograms of
gold produced.
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.
Cut‑off grade
The minimum
in-situ grade
of ore
blocks for
which the
cash operating
costs per
ounce, excluding
overhead
costs, is equal to a projected gold price per ounce.
CIL Circuit
Carbon-in-leach circuit.
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.
Doré
Unrefined gold and silver
bullion bars consisting of
approximately 90% precious metals
which will be further
refined to almost pure metal.
Grade
The amount
of gold
contained within auriferous
material generally
expressed in
ounces per
ton or
grams per
tonne of ore.
Growth capital expenditure
Capital additions that
are not sustaining capital
expenditure. 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.
g/t
Grams per tonne.
Metallurgical plant
A processing plant (mill) erected to treat ore and extract the contained gold.
Mine call factor
The gold content recovered expressed as a percentage of the called gold content.
Mt
Million tons.
Ore
A mixture of valuable
and worthless materials from
which the extraction of
at least one mineral
is technically
and economically viable.
Other operating costs / (income)
Expenses incurred, and
income generated in
the course of
operating activities, which
are not directly
attributable
to production activities.
Pay-limit
The minimum in-situ grade of
ore blocks or sites for
which cash operating costs, including
all overhead costs,
are equal to a projected gold price per ounce.
Operating costs
Operating costs are cost of sales less depreciation, change in
estimate of rehabilitation provision, movement in
gold in process and finished inventory – gold bullion, and retrenchment costs.
5
Ore Reserves
That part of a mineral deposit which could be economically and legally extracted
or produced at the time of the
reserve determination.
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
Ore 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.
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.
Sediment
The deposition of solid fragmental material that originated from weathering of rocks and was transported from
a source to a site of deposition.
Slimes
The tailings discharged from a processing plant after the valuable minerals have been recovered.
Sustaining capital expenditure
Sustaining capital expenditure are
those capital additions that
are necessary to maintain
current gold production.
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.
t’000
Tonnes in thousands.
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.
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.
Tpm
Tonne per month.
Yield
The amount of recovered gold from production generally expressed in ounces or grams per ton or tonne of
ore.
6
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, 2021 and 2020
and for the
years ended June
30, 2021, 2020
and 2019
is 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.
The selected
consolidated
financial data
as at June
30, 2019, 2018
and 2017,
and for the
years ended
June 30, 2018
and 2017 is
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.
7
Selected Consolidated Financial Data
(in millions, except share, per share and ounce data)
Year ended
June 30,
2021
1
2021
2020
2019
2018
2017
$’m
R'm
R'm
R'm
R'm
R'm
Profit or loss Data
Revenue
369.2
5,269.0
4,185.0
2,762.1
2,490.4
2,339.9
Results from operating activities
127.3
1,816.9
937.9
125.2
52.0
(24.6)
Profit/(loss) for the year attributable to
equity owners of the parent
100.9
1,439.9
635.0
78.5
6.5
13.7
Adjusted EBITDA
2
141.3
2,015.9
2
1,411.6
2
254.1
2
-
2
-
2
Per Share Data
Basic earnings/(loss) per share (cents)
11.8
168.4
82.5
11.8
1.5
3.2
Diluted earnings/(loss) per share (cents)
11.7
167.2
81.0
11.5
1.5
3.2
Dividends proposed per share for the
year (ZAR cents)
80.0
85.0
20.0
5.0
5.0
Dividends proposed per American
Depositary Shares for the year
(USD cents)
56.1
49.1
14.2
3.6
3.4
Exchange rate (USD1:ZAR)
1
14.27
17.32
14.07
13.72
14.68
Intraday high (USD1:ZAR)
17.78
19.34
15.69
14.57
14.75
Intraday low (USD1:ZAR)
13.39
13.80
13.07
11.50
12.42
Number of shares issued as at June 30
864,588,711
864,588,711
864,588,711
696,429,767
431,429,767
431,429,767
Statement of financial position data
Total assets
444.8
6,348.0
5,675.2
4,059.9
2,360.5
2,287.4
Equity (Net assets)
337.8
4,820.4
4,040.2
2,688.5
1,267.2
1,302.4
Stated share capital
3
431.5
6,157.4
6,157.4
5,072.3
4,177.2
4,177.2
2021
2021
2021
2021
2021
2021
September
August
July
June
May
April
Exchange Rate Data
Intraday high (USD1:ZAR)
15.25
15.39
14.99
14.40
14.54
14.84
Intraday low (USD1:ZAR)
14.06
14.22
14.15
13.39
13.67
14.14
1
Translations into
Dollars in this
table are for
the purpose of
convenience only and
are computed at
the closing exchange
rate at June
30,
2021 of R14.27 per $1.00. You should not view such translations as a representation that such amounts represent actual Dollar amounts. All
other translations in this Annual Report are based on exchange rates quoted by local financial institutions.
2
Adjusted
EBITDA
is
a
non-IFRS
financial
measure.
For
a
definition
of
Adjusted
EBITDA
see
Glossary
of
Terms
and
Explanations.
Adjusted EBITDA
(which is
based on
the definition
of that
term used
in our
Revolving Credit
Facility ("RCF")
agreement) may
not be
comparable to similarly titled measures of other companies.
Adjusted EBITDA is not a measure of performance under
IFRS and should be
considered in addition to, and not as a substitute for, other measures of financial performance and liquidity.
The Group also considers Adjusted EBITDA for the purpose of
evaluating compliance with the covenants imposed by the Company’s RCF.
The Group considers
the presentation
of Adjusted
EBITDA provides
useful information
to investors.
We began presenting Adjusted
EBITDA
following the entry into our
RCF in fiscal 2019. Adjusted
EBITDA was not presented
or considered by the Company
before fiscal 2019.
For
a reconciliation
of Adjusted
EBITDA from
profit
for the
year,
see Item
5.A. Operating
and Financial
Review and
Prospects—Adjusted
earnings before interest, interest, depreciation and amortization
3
Ordinary share capital as
of June 30,
2021 is stated after
the deduction of
R51 million (2020:
R51 million, 2019:
R50.7 million) share
capital
relating to treasury shares held by the Group.
8
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 these
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;
●
Risks related to ownership in our ordinary shares or American Depositary Shares (ADSs); and
●
Risks related to climate change
Risks related
to our business
and operations
Changes in the market price for gold and exchange rate fluctuations,
both of which have fluctuated widely in the past, affect the
profitability
of our operations
and the cash
flows generated
by those operations.
Our results
are significantly
impacted
by the price
of gold and
the USD-Rand
exchange rate.
Any sustained decline in the market price
of gold from the current elevated levels would adversely affect us, and any sustained decline in the price of gold below the cost of production
could
result
in
the
closure
of
some
or
all
of
our
operations
which
would
result
in
significant
costs
and
expenditure,
such
as,
incurring
retrenchment costs earlier than expected
which could lead to a decline
in profits, or losses, as well
as impairment losses. In addition, as
most
of our production costs are in rands, while
gold is sold in dollars and then converted
to rands, our results of operation and financial
condition
have been and could be in the future materially affected by
an appreciation in the value of the rand. Accordingly,
any sustained decline in the
dollar price of gold and/or
the strengthening of the South African
rand against the dollar would negatively
and adversely affect our business,
operating results and financial condition.
In the wake
of the COVID-19 pandemic
and measures
taken to address
the outbreak,
there has been
a global trend
of investors
turning
to gold
and gold
stocks as
a safe
haven asset,
as has
been the
case in
previous
times of
global economic
crisis.
This has
led to
a surge
in the
average
gold price
during fiscal
2020 and
fiscal
2021.
Changes
in these
conditions
in the
future (e.g.
global recovery
from the
COVID-19 pandemic)
could
lead to
a decrease
of the gold
price to
pre-pandemic
levels or
lower.
In addition,
we were
impacted by
movements
in the exchange
rate of the
rand
against the
dollar during
the COVID-19
pandemic as
described below.
Exchange rates are influenced by global economic trends. The closing exchange rate of
the rand against the dollar
at June 30,
2021
strengthened
by 18% compared
to June 30,
2020.
The closing
price of the
rand against
the dollar
at June 30,
2020 weakened
by 23% compared
to
June 30, 2019.
At September
30, 2021, the
rand traded
at R14.51 =
$1.00 (based
on closing rates),
a 2% weakening
of the rand
against the
Dollar
from June
30, 2021.
The rand/dollar
exchange
rate remained
volatile
throughout
the fiscal
year 2021
mainly as
a result
of global,
emerging
market
and South Africa economic uncertainty
including uncertainties
resulting from the COVID-19 pandemic,
global economic slowdown sentiment,
tensions
between
the USA
and China,
perceived
political
instability
and fiscal
strength
and structurally
weak economic
growth of
the South
African
economy including
a seemingly
terminally
distressed
power utility, Eskom
Holdings SOC
Limited (“
Eskom
”).
A decrease in the dollar gold price
and/or a strengthening
of the rand against the dollar
results
in a decrease in our profitability. If the
rand was to appreciate against
the dollar or the gold price were to decrease
for a continued time, our operations
could experience a reduction
in
cash flow
and profitability,
and this would adversely affect our business, operating results and financial condition.
We typically do not enter into forward
contracts to reduce
our exposure to market
fluctuations
in the dollar gold price
or the exchange
rate movements
of the
rand. We sell
gold at
spot prices
based on
the afternoon
London Bullion
Market
fixing price
on the
day when
Rand Refinery,
acting as an agent for the
sale of all gold produced by the
Group, delivers
the Gold to the buyer. Our foreign currency
is usually sold at the spot
price in
the market
on the
date of
trade.
If the
dollar gold
price should
fall and/or
the rand
should strengthen
against
the dollar,
this would
adversely
affect us, and we may experience losses, and if these changes result in revenue below our cost of production and remain at such levels for any
sustained
period, we
may be forced
to curtail
or suspend
some or all
our operations.
A failure to acquire
new Ore Reserves
could negatively affect our future
cash flows, results of
operations and financial condition.
9
New or
ongoing exploration
programs may be
delayed or
may not result
in new mineral
producing operations
that will
sustain or
increase our Ore Reserves. A failure to acquire new Ore Reserves in sufficient quantities and quality to maintain or grow the current level
and
quality of our reserves will negatively affect our future cash flow,
results of operations and financial condition. In addition,
if we are
unable to
identify Ore
Reserves
that have
reasonable
prospects
for economic
extraction
while maintaining
sufficient controls
on production
and other
costs,
this will
have a material
effect on the
future viability
of our operations.
If we are not
successful in increasing reserves
in future years, our
reserves could decrease, and
such reduction would adversely
affect
our business, operating results and financial condition.
We may be unable to
make desirable
acquisitions
or to integrate
successfully
any businesses
we acquire,
including the
development
of Phase 2
of the FWGR
assets acquired
from Sibanye-Stillwater
.
Our future
success may
depend in
part on the
acquisition
of businesses
or technologies
intended to
complement,
enhance or
expand our
current business
or products or that
might otherwise
offer us growth opportunities.
The ability to complete
such transactions
may be hindered
by
a number of
factors, including identifying acquisition targets, obtaining
necessary financing and potential difficulties in obtaining government
approvals. Any acquisitions we make,
could fail to
achieve our financial or
strategic objectives or disrupt
our ongoing business which
could
adversely
impact our
results of
operations.
Any acquisition that we do make would pose risks related
to the integration of the new business or technology
with our business and
organization.
We cannot be certain
that we will
be able to
achieve the
benefits we
expect from
a particular
acquisition
or investment.
Acquisitions
may also strain
our managerial
and operational
resources,
as the challenge
of managing
new operations
may divert
our management
from day-to-
day operations of
our existing
business. Furthermore, we may
have difficulty integrating
employees, business systems, and
technology. The
controls, processes
and procedures
of acquired
businesses
may also not adequately
ensure compliance
with laws and
regulations
and we may fail
to identify compliance
issues or liabilities.
Our business,
financial condition
and results
of operations
may be materially
and adversely
affected if
we fail
to coordinate
our resources
effectively
to manage
both our existing
operations
and any businesses
we acquire.
Acquisitions
can also result
in unforeseen
liabilities.
Moreover, our
resources
are limited
and our
decision
to pursue
a transaction
has opportunity
costs;
accordingly, if
we pursue
a particular
transaction,
we may need
to forgo the
prospect of
entering into
other transactions
that could
help us achieve
our financial
or strategic
objectives.
Limited deposition
capacity
Our operations
are based on ultra-volume
and almost nano-gold
extraction.
The volume of reclaimed
material delivered
has one of the
most profound impacts on the gold
output of our metallurgical plants.
The large volumes of
material that are processed at our operations are
deposited on tailings facilities
which have a finite capacity. Alternative facilities
will be required to ensure adequate deposition
capacity for the
future.
Key projects
include
the development
of the
regional
tailings
storage
facility
as part
of Phase
2 FWGR
project
as well
as obtaining
regulatory
approvals for
alternative
depositioning
at Ergo
.
Our large projects, most notably
the development of FWGR, are
subject to schedule delays and
cost overruns, and we
may face
constraints
in financing our existing
projects or new
business opportunities,
which could render
our projects unviable
or less profitable
than
planned.
The development of our projects are capital intensive
processes carried out over long durations
and requires us to commit significant
capital expenditure
and allocate
considerable
management
resources in
utilising our
existing experience
and know-how.
Projects like
the development
of Phase 2 of the
FWGR assets acquired
from Sibanye-Stillwater
is subject to
the risk of delays
and cost
overruns which
are inherent
in any large
construction
project including,
inter alia
:
•
shortages
or unforeseen
increases
in the cost
of equipment,
labor and
raw
materials;
•
unforeseen
design and
engineering
problems;
•
changes in
construction
plans that
may require
new or amended
planning permissions;
•
unforeseen
construction
problems;
•
unforeseen
delays
commissioning
sections
of the project;
•
inadequate
phasing of activities;
•
labor disputes;
•
inadequate
workforce
planning or
productivity
of workforce;
•
inadequate
management
practices;
•
natural disasters
and adverse
weather conditions;
•
national work
stoppages
as a result
of infectious
deceases and
pandemics
such as COVID-19;
•
failure or
delay of third-party
service providers;
and
•
changes to
regulations,
such as environmental
regulations.
The Phase 2 definitive
feasibility
study was completed
in the 3
rd
quarter of fiscal
year 2021, however
regulatory approval
still needs
to
be obtained
on the regulatory
approvals
for the submitted
amended design.
It is therefore
anticipated
that the construction
of the Regional
Storage
Facility, related
to Phase 2,
will be delayed
from fiscal
year 2022 to fiscal
year 2024.
10
In addition,
if the
assumptions
we make
in assessing
the viability
of our
projects,
including
those relating
to commodity
prices,
exchange
rates, interest rates, inflation
rates and
discount rates,
prove to
be incorrect or
need to
be significantly revised, this
may adversely affect
the
profitability or even
the viability of our projects.
The uncertainty and volatility
in the gold market makes it more difficult
to accurately evaluate
the project
economics
and increases
the risk that
the assumptions
underlying
our assessment
of the viability
of the project
may prove incorrect.
As the
development of FWGR is
particularly material to DRDGOLD, significant cost overruns
or adverse changes
in assumptions
affecting the
viability of
the project
could have
a material
adverse effect
on our business,
cash flows,
financial condition
and prospects.
Our operating cash flow and available banking facilities may be insufficient to meet our capital expenditure plans and requirements,
depending on the timing and cost of development of our existing projects and any further projects we may pursue. As a result, new sources of
capital may
be needed to meet
the funding requirements
of these projects
and to fund ongoing
business activities.
Our ability to
raise and service
significant
new sources
of capital
will be a
function of,
inter alia
, macroeconomic
conditions,
our credit
rating, our
gearing and
other risk
metrics,
the condition
of the financial
markets, future
gold prices,
the prospects
for our industry, our
operational
performance
and operating
cash flow and
debt position.
In the event of operating or financial
challenges, any dislocation
in financial markets
or new funding limitations,
our ability to pursue
new business
opportunities,
invest in
existing and
new projects,
fund our ongoing
business activities
and pay dividends,
could be
constrained,
any
of which could
have a material
adverse effect
on our business,
operating results
cash flows
and financial
condition.
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 rand gold price, production volumes,
recovered grades and costs. 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 financing sources
and any such financing
may not be permitted
under the terms
of our financing arrangements,
or may not
be available
on acceptable
terms, or at
all. If we
do not generate
sufficient cash
flows or have
access to 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 meet our
working capital
requirements
may be adversely
affected.
Any interruption
in gold production at any of our two mining
operations generating
cash flows, will have an adverse
effect on the
Company.
We have two mining
operations
generating
cash flows,
namely Ergo and
FWGR.
Ergo’s
reclamation
sites,
processing
plants,
pump
stations and
the Brakpan/Withok
TSF are linked
through pipeline
infrastructure.
The Ergo plant
is currently
our major
processing
plant. FWGR’s
reclamation
site, DP2 processing
plant, pump
stations and
the Driefontein
4 Tailings Storage
Facility are
linked through
pipeline infrastructure.
Our reclamation sites, plants,
pipelines
infrastructure and the
deposition/storage facilities are exposed to
numerous risks, including
operational
down time due
to planned or
unplanned maintenance,
destruction of
infrastructure,
spillages, higher
than expected
operating costs,
or
lower than
expected production as
a
result of
decreases in
extraction efficiencies due
to
imbalances in
the metallurgical process
as
well as
inconsistent
volume throughput
or other factors.
We
have suffered interruptions in gold production. For example: the Group temporarily halted its operations at Ergo and FWGR on
March 26, 2020 pursuant to the
announcement of the national lockdown in South African (“
Lockdown
”). Operations gradually recommenced
through April
and May 2020 (Refer
to Item 4D. ‘‘Property, plant
and production
– Ergo Production
and FWGR production”),
and have not been
impacted by subsequent
lockdowns during
fiscal 2021,
but we remain
subject to the
risk of further
lockdowns and
other restrictions
as a result of
the continuing
COVID-19 pandemic.
Our FWGR operations
are reliant on the use to and
access of Sibanye-Stillwater’s
mining infrastructure,
related services
including the
smelting and recovery of gold
from gold loaded carbon produced at
FWGR as well
as the
use of various
rights, permits and licenses held by
Sibanye Gold
pursuant to
which FWGR
operates,
pending the
transfer
to FWGR of
those that
are transferable.
Any disruption
in the supply
of, or
our ability to
use and access
the Sibanye-Stillwater
mining infrastructure,
related services
and rights, permits
and licenses,
could have an
adverse
impact on
our operations.
Each of these conditions or other weather
conditions or other interruptions
could adversely impact
our operations which could have
a
material
adverse effect
on our business,
operating results
and financial
condition.
Flooding at
our discontinued
underground
operations
may cause
us to incur
liabilities
for environmental
damage.
If the rate of rise of water is not controlled,
water from our abandoned
underground mining
areas could potentially
rise and come into
contact
with naturally
occurring
underground
water or
decant into
surrounding
underground
mining areas
and could
ultimately
also rise
to surface.
Progressive flooding
of
these abandoned
underground mining
areas and
surrounding underground mining
areas could
eventually cause
the
discharge of
polluted water
to the surface
and to local
water sources.
11
Should underground water levels
not reach a natural subterranean
equilibrium, and if underground
water rises to the surface, we may
face claims
relating
to environmental
damage.
Any such
claims
may have
a material
adverse
effect on
our business,
operating
results
and financial
condition.
An increase
in production
costs could
have an adverse
effect on our results
of operations.
An increase
in our production
costs will
impact our
results of
operations.
Production
costs are
affected by,
inter alia
:
•
labor stability,
productivity
and increases
in labor costs;
•
increases
in electricity
and water prices;
•
increases
in crude oil
and steel
prices;
•
changes in
regulation;
•
unforeseen
changes in
ore grades
and recoveries;
•
unexpected
changes in
the quality
or quantity
of reserves;
•
technical
production issues;
•
availability
and cost of
smelting and
refining arrangements;
•
environmental
and industrial
accidents;
•
gold theft;
•
environmental
factors; and
•
pollution.
Our production costs consist mainly of materials including reagents and steel, labor, electricity, specialized service providers,
water,
fuels, lubricants
and other oil
and petroleum-based
products. Production
costs have
in the past, and
could in the future,
increase at
rates in excess
of our annual
inflation rate
and impact
our results
of operation
and can result
in the restructuring
of these operations
at substantial
cost.
On February 28, 2021,
ERGO signed a one
year wage extension
agreement,
with organized labour,
for the period July
1, 2021 to June
30, 2022 with a 5.9% average increase
per annum across the ERGO workforce
with individual increases
ranging from 5.5%
to 7% per annum.
The transitional
arrangements
regarding wage
increases
with the workforce
at FWGR when
these employees
were incorporated
into DRDGOLD
have now come
to an end. As
a consequence,
negotiations
are currently
underway with
organized labour
at FWGR with
the intention
of trying to
reach a 3 year
wage agreement.
Increases in production
costs, if material,
will adversely
impact our results
of operations.
In addition, any initiatives
that we pursue to
reduce costs,
such as reducing
our labor force, a reduction
of the corporate
overhead, negotiating
lower price increases
for consumables
and cost
controls
may not
be successful
or sufficient
to offset
the increases
affecting
our operations
and could
adversely
affect our
business,
operating
results
and financial
condition.
Uncertainties
regarding the
impact of the
COVID-19 pandemic
on current
and future
operations
We face risks relating
to the COVID-19
pandemic and
measures taken
to address
the outbreak.
The Group temporarily halted
its operations at Ergo and FWGR on March 26, 2020 pursuant to the announcement
of the Lockdown.
Operations
gradually
recommenced
through
April
and May
2020 (Refer
to Item
4D. ‘‘Property,
plant
and production
– Ergo
Production
and FWGR
production”) and have not been impacted by subsequent lockdowns
during fiscal 2021.
We remain subject to the
risk of further lock-downs or
other restrictions
to our operations
and we also
face the risk
of disruptions
to our suppliers'
operations.
The table
below outlines
the number
of COVID-19
tests conducted,
the number
of COVID-19
positive
cases and
the COVID-19
related
fatalities
suffered by our
workforce:
COVID statistics
Ergo
FWGR
Corporate office
Consolidated
Number of tests conducted
576
176
3
755
Number positive cases
142
34
3
179
Fatalities
2
1
0
3
The risk related
to the impact of the COVID-19
pandemic is not isolated
to health and safety
for our employees
and disruptions to
our
operations, but has manifested as a risk in terms of
social stability as well as economic activity and growth both in South
Africa and globally.
While
we have
implemented
programs
to address
the risk
of COVID-19
infections
at our
operations,
the COVID-19
pandemic
may have
numerous
other consequences,
including adverse
impacts on our supply
chain and availability
of materials
used in our operations.
The risks associated
with
an anticipated “new
wave” of infection remain
highly uncertain
and could lead to increased
employee infection
risk decreasing productivity
and
could result
in further
restrictive
national lockdowns,
which could
lead to disruptions
in our business
operations.
We have benefitted
from the increase
in dollar gold
prices and
weakening of the
rand/dollar
exchange rate
driven at least
in part by the
impact of
the COVID-19
pandemic.
Dollar gold
prices may
decrease and
the rand/dollar
exchange rate
may strengthen
as the global
impact of
the
COVID-19 pandemic
is alleviated.
Our operations
are subject
to extensive
environmental
regulations
which could
impose significant
costs and liabilities.
12
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 have
the potential to impact the environment, including land,
habitat, streams and environment
near the mining sites. Failure to comply with environmental
laws or 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 of compliance,
resulting in
a material
adverse effect
on our profitability.
We have incurred, and expect to incur in the future, expenditures to comply with these
environmental laws and regulations.
We have
estimated our aggregate
group Provision for
Environmental Rehabilitation at a
net present
value of
R570.8 million which is
included in
our
statement of
financial position
as
at
June
30,
2021
(Refer
to
Item
18.
‘‘Financial
Statements -
Note
11
–
Provision
for
environmental
rehabilitation”).
However, the ultimate amount of rehabilitation costs may in the future exceed the current estimates due to factors beyond our
control, such
as changing
legislation, higher than
expected cost
increases, or
unidentified rehabilitation costs. We
fund these
environmental
rehabilitation
costs
by making
contributions
over the
life
of the
mine to
environmental
trust funds
or funds
held in
insurance
instruments
established
for our
operations. If any
of our
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 prosecution,
litigation
and potentially
significant
liabilities.
Damage to
tailings dams
and excessive
maintenance
and rehabilitation
costs could
result in
lower production
and health,
safety and
environmental
liabilities.
Our tailings
facilities
are exposed to
numerous risks
and events,
the occurrence
of which may
result in the
failure, breach
or damage of
such a facility. These may include sabotage, failure by our employees
to adhere to the codes of practice and natural disasters such as excessive
rainfall and seismic events, any of which could
force us to stop
or limit operations. In addition, the dams could
overflow or a side wall
could
collapse and the health
and safety of our employees and
communities living
around these dams could
be jeopardized. In the event
of damage to
our tailings facilities, our operations will be adversely affected and this in turn could have a material adverse effect on our
business, operating
results and
financial
condition.
Due to the
nature of our
business, our
operations
face extensive
health and safety
risks and regulation
of those risks.
Gold mining
is exposed
to
numerous risks
and events,
the occurrence
of
which may
result in
the death
of, or
personal injury,
to
employees.
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. Health
and
safety incidents
could lead to mine operations
being halted and that will
increase our unit production
costs, which could
have a material adverse
effect on our
business,
operating results
and financial
condition.
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 or are
not insured, including those in
respect of past mining activities. Our existing property,
business interruption and other insurance
contains certain
exclusions and
limitations on coverage.
The insured value for property
and loss of profits
due to business interruption
is R11.35
billion, with a total
loss limit of R650 million
for the 2022 fiscal
year. Business interruption
is only covered from
the time the loss occurs
and is
subject to time
and amount deductibles
that vary between
categories.
To cover legal liability
to third parties
for damage, injury, illness
or death a
total of R1.5
billion insurance
cover is in
place for
the 2020 fiscal
year,
subject to
certain exclusions
and limitations
on coverage.
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, this
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 the positions
of Chief Executive Officer
and 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, 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.
We are subject to
operational
risks
associated
with our flotation
and fine-grind
(FFG) project.
Our flotation
and fine-grind
project, implemented
in fiscal
year 2014, is
designed to
improve extraction
efficiencies.
13
Certain
components
of the FFG
were temporarily
halted in
the first
quarter
of fiscal
year 2020
to perform
an evaluation
and compare
the
additional revenues earned from additional gold extracted
from the most recently integrated reclamation sites compared to the cost incurred to
operate the FFG circuit.
The remaining components
of the FFG continue to operate.
Testing on the newly integrated material
has suggested that
some of these
halted components
will only operate
in subsequent
years once the
related reclamation
sites have
been brought
online in accordance
with the current life of mine plan for ERGO. These halted components
are classified as idle assets until
they are brought back into operation
as
described.
The
success of
the
FFG is
directly dependent
on
the
material type
and
material mix
processed through
it.
Therefore, the
halted
components will
remain idle
pending the continuation
and conclusion
of various test
work regarding
the material
type and material
mix of future
reclamation
sites.
Firm decisions
have also
not yet
been made
by the executive
committee
and the
Board of
Directors
on the
future of
the FFG.
We
remain subject
to operations
risks relating
to the FFG
project.
A disruption
in our information
technology
systems, including
incidents
related to
cyber security,
could adversely
affect our
business
operations.
We
rely
on
the
accuracy,
availability and
security
of
our
information technology
systems. Despite
the
measures
that
we
have
implemented,
including
those
related
to cyber
security, our
systems
could be
breached
or damaged
by computer
viruses
and systems
attacks,
natural
or man-made
incidents,
disasters
or unauthorized
physical or
electronic
access.
Any system
failure, accident or
security breach could
result in
business disruption, theft
of our
intellectual property, trade
secrets
(including
our proprietary
technology),
unauthorized
access to,
or disclosure
of, personnel
or supplier
information,
corruption
of our data
or of our
systems,
reputational
damage
or litigation.
We may also
be required
to incur
significant
cost to
protect
against
or repair
the damage
caused
by these
disruptions or
security breaches in
the future,
including, for
example, rebuilding internal
systems, implementing additional threat
protection
measures, defending
against litigation,
responding to regulatory
inquiries or
actions, paying
damages, or taking
other remedial
steps with respect
to third parties.
These threats
are constantly
evolving,
thereby
increasing
the difficulty
of successfully
defending
against
them or
implementing
adequate
preventative
measures and
we remain
subject to
additional
known or unknown
threats.
In some instances,
we may be
unaware of
an incident
or its
magnitude and effects. We
may be
susceptible to new and emerging
risks,
including cyber-attacks and phishing, in the evolving landscape of
cybersecurity
threats. Given
the increasing
sophistication
and evolving
nature of
these threats,
DRDGOLD cannot
rule out the
possibility
of them
occurring in the future. An extended
failure of critical system
components, caused by accidental,
or malicious actions, including
those resulting
from a cyber
security attack,
could result
in a significant
environmental
incident, commercial
loss or interruption
to operations.
In addition,
from
time
to time,
we implement
updates
to our
information
technology
systems
and software,
which
can disrupt
or shutdown
our information
technology
systems.
Information
technology
system disruptions,
if not
appropriately
addressed
or mitigated,
could have
a material
adverse effect
on our operations.
Risks related
to the gold
mining industry
A change in
the dollar
price of gold,
which in the
past has fluctuated
widely, is beyond
our control.
Historically,
the gold
price has
fluctuated
widely and
is affected
by numerous
industry factors
over which
we have
no control
including:
•
a significant
amount of above-ground
gold in the
world that
is used for
trading by investors;
•
the physical supply of gold from world-wide production and scrap sales, and the purchase, sale or divestment by central banks of their gold
holdings;
•
the demand
for gold for
investment
purposes, industrial
and commercial
use, and in
the manufacturing
of jewelry;
•
speculative
trading activities
in gold;
•
the overall
level of forward
sales by other
gold producers;
•
the overall
level and cost
of production
of other gold
producers;
•
international
or regional
political
and economic
events or
trends;
•
the strength
of the dollar
(the currency
in which gold
prices generally
are quoted)
and of other
currencies;
•
financial
market expectations
regarding the
rate of inflation;
•
interest rates;
•
gold hedging and de-hedging by gold producers; and
•
actual or expected gold sales by central banks and the International Monetary Fund.
During fiscal year 2021 the
gold price reached a
high of
U$2,072 per ounce and
a low
of U$1,676.
We
benefited from a sustained
upswing in
gold price
in the
first quarter,
and in
the fourth
quarter, following
the global
response
to the
COVID-19
pandemic,
the gold
price surged
further to
all-time highs.
Investors globally, as they have in so many previous times
of crisis, turned to gold and gold stocks as a safe haven asset,
leading to a
surge in the
average gold
price during
fiscal 2020
and fiscal
2021. The rand/dollar
exchange rate
remained volatile
throughout fiscal
2021 mainly
as a result of economic
uncertainty and perceived
political instability,
global market
slowdown sentiment,
tensions between
the USA and China,
low economic growth,
and a seemingly terminally
distressed Eskom.
Further volatility
in the Rand was fueled by Moody’s downgrade
of South
Africa’s sovereign credit
rating to
sub-investment grade as
a result
of “continuing deterioration in
fiscal strength and
structurally very weak
economic growth.”
14
COVID-19 (or
an alleviation
of the pandemic)
or other factors
mentioned above
could put negative
pressure on
the price of
gold or the
USD –
rand exchange
rate in
the future.
Our profitability
may be
negatively
impacted
by a
decline
in the
gold price
as we
incur losses
when revenue
from gold sales
drops below
the cost of
production for
an extended
period.
The
exploration
of
mineral
properties
is
highly
speculative
in
nature,
involves
substantial
expenditures,
and
is
frequently
unproductive.
Exploration is highly speculative
in nature and requires
substantial expenditure for drilling,
sampling and analysis of
ore bodies to
quantify the extent of the gold reserve. Many gold
exploration
programs,
including some
of ours, do
not result
in the discovery
of mineralization
and any mineralization
discovered may not be of sufficient
quantity or quality to be mined profitably. If we discover
a viable deposit, it usually
takes several years from the initial phases of exploration
until production is possible.
During this
time, the economic
feasibility of
production
may change.
Moreover, we rely on
the evaluations of professional geologists, geophysicists, and
engineers for estimates in determining whether
to commence or continue mining. These estimates
generally rely on scientific and economic assumptions, which
in some instances may not be
correct, and
could result
in the
expenditure of
substantial amounts
of money
on a
deposit before
it can
be determined
with any
degree of
accuracy whether
the deposit
contains economically
recoverable mineralization.
Uncertainties as
to the
metallurgical recovery
of any
gold
discovered may not warrant mining based on available technology.
Our future
growth and profitability
will depend,
in part, on
our ability
to identify
and acquire
additional
mineral rights,
and on the costs
and results
of our continued
exploration
and development
programs. Our business focuses
mainly on the extraction of gold from tailings, which
is a
volume driven
exercise. Only
significant deposits
within proximity
of services
and infrastructure
that contain
adequate gold
content to
justify the significant capital investment associated with plant,
reclamation and deposition infrastructure are suitable for exploitation
in terms
of our model. There is a limited supply of these deposits which may inhibit exploration and developments,
especially in a declining gold price
environment.
Because 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 operations. The costs incurred on exploration activities that do
not identify commercially exploitable reserves of gold are not likely to be recovered and therefore are likely to be impaired.
There is inherent uncertainty in 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
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 reserve
estimates to
decline. Moreover,
if the rand price
of gold declines,
or stabilizes
at a price
that is lower
than recent
levels,
or those assumed
in our mining
plans,
or if our
labor, water, steel,
electricity
and other
production
costs increase
or recovery
rates decrease,
it may become
uneconomical
to recover
Ore
Reserves,
particularly
those 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 ability
to reclaim our Ore Reserves,
at the required rate,
such as an interruption
or
reduction in
the supply of
electricity
or a shortage
of water may
have the effect
that we are unable
to achieve critical
mass, which may
render the
recovery of
Ore Reserve,
or parts of the
Ore Reserve
no longer feasible,
which could
negatively
affect production
rate and costs
and decrease
our
profitability during any given period. Estimates
of reserves are based on drilling results and because unforeseen conditions may occur in these
mine
dumps that
may not
have been
identified
by the drilling
results,
the actual
results may
vary from
the initial
estimates.
These factors have and
could result in reductions in our Ore Reserve estimates and as a result, our production, which could in turn adversely impact the total value of
our mining asset base and our business, operating results and financial condition.
Gold mining is susceptible to numerous events that could have an adverse impact on a gold mining business.
The business of gold
mining is exposed to numerous
risks and events, the
occurrence of which
may result in the
death of or personal
injury to
employees, the
loss of mining
and reclamation
equipment, damage
to or
destruction of
mineral properties
or production
facilities,
monetary losses,
delays in
production, environmental
damage, loss
of the
license to
mine and
potential legal
claims. The
risks and
events
associated with the business of gold mining include:
●
environmental
hazards and pollution,
including dust generation,
toxic chemicals,
discharge of metals, pollutants,
radioactive materials
and other hazardous
material
into the air
and water;
●
flooding, landslides,
sinkhole formation,
ground subsidence,
ground and
surface water
pollution and
waterway
contamination;
●
a decrease
in labor productivity
due to labor
disruptions,
work stoppages,
disease, slowdowns
or labor strikes;
●
unexpected
decline of
ore grade;
●
metallurgical
conditions or
lower than
expected gold
recovery;
●
failure of
unproven or evolving
technologies;
●
mechanical
failure or breakdowns
and ageing
infrastructure;
●
energy and electrical
power supply
interruptions;
●
availability
of water;
●
injuries to
employees
or fatalities
due to falls
from heights
and accidents
relating to
mobile machinery
or electrocution
or other causes;
15
●
activities
of illegal
or artisanal
miners;
●
material
and equipment
availability;
●
legal and
regulatory
restrictions
and changes
to such restrictions;
●
social or
community disputes
or interventions;
●
accidents
caused from
the collapse
of tailings
dams;
●
pipeline failures
and spillages;
●
safety-related
stoppages;
and
●
corruption, fraud and theft including
gold bullion
theft.
The occurrence of any of these
hazards could delay production,
result in losses, or increase
production costs or decrease
earnings and
may result
in significant
legal claims
and adversely
impact our
business results
of operations
and financial
condition.
Risks related
to doing business
in South Africa
Political or
economic
instability
in South Africa
may reduce
our production
and profitability.
We are incorporated
in South
Africa
and all
our operations
are currently
in South
Africa.
As a
result,
political
and economic
risks relating
to South Africa could have a significant
effect on our production and profitability. Large
parts of the South African population
are unemployed
and do not
have access
to adequate
education,
health care,
housing and
other services,
including water
and electricity.
Government
policies aimed
at alleviating and
redressing the disadvantages suffered by
most citizens under previous
governments may increase our
costs and
reduce our
profitability. In
recent years,
South Africa
has experienced
high levels of
crime. These
problems may
impede fixed
inward investment
into South
Africa and
increase emigration
of skilled
workers and
as a result,
we may have
difficulties
retaining qualified
employees.
The COVID-19
pandemic has
increased the
risk of
social unrest
in
our surrounding communities already
created from
a growing
frustration of society
at large on slow reformative
action being taken
by all spheres of the
South African
government,
in particular, in combating
high unemployment
particularly
in the youth
of the country. Unemployment
rates in South
Africa reached
an all-time
high of 34.4%
in June 2021
due in part, to South Africa’s COVID-19 related economic downturn.
This frustration was a contributing
factor that led to social unrest, people
committing crimes, vandalising property,
and damaging
infrastructure around our
operations during July
2021. There
is no
assurance that
a
prolonged economic
downturn will
not result in
an extended
period of high
unemployment,
further exacerbating
anti-mining sentiments
in South
Africa. Furthermore,
the rise of
ESG factors
in investment
decisions may
result in divestment
in the mining
sector.
Inflation can
adversely
affect us.
The inflation rate in South Africa is relatively high compared to developed,
industrialized
countries. As of June 30, 2021, the annual
Consumer Price Inflation Index (“
CPI
”),
stood at 4.9%
compared to 2.2%
in June 2020
and 4.5%
in June 2019.
Annual CPI was 5.0%
as at
September 30, 2021.
Inflation in South
Africa generally
results
in an increase in our rand
operational
costs, unless
such inflation is
accompanied
by a concurrent devaluation of the rand against
the dollar or an increase in the dollar price of gold. Higher and sustained
inflation in the future,
with a consequent increase
in operational costs could have
a material adverse effect
on our results of operations
and our financial condition
and
could result
in operations
being discontinued
or reduced
or rationalized,
which could
reduce our
profitability.
The treatment of
occupational health diseases and
the potential liabilities related
to occupational health
diseases may have
an
adverse effect
on the results
of our operations
and our financial
condition.
We may be subject
to claims
relating to occupational
health diseases
and we are
currently
subject to
legal action
described below.
In January 2013, DRDGOLD, East Rand Proprietary Mines Limited (“
DRDGOLD Respondents
”) and 23
other mining companies
(“
Other Respondents
”) (collectively
referred
to as "
Respondents
") were
served with
a court
application
issued in
the High
Court of
South Africa
for
a
class certification
on
behalf of
former mineworkers
and
dependents of
deceased mineworkers
(“
Applicants
”).
In
the
application the
Applicants allege
that
the
Respondents conducted
underground mining
operations in
a
negligent and
complicit manner
causing the
former
mineworkers to contract
occupational lung diseases.
The Applicants have as yet not quantified
the amounts which they are demanding
from the
Respondents
in damages.
On May
3, 2018, former mineworkers and dependents of
deceased mineworkers (“
Applicants
”) and
Anglo American South Africa
Limited,
AngloGold
Ashanti
Limited,
Sibanye
Gold Limited
trading as
Sibanye-Stillwater,
Harmony Gold
Mining Company
Limited,
Gold Fields
Limited, African Rainbow Minerals Limited and certain of their affiliates (“
Settling Companies
”) settled the class certification application in
which the Applicants
in each sought to certify
class actions against
gold mining houses
cited therein on behalf
of mineworkers who
had worked
for any of
the particular
respondents
and who suffer
from any occupational
lung disease,
including silicosis
or tuberculosis.
The DRDGOLD
Respondents,
are not a
party to the
settlement
between the
Applicants
and Settling
Companies.
The dispute,
insofar as
the class certification
application
and appeal
thereof is concerned,
still stands
and has not
terminated
in light of the
settlement
agreement (refer to
Item 18. “Financial
Statements
- Note 26 – Contingencies”).
An adverse judgment in the claim described above or any other claim could have an adverse impact on us.
We have experienced
an increase
in organised
crime activities
which have
started to
target gold
plants.
16
In October
2019, a number
of companies,
including our
Knights and
Ergo plants,
were subject
to armed attacks
targeting the
gold in the
plants or high-grade
gold bearing material.
These incidents were
very well organised and
in all the incidents the
thieves were armed.
In some of
the incidents
employees
of companies
were also held
hostage until
the targeted
material was
obtained. In
the 2019 incident,
a security
officer was
fatally injured.
Any such incidents have
and may
still result in losses
of gold
or other damage which
could have a
material adverse impact on our
business,
financial
results or
condition.
Theft at our
sites, particularly
of copper, may result
in greater
risks to employees
or interruptions
in production.
Crime statistics
in South Africa
indicate an
increase
in theft.
This together
with price
increases
for copper
has resulted
in theft
of copper
cable. 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
and theft
of bolts used
for the pipeline.
Power stoppages
or shortages
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 insufficient generating
capacity, owing to poor maintenance and lagging capital
infrastructure
investment, South Africa has faced significant
disruptions
in electricity
supply in
the past
and Eskom
has warned
that the
country could
continue to
face disruptions
in electrical
power supply
in
the foreseeable
future.
The security
of future
power supply
as well
as the
cost thereof
remains a
risk and
may have
major implications
for our
operations,
which
may result in
significant production losses.
The country’s
current reserve capacity may be
insufficient and the
risk of
electricity stoppages is
expected to continue for the foreseeable
future. Supply interruptions
because of this as well as an aging and poorly maintained distribution
grid
may pose a
significant
risk to the
operations.
The group has a load-curtailment agreement in place with Eskom in terms of which we
reduce power consumption by between 10%
and 20% when the grid is under pressure, but Eskom maintains uninterrupted power supply to the operations.
The National
Energy Regulator
of South
Africa
(“
NERSA
”) initially
approved
an average
tariff increase
of 5.2%
average
effective
April
1, 2021.
In July 2020,
the High
Court of
South Africa
ordered that
the average
tariff for
April 1,
2021 be increased
by a further
9.8%. NERSA
has
applied for leave to appeal
this ruling. These increases
have had an adverse effect on our production
costs and similar or higher
future increases
could have
a material
adverse effect
on our operating
results and
financial condition.
Subsequently, several
notable developments
have occurred:
●
The South African government provided Eskom with an additional R69 billion bailout over a three-year period, from 2019 to
2021.
Eskom subsequently
challenged the
multi-year price
determination (MYPD), Regulatory
Clearing Account
(RCA) and
NERSA’s
treatment of
the bailout as a
tariff subsidy in
South African
court. On July
28, 2020, the
South African
court ruled in
favour of Eskom,
allowing the
company to
recover the
additional
R69 billion
in a phased
manner through
future tariff
increases.
The revenue
recovery of
R10 billion
(of the
R69 billion)
would occur
for the
2021 to
2022 year.
The remaining
R59 billion
revenue
recovery
would occur
outside
the MYPD
period,
likely
in the
2022 to
2023 year
and 2023
to 2024
year. Having
accepted
the decision
on the
merits
of the
case, NERSA
appealed the
remedy.
●
NERSA has additionally allowed
the revenue recovery of R6.6 billion
in the 2021 to 2022 year (half of NERSA’s determination of a
R13.3 billion RCA amount for the period from
2018 to 2019), instead of the
R27.3 billion amount that Eskom had applied for.
The
remaining half
will be recovered
in the 2022 to
2023 year.
●
Additionally, in June
2020, Eskom
succeeded in
obtaining a judgment
to recover a
portion of the
additional shortfall
of R35 billion
for
the periods from 2014 to
2015, 2015 to 2016
and 2016 to 2017,
where NERSA had initially determined the RCA amount for
those
periods to be
R32 billion when
Eskom had applied
for an amount of
R67 billion. Approximately
R4.7 billion of
the determination
will
be liquidated
in the 2021
to 2022 year.
Combined, these
outcomes will
impact the
tariff increase
implemented on
1 April 2021,
which resulted
in an increase
of approximately
15%, instead of the initially
previously approved
5.2% increase. As a result
of the judgments rendered
in favour of Eskom, and the potential
for
further RCA
applications,
it is likely
that Eskom’s electricity
tariffs will
increase above-inflation
in the future.
In February
2019, the
President of
South Africa
announced the
vertical unbundling of
Eskom. While
full state
ownership will
be
maintained, the unbundling is expected to result in the
separation of Eskom’s generation, transmission and distribution functions into separate
entities,
which may require
legislative
and/or policy
reform. The
unbundling
is currently
underway
and is expected
to be completed
by December
2021 for the
legal separation
of the transmission
function, and
December 2022
for the generation
and distribution
functions.
Poor reliability
of the
supply of electricity and instability
in prices through the unbundling process
is expected to continue. Eskom’s coal fired power plants have not
performed
well for
a number
of years,
with national
rotational
power cuts
(load shedding)
having been
implemented
intermittently
through the
last
number of
fiscal
years.
Should we
experience
further
power tariff
increases,
its business
operating
results and
financial
condition
may be
adversely
impacted.
17
Ergo
is
currently
disputing
the
electricity
tariff
charged
by
Ekurhuleni
Metropolitan
Municipality
(refer
to
Item 18.
“Financial
Statements
- Note 24 –
Payments made
under protest”).
Risks related
to climate
change
Extreme weather
Our
operations are
also
exposed to
severe weather
events that
could
interrupt production. Major
property,
infrastructure and/or
environmental damage
as well as loss of human life could be caused by extreme weather events.
Extreme weather conditions
such as droughts,
extreme
rainfall
and high
wind volumes
are on
the increase.
Specifically,
the increase
in intensity
of events,
such as
thunderstorms
on the
Highveld,
where our operations are situated.
It is believed that the long-term upward
trend in global temperature
is directly correlated
with the increase in
global severe
weather events
both in terms
of magnitude
and frequency.
For example,
dry weather
conditions
have prompted
level 2
water restrictions
on residential
water users
in the Johannesburg
area. These
water restrictions remain in place as at September 30, 2021.
Severe thunderstorms
and high winds,
especially during the summer rainy season,
may also cause damage to
operation infrastructure that may in turn cause an
interruption in the production of gold.
Such incidents and other
weather
events
may damage
the facility
and
may result
in water
shortages
which can
impact our
operations
and cause
the interruption
of deposition
and gold production
until the
facility is
repaired
or alternative
deposition is
brought online.
Scarcity
of water may
negatively
affect our
operations.
South Africa faces water shortages, which may lead to the
revision of water usage strategies by several sectors in the South African
economy, including electricity generation and municipalities.
This may result in rationing or increased water costs in the
future. Such changes
would adversely
impact our
surface retreatment
operations,
which use
water to
transport
the slimes
or sand from
reclaimed
areas to the
processing
plant and to the tailings facilities.
In addition, as our gold plants and piping
infrastructure
were designed to carry certain
minimum throughputs,
any reductions
in the volumes
of available
water may require
us to adjust
production
at these
operations.
DRDGOLD invested R22 million in the construction
of a filtration plant at the Rondebult Waste Water
Works (operated by the East
Rand Water Care Company) to
treat sewage water to reduce the use of
potable water. This water is used
both to reclaim and carry production
materials and
also,
ultimately,
to
irrigate rehabilitation
vegetation at
a
significantly lower
cost
than
that
of
potable
water.
The
plant
was
commissioned in early fiscal
year 2016 and has design capacity to provide Ergo with 10 Mega Litres (“
Ml
”) a day from the Rondebult sewage
treatment facility.
However, due to the deterioration
of the local government
authorities’ infrastructure,
the expected quantity
of sewerage is not
reaching the
treatment
facility and
as a result
Ergo is still
not able to
extract
the full design
capacity
of 10 Ml of
water a
day.
It is not
certain if
and
when the flow
of sewerage
will reach
expected levels.
These measures may not be sufficient to alleviate the water scarcity issues we face.
Government
Regulation
Government
policies in
South Africa
may adversely
impact our operations
and profits.
The mining
industry in
South Africa
is extensively
regulated through legislation
and regulations issued
through the
government’s
administrative
bodies. These
involve directives
in respect
of health
and safety, 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 discretionary and
unpredictable on
certain issues, including
changes in conditions
for the issuance
of licenses insofar
as social and
labor plans are
concerned,
transformation of
the workplace, laws
relating to
mineral rights, ownership
of mining
assets and the
rights to prospect
and mine,
additional
taxes on the mining industry
and in extreme cases, nationalization. A
change in regulatory or government
policies could adversely affect our
business.
Mining royalties
and other
tax reform
could have
an adverse
effect on the
business,
operating results
and financial
condition
of our
operations.
The
Mineral
and
Petroleum
Resources
Royalty
Act,
No.28
of
2008
and
the
Mineral
and
Petroleum
Resources
Royalty
Act
(Administration),
No.29 of 2008
govern royalty
rates for
gold mining
in South Africa.
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 taxed
entity. The royalty
is payable
on old
unconverted
mining rights
and new
converted
mining rights.
Based on
a legal
opinion
the
Company
obtained,
mine
dumps
created
before
the
enactment
of
the
Mineral
and
Petroleum
Resources
Development
Act
(“
MPRDA
”) fall outside the ambit of
this royalty and consequently the Company does not pay any royalty on any
dumps created prior to the
MPRDA. Introduction
of further
revenue
based royalties
or any adverse
future tax
reforms
could have
an adverse
effect on
our business,
operating
results and
financial
condition.
18
Failure to comply with the requirements
of the Broad Based Socio-Economic Empowerment
Charter 2018 could have an adverse
effect on our
business,
operating results
and financial
condition of
our operations.
In April
2018, judgment
was handed
down by the
North Gauteng
High Court
in Pretoria
against a
provision in
the 2010 Mining
Charter
regarding
the “once
empowered
always
empowered”
principle.”
This principle
refers
to whether
a mining
company, after
the exit
of a
Black
partner
that held a
stake in the
company consequent
to a result
of a Black
Economic Empowerment
(“
BEE
”) transaction,
continues to
be BEE compliant.
The judgment
was appealed
by the DMRE.
The DMRE
in August
2020, withdrew
their notice
to appeal
to the
Supreme
Court of
Appeal in
respect
of the judgment
issued in
April 2018
by the Pretoria
High Court.
On September
27, 2018
the Broad-Based
Socio-Economic
Empowerment
Charter
for the
Mining and
Minerals
Industry, 2018
(“
Mining
Charter 2018
”) was
published in
Government Gazette No.
41934 of
Government Notice No.
639 on
September 27,
2018 superseding and
replacing all previous
charters, including
the Reviewed Broad-Based
Black Economic Empowerment
Charter for the South African
Mining and
Minerals
Industry, 2016 (“
Mining Charter
III
”).
Mining Charter
2018 requires,
inter alia
, an enduring
30% BEE
interest
in respect
of new mining
rights.
It also
has extensive
provisions
in
respect
of
Historically Disadvantaged
Persons
(“
HDP
”)
representation at
board
and
management, as
well
provisions
relating
to
local
procurement
of goods and
services.
The procurement
target of the
total spend
on services
from South
African companies
has been pegged
at 80%
(up from 70%
in Mining
Charter III)
and 60% of
the aggregate
spend thereof
must be apportioned
to BEE entrepreneurs.
In March 2019,
the Mineral
Council of
South Africa
brought an application
in the High
Court, Pretoria
for a judicial
review and
setting aside
of certain
provisions in
Mining Charter
2018.
In June
2020, the
High Court
ordered
the Minerals
Council
to join
parties
representing
communities,
trade unions
and BEE
entrepreneurs
as a prerequisite
to the continuation
of the lawsuit,
as they have
a direct and
substantial
interest in
the outcome
of the litigation.
On September
21, 2021,
the High
Court of
South Africa
ruled that
the Mining
Charter
2018 is
not binding
subordinate
legislation
but an
instrument of policy. This ruling affirmed that the Minister
of Mineral Resources and Energy (“
MRE Minister
”) was not entitled to make law
through the
Mining Charter
2018 to require
30% HDP ownership
for the renewal
of existing
mining rights.
DRDGOLD cannot guarantee
that it will meet all the targets set out by the Mining Charter 2018. For example,
if the Mining Charter
2018 were
to remain
in its current
form, there
is no assurance
that the goods,
services
and supplies
in South Africa
would be sufficient
to allow us
to
meet the
targets.
More specifically,
DRDGOLD may
not
be
able to
meet the
requirement that 80%.
of total
mining goods
and services
procurement spend be on South African-manufactured
goods due to an insufficient number of suppliers in South Africa
with heavy equipment.
DRDGOLD may be required to increase participation by HDP in senior positions and allocate additional resources
for the development of the
mine community, human resources,
sustainability, procurement
and enterprise. DRDGOLD
may also be required to make further adjustment
to
the ownership
structure of
its South African
mining assets,
including increasing
the ownership
of HDP, in order to meet
the Mining Charter
2018
requirements.
Any such additional
measures could
have a material
adverse effect
on our business,
operating results
and/or financial
condition.
In addition,
if we are
unable to
obtain sufficient
representation
of HDP at
the board
level and
in management
positions
or if there
are not
sufficient succession
plans in place, this could have a material adverse
effect on our business (including resulting
in the imposition of fines and
having
a
negative effect
on
production levels),
operating results
and
financial position.
In
relation
to
this,
the
mining
industry,
including
DRDGOLD, continues
to experience a global shortage of qualified senior
management and technically
skilled employees.
DRDGOLD may be
unable to hire
or retain appropriate
senior management,
technically
skilled employees
or other management
personnel, or
may have to
pay higher
levels of
remuneration
than it currently
intends in
order to do
so.
Also, there is no
guarantee that
any steps DRDGOLD has
already taken or
might take in
the future will
ensure the retention
of its
existing mining rights, the successful renewal of its existing mining rights, the granting of applications for
new mining rights or that the terms
of renewals of its mining
rights would not be significantly less favourable
than the terms of its current
mining rights. Any further adjustment
to
the
ownership
structure of
DRDGOLD’s South
African mining
assets in
order
to
meet the
abovementioned
requirements
could have
a
material adverse effect on the value of DRDGOLD’s securities
Refer to
Item 4B.
Business
Overview –
Governmental
regulations
and their
effect on
our business
–
The Broad
Based Socio-Economic
Empowerment
Charter.
Government
policies in
South Africa
may adversely
impact our operations
and profits
related to
financial
provisioning
for
rehabilitation.
An amendment to the MPRDA was first proposed in 2013. The amendment bill, if implemented, would have had a material adverse
impact
on the Group's
estimated
financial
provisions
for environmental
remediation
and management
due to
the proposed
inclusion
of historic
and
old mine dumps
in the definition
of “residue
stockpiles”
as well as the
extension of
the liability
for rehabilitation
beyond the
issuance
of a closure
certificate and the requirement to maintain financial provision for
closed sites within a
period of 20
years after a
site is
closed. The MPRDA
Amendment Bill
was withdrawn
in August 2018
by the MRE Minister,
citing, amongst
other things,
the adequacy
of the current
MPRDA to deal
with all regulatory
matter pertaining
to the mining
and petroleum
industries.
19
Revised
Financial Provisioning
Regulations (“
FPR
”)
were
published on
November 20,
2015
under
the
National
Environmental
Management Act, 107 of 1998 (“
NEMA
”) and became effective from the date of publication thereof. Proposed
amendments to the FPRs were
published
for public
comment
GNR 1228
GG 41236
of November
10, 2017
(“
Draft
Regulations
”), which
seek
to address
some challenges
relating
to the implementation
thereof. Under
these FRPs to
be implemented
by the DMRE,
existing environmental
rehabilitation
trust funds
may only be
used for post
closure activities
and may no
longer be utilised
for their
intended purpose
of concurrent
and final rehabilitation
and closure.
Several further proposed amendments to
the FPRs,
(“
Proposed Amendments
”) were
published subsequently. The
latest Proposed
Amendments
were published
in August
2021 which,
inter alia
, extends
the compliance
with these
regulations
to three
months following
the fiscal
year end June
30, 2022.
The Proposed Amendments,
in their current form and which are still subject
to the approval of the DMRE and Treasury, allow under
certain circumstances for the withdrawal against financial
provision (which is currently not contemplated in the FPR). It is
therefore uncertain
whether these
provisions relating
to withdrawal
will remain
in their current
form, or at
all.
See discussion
in
4.B. Business
Overview –
Governmental regulations and their
effect on
our business
–
Financial Provision for
Rehabilitation.
The implementation
of Carbon Tax effective
from June
1, 2019 may
have a direct
or indirect
material adverse
effect on our
business,
operating results
and financial
condition.
The Carbon Tax Act No
15 of 2019, or the
CTA, came into effect from
June 1, 2019. The
CTA is based on the polluter-pays-principle
and will be implemented across
phases. The first phase will run from June 1, 2019 to December
31, 2022 and is applicable to scope 1 emitters.
The First phase did not have a
material financial impact. The second phase will be implemented from January 1, 2023 to December 31, 2030.
During the
first
phase,
tax-free
emission
allowances
ranging
from 60
per cent
to 95
per cent
are available
to emitters
in this
first
phase.
This includes
a basic
tax-free
allowance
of 60
per cent
for all
activities,
a 10
per cent
process
and fugitive
emissions
allowance,
a maximum
10 per
cent allowance
for companies that use
carbon offsets to reduce their
tax liability, a
performance allowance of up to
5 per
cent for companies that reduce
the
emissions
intensity of
their activities,
a 5 per cent
carbon budget
allowance
for complying
with the reporting
requirements
and a maximum
10 per
cent allowance
for trade
exposed sectors.
The South African
government
indicated
that a review
of the impact
of the carbon
tax will
be conducted
before the second phase of the South African
Carbon Tax Act is implemented. The carbon tax has not had an impact on the price of electricity.
However, should
Eskom be
required
to pass
on the cost
of the tax
from its
emissions
to its customers,
electricity
tariffs may
rise significantly.
This
may also
affect the
electricity
prices charged
to our
suppliers
who may
pass on
the tax
to us increasing
the price
of goods
and services
we consume
in our operation.
Regulations detailing
the tax-free emission allowances
during the second phase have not been published
to date. The second phase of
implementation of the
Carbon Tax
may have
a material
direct and/or indirect
adverse effect on
our business, operating
results and
financial
condition if the tax-free emission allowances
are significantly reduced or the scope of implementation
of the CTA
is significantly increased.
In
addition, the
potential increases
in costs resulting
from suppliers
passing through
their Carbon
Tax exposure to
the Company
may have a
direct or
indirect
material adverse
effect on our
business,
operating results
and financial
condition.
Ring-fencing
of unredeemed
capital
expenditure
for South
African
mining
tax purposes
could
have
an adverse
effect on
the business,
operating results
and financial
condition of
our operations.
The Income Tax Act No 58 of 1962,
or the ITA, contains certain
ring-fencing
provisions in
section 36 specifically
relating to different
mines
regarding
the deduction
of certain
capital
expenditure
and the
carry
over to
subsequent
years.
After the
restructuring
of the
surface
operations,
effective July 1, 2012,
Ergo is treated as
one taxpaying operation
pursuant to the
relevant ring-fencing
legislation.
It is expected that
FWGR will
also be
treated as
one taxpaying
operation
pursuant to
the relevant
ring-fencing
legislation.
In the event
that we
are unsuccessful
in confirming
our
position or should
the South African
Revenue Service
have a different interpretation
of section 36 of the ITA, it could have
an adverse effect on
our business,
operating results
and financial
condition.
Draft amendments
to the
ITA regarding
claiming
accelerated
capital expenditure
allowances
for South
African
mining tax
purposes
could have
an adverse
effect on the
business,
operating results
and financial
condition
of our operations.
The National Treasury
has proposed a prospective
amendment to the
preamble of section
15 of the ITA to limit the accelerated
capital
expenditure
allowances
applicable
to taxpayers
conducting
mining
operations
to only
those
taxpayers
that hold
“
a mining
right
as defined
in section
1 of the Mineral
and Petroleum
Resources Development
Act in respect of
the mine where
those mining
operations
are carried
on
”. In addition,
in
relation
to section
36 of
the ITA, the
National
Treasury has
proposed
an amendment
to the
heading
in order
to limit
the application
of the
provisions
in respect
of the calculation
of the redemption
allowance
and balance
of unredeemed
capital
expenditure,
to certain
mining operations.
DRDGOLD, as a surface miner, conducts mining
operations for its own benefit (i.e.
it is not a contract miner) but DRDGOLD is not
required to hold
a mining right
in terms of the
MPRDA.
The proposed requirement
by the ITA to require a miner
to hold a mining
right in terms
of the MPRDA
will preclude
DRDGOLD from
claiming accelerated
capital expenditure
allowances
in terms
of sections
15 and 36 of
the ITA.
If these proposed amendments are adopted, it will accelerate
cash outflows resulting from current
tax expenditure.
This could have a
material adverse
effect on our
cash flows,
operations,
capital investment
decisions
and financial
condition.
Assessment
of unredeemed
capital expenditure
by the South
African Revenue
Service could
have an adverse
effect on the business,
operating results
and financial
condition of
our operations.
20
The South African
Revenue Service
(“
SARS
”) assessed capital
expenditure when
it is redeemed
against taxable
mining income rather
than when
it is
incurred.
A different
interpretation
by SARS
could have
an adverse
effect on
our business,
operating
results
and financial
condition.
Since our
South African
labor force
has substantial
trade union
participation,
we face
the risk
of disruption
from labor
disputes
and
new South African
labor laws.
Labor costs
are significant
for Ergo, constituting
19% of Ergo’s
production
costs for
fiscal year
2021 (2020:
22%). As
of June
30, 2021,
our Ergo operations
provided full-time
employment
for 771 employees
while our main
service providers
deployed an
additional
1,495 employees
to our operations,
of whom approximately
82% are members
of trade unions
or employee
associations.
Labor costs
are significant
for FWGR, constituting
20% of FWGR’s production
costs for fiscal
year 2021 (2020:
22%). As of June
30,
2021, our FWGR
operations provided full-time employment for 154 employees while our
main service providers deployed an additional 343
employees to our operations,
of whom approximately
93% 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.
We are also susceptible to strikes by
workers from
time to time,
which result
in disruptions
to our mining
operations.
In recent
years, labor
laws in South
Africa have
changed in
ways that
significantly
affect our
operations.
In particular,
laws that
provide
for mandatory
compensation
in the event
of termination
of employment
for operational
reasons and
that impose
large monetary
penalties for
non-
compliance with the administrative
and reporting requirements of affirmative action
policies could result in significant costs to us. In addition,
future South
African
legislation
and regulations
relating
to labor
may further
increase
our costs
or alter
our relationship
with our
employees.
Labor
cost increases
could have
an adverse
effect on our
business,
operating results
and financial
condition.
Labor unrest
could affect
production.
During December 2018 to April 2019 there was strike action by staff
at the Sibanye-Stillwater gold mines adjacent to FWGR.
Such
events at
our operations
or at our reclamation
sites could
have an adverse
effect on our
business,
operating results
and financial
condition.
We use a
third
party service
provider
for the
management
of our
reclamation
sites
as well
as on
our Brakpan/Withok
TSF and
Driefontein
4 TSF.
Any labor
unrest or other
significant
issue at
this third
party service
provider may
impact the
operation of
this facility.
Strike action and
intimidation at mining
operations adjacent to our
FWGR mining operations
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 South Africa, the Republic of
Namibia, and the
Kingdoms of Lesotho
and Eswatini, known
collectively as the
Common Monetary Area
(the “
CMA
”). 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 the 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,
South African
companies remain
subject to
restrictions on their ability to deploy capital outside of the CMA and it is difficult to predict whether such relaxation of controls will
continue
in
the
future.
As
a
result,
DRDGOLD’s
ability
to
raise
and deploy
capital
outside
the
CMA
is
restricted.
These
restrictions
could
hinder
DRDGOLD’s
financial
and
strategic
flexibility,
particularly
its
ability
to
fund
acquisitions,
capital
expenditures
and
exploration
projects
outside South Africa. For further information see Item 10D. Exchange Controls.
We
could be adversely affected
by violations of
the U.S. Foreign Corrupt
Practices Act and
similar anti-bribery laws outside
of
the United States.
21
The U.S. Foreign
Corrupt Practices
Act, or the FCPA, and similar
anti-bribery laws
in other jurisdictions
generally prohibit
companies
and their
intermediaries
from
making improper
payments
to government
officials
or other
persons
for the
purpose
of obtaining
or retaining
business.
This includes
aggressive
investigations
and enforcement
proceedings
by both the
U.S. Department
of Justice
and the SEC,
increased
enforcement
activity by
non-
U.S. regulators,
and increases
in criminal
and civil proceedings
brought against
companies
and individuals.
Our policies
mandate
compliance
with the FCPA and other applicable
anti-bribery laws.
Our internal control
policies and procedures
may not protect us from
reckless
or criminal
acts committed
by our employees,
the employees
of any of
our businesses,
or third
party intermediaries.
In the event
that we
believe or
have reason to believe that our employees or agents have
or may have violated applicable anti-corruption
laws, including the FCPA, we would
investigate or have outside
counsel investigate the relevant facts and
circumstances, which can be expensive and
require significant time and
attention
from senior
management.
Violations of
these laws
may result
in criminal
or civil
sanctions,
inability
to do
business
with existing
or future
business partners
(either as a result of express prohibitions
or to avoid the appearance of impropriety),
injunctions against
future conduct, profit
disgorgements,
disqualifications
from directly
or indirectly
engaging in
certain
types of
businesses,
the loss of
business
permits,
reputational
harm
or other restrictions
which could
disrupt our
business and
have a material
adverse effect
on our business,
financial
condition, results
of operations
or liquidity.
We face risks with respect to compliance with
the FCPA and similar anti-bribery laws through
our acquisition of new companies
and
the due diligence
we perform in connection
with an acquisition
may not be sufficient
to enable us fully to assess
an acquired company’s historic
compliance
with applicable
regulations.
Furthermore,
as we make acquisitions
such as the acquisition
of FWGR, our post-acquisition
integration
efforts may
not be
adequate
to ensure
our system
of internal
controls
and procedures
are fully
adopted and
adhered
to by
acquired
entities,
resulting
in increased
risks of non-compliance
with applicable
anti-bribery
laws.
Risks related to ownership of our ordinary shares or ADSs
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. All
our assets
are
located outside the United States and a major portion with
respect to 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 including in 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.
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 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
use in South African courts.
It may not be
possible therefore for an
investor to seek
to impose liability on
us in a South
African court arising
from a violation of United States federal securities laws.
Dividend withholding tax will reduce the amount of dividends received by beneficial owners.
22
On April 1, 2012, the South African Government replaced
Secondary Tax on Companies (then 10%) with a 15% withholding tax on
dividends and other distributions
payable to shareholders.
The dividend withholding
tax rate was increased to 20%, effective
from February 22,
2017.
The withholding
tax reduces
the amount of
dividends or
other distributions
received
by our shareholders.
Any further
increases
in such tax
will further
reduce net
dividends received
by our shareholders.
Your rights as a shareholder
are governed by
South African law,
which differs in
material respects
from the rights
of shareholders
under the laws of other jurisdictions.
Our Company is a
public limited liability
company incorporated under
the laws of
the Republic of South
Africa. The rights
of holders
of our ordinary shares, and therefore many of the rights of our ADS holders, are
governed by our memorandum of incorporation and by South
African law. These rights differ in material
respects from the rights of
shareholders in companies incorporated elsewhere,
such as in the
United
States.
In
particular,
South African
law significantly
limits
the circumstances
under
which
shareholders of
South
African companies
may
institute litigation on behalf of a company.
Control by principal shareholders could adversely affect our other shareholders.
Sibanye-Stillwater beneficially owns 50.1% of our
outstanding ordinary shares and voting power
and has the ability to control, our
board of
directors. Sibanye-Stillwater
will continue
to have
control over
our affairs
for the
foreseeable future,
including with
respect to
the
election of directors, the consummation of significant
corporate transactions, such as an
amendment of our constitution, a
merger or other sale
of
our company
or our
assets, and
all matters
requiring
shareholder approval.
In certain
circumstances, Sibanye-Stillwater’s
interests as
a
principal shareholder
may conflict
with the
interests of
our other
shareholders and
Sibanye-Stillwater’s ability
to exercise
control, or
exert
significant influence, over us may have the effect
of causing, delaying, or preventing changes or transactions that our
other shareholders may
or may not deem
to be in their
best interests. In addition,
any sale or expectation
of sale of some or
all the shares held
by Sibanye-Stillwater
could have an adverse impact on our stock price.
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 any
such substantial sales may
occur,
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 marketplace will
increase trading volumes and may place our
share price under
pressure.
ITEM 4. INFORMATION ON
THE COMPANY
4A. HISTORY AND DEVELOPMENT
OF THE COMPANY
Introduction
DRDGOLD
Limited, or
DRDGOLD, is
a
South
African domiciled
company
that
holds
assets engaged
in
surface gold
tailings
retreatment
in South Africa
including exploration,
extraction,
processing
and smelting.
We are a public limited liability company, incorporated
in South Africa on February
16, 1895, as Durban Roodepoort Deep,
Limited.
On December 3, 2004,
the company changed
its name from Durban
Roodepoort Deep
Limited to DRDGOLD
Limited. Our operations
focus on
South Africa's
Witwatersrand Basin,
which has
been a gold
producing
region for
over 120 years.
Our shares
and/or related
instruments
trade on the
Johannesburg
Stock Exchange
(“
JSE
”),
and the New
York Stock Exchange.
Our registered office and
business address is Constantia Office
Park,
Cnr 14th
Avenue and
Hendrik Potgieter Road,
Cycad House,
Building 17, Ground Floor,
Weltevreden Park,
1709,
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 86) 524-3061. We are registered under the South African
Companies
Act 71, 2008 under registration number
1895/000926/06. For our ADSs,
the Bank of New York
Mellon, at 101 Barclay Street,
New York,
NY
10286, United
States, has
been appointed
as agent.
The SEC maintains
an internet
site that contains
reports, proxy
and information
statements
and other information
regarding issuers
that
file electronically with the SEC, which can be found
at http://www.sec.gov. Our internet address is http://www.drdgold.com.
The information
contained on
our website
is not incorporated
by reference
and does not
form part
of this annual
report.
All of our
operations
are conducted
in South Africa.
Our
operations primarily
consist
of
Ergo
and
FWGR.
Our
Ergo
operations include
the
historic
Crown
operations (which
were
restructured
into Ergo during fiscal
year 2012 and have substantially
been rehabilitated
as at the end of fiscal year
2018).
East Rand Proprietary
Mines
Limited's
(“
ERPM
”)
underground
mining
infrastructure was
under
care
and
maintenance up
to
reporting
date
at
which
date
the
23
decommissioning
and rehabilitation
of the last
remining underground
mining infrastructure
was completed.
Ergo
Ergo was formed
in June 2007. Ergo is the surface tailings retreatment operation which consists
of what was historically the Crown
Gold Recoveries
Proprietary
Limited (“
Crown
”), ERPM
Cason Dump
operation
and
the ErgoGold
business units.
On July
1, 2012,
Ergo
acquired the mining assets and certain liabilities of Crown and all the surface assets and liabilities of ERPM as part of the
restructuring of our
surface operations.
Capital expenditure for the
Ergo projects is
mainly financed through
operational cash flows while
financing for significant growth
projects may
be obtained
through specific
financing arrangements
if required.
Brakpan/Withok TSF expansion
To extend the life of our Ergo operation, it is necessary to increase residue tailings deposition capacity at our Brakpan/Withok TSF.
A legal review of the existing authorizations was undertaken
for increasing the deposition capacity
of the Brakpan/Withok TSF. The
results indicated
that most of the current
authorizations
are sufficient. An updated
application was
submitted to the Department
of Water Affairs
and Sanitation (“
DWAS
”) for which we are awaiting approval.
Recommissioning
and design studies are ongoing in anticipation of the DWAS
approval. We expect this could increase the potential deposition capacity by approximately
800Mt, and thus, our life of mine from 12
years to
more than
20 years.
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.
FWGR
On July 31, 2018, we acquired certain gold surface processing assets and tailing storage facilities that included Driefontein 3 and 5,
Kloof 1,
Venterspost
North and
South, Libanon,
Driefontein 4,
Driefontein 2
plant, Driefontein
3 plant,
WRTRP
pilot plant,
and the
land
owned by Sibanye-Stillwater that was earmarked for the
future development of a central processing plant,
regional tailings storage facility and
return
water
dam
(together,
the
“
WRTRP
Assets
”)
associated
with
Sibanye-Stillwater’s
WRTRP,
subsequently
renamed
FWGR.
This
acquisition represented a significant
increase in our assets, which
impacted our results in
fiscal 2019, 2020 and
2021. In connection with
the
acquisition, we
issued to
Sibanye-Stillwater new
shares equal
to 38.05%
of outstanding
shares and
granted Sibanye-Stillwater
an option
to
acquire up to a total
of 50.1% of our shares
within a
period of
2 years
from the
effective
date of
the acquisition
at a
10% discount
to the
prevailing
market value.
On January 8,
2020, Sibanye-Stillwater exercised the
option and on
January 22, 2020 subscribed
for 168,158,944 DRDGOLD
shares at an aggregate subscription price of R1,086 million, (R6.46 per DRDGOLD share).
The assets acquired are to be developed in two phases – Phase 1 and Phase 2.
FWGR Phase 1
Phase 1
envisions the
reclamation of
the Driefontein
5 dump
through a
reconfigured Driefontein
2 plant
and deposition
onto the
Driefontein 4 tailings storage facility. The Driefontein
4 tailings
storage facility
was an upstream
day-wall dam
with a capacity
of approximately
200,000 tonnes per
month. In
order to
increase the deposition
capacity to
500 000 tonnes per
month, the
conversion of this
dam to
cyclone
deposition
commenced
in fiscal
2019. The
conversion
has been
completed
and this
allows a
deposition
capacity
of 500,000
tonnes per
month until
at least the
end of calendar
year 2024.
Although the Phase 1 upgrade of the Driefontein 2 Plant was essentially complete by the end of fiscal 2019, a decision was made to
bypass the
mill so that
further improvements
to the mill
liner configuration
could be made.
These modifications
were successfully
completed,
and
the mill
was recommissioned
in September
2019. A further
upgrade to
convert the
mill to
closed circuit
from the
open circuit
to improve
the grind
of the
material
and yield
more gold
was completed
in fiscal
2021.
A new
thickener
is under
construction
to optimise
the slurry
density
for treatment
in the carbon
in leach plant
and is expected
to be commissioned
in November
2021.
The conversion
is expected
to yield a better
grind of material
with a concomitant improvement
in leaching conditions
and gold recovery,
lower maintenance
costs and increased
water storage capacity
in the
current thickeners.
The material being reclaimed
by FWGR contains
high
levels of copper which incurs
penalty refining charges
of between 1% and 5%
during final refining by
Rand Refinery depending on
the copper content of
the bullion delivered. FWGR
has been
allocated 98% of
its gold
production
with 2%
lost to
these penalty
refining charges
due to the
high levels
of copper
in the
bullion delivered.
To reduce these
penalty refining
charges, FWGR constructed and commissioned a copper elution plant at a
cost of approximately R12 million during fiscal 2021.
The plant is
expected to
result in an
additional
1.2kg to 1.8kg
of gold per month
which would
otherwise
have been lost
due to penalty
refining charges
for the
copper in its
bullion.
FWGR Phase 2 expansion
24
The Phase 2 project is a key project for us intended to extend potential resources in the West Rand.
Phase 2 includes
the construction of
a new Central Processing
Plant (“
CPP
”) with a
capacity of between 1.2
to 2.4 million
tonnes
per month and the equipping of the required reclamation sites and pipeline infrastructure to supply the relevant resources to the CPP.
Phase 2 also includes the construction of a new Regional
Tailings Storage
Facility (“
RTSF
”),
that we believe is necessary in order to
develop our FWGR as envisaged by our management, the new RTSF is expected to be capable of processing 3 million tonnes per month with
a maximum capacity of approximately 800 million tonnes
The Definitive Feasibility Study (“
DFS
”) for Phase 2 was completed
in the 3rd quarter of the fiscal
year and that the project was found
to be
economically viable in a number of scenarios.
We engaged an external consultant, Sound Mining (consultants to the mining industry specializing in surface and underground operations) to
perform an independent review of the available information and studies that have been performed regarding the Phase 2 expansion project.
These included:
●
DFS performed by DRA
Global (“
DRA
”) (An engineering consulting
company) regarding the construction of
the CPP and related
pumping and pipeline infrastructure;
●
Detail design
of a
new Reginal
Storage Facility
(“
RTSF
”) performed
by Beric
Robinson (engineer
of record)
and related
capital
costing performed by DRA;
●
Reviews of
the explorations data
base, Mineral
Resource and Reserve
estimates of FWGR
assets and
other future potential
assets
such as battery metals, uranium and other gold West Rand metal resources;
●
Legal tenure, permitting, environmental and compliance status; and
●
Economic analysis of the projects.
Sound Mining concluded that the Phase 2 Project is a low risk, based on the following:
●
The mineral assets are well defined
●
There are tried and tested technologies and processes
●
Established experienced management team with a solid track record
●
Significant expansion potential in the far West Rand region
●
Project economics indicate healthy operating margins
●
Legal aspects are being addressed
Based on currently
available information, the Company
believes that there are
no material technical
or geo-metallurgical risks
that
could significantly impact the production forecasts.
Risks associated
with the
Phase 2
project include
obtaining regulatory
approval of
the amended
design of
the RTSF,
which was
submitted to
the DWA
S. Delays in
obtaining such
regulatory approval may
have an adverse
impact on
the project timeline
and capital cost
estimate. We engaged the services of an
external expert to assist
us with engaging with
the DWAS and these discussions are currently
ongoing.
Presentations were conducted to provide the regulator with the technical and scientific reasons for the changes to the design of the RTSF. It is
anticipated that construction of the RTSF
will commence in first half fiscal year 2024. The plant construction is anticipated to commence 6-9
months later.
Financing for significant growth projects may be
obtained through specific financing arrangements if required.
Capital expenditure
for FWGR
Phase 1
was financed
through our
RCF (Refer
to Item
18. “Financial
Statements -
Note 20
– Capital
Management). Significant
financing is
required for the
Phase 2 expansion
which is expected
to be
financed through a
combination of cash
resources, operational cash
flows and facilities as
may be determined.
Capital expenditure for other
projects is mainly financed through
operational cash flows and
cash
resources.
We
have commenced the next
step in our
Phase 2 project which
entails the Front End
Engineering Design of the
CPP.
FWGR has
appointed DRA Global to perform the relevant function.
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.
ERPM
ERPM was
acquired
in October,
2002 and
consists
of an
underground
mine which
has been
under care
and maintenance
since fiscal
year
2009. Underground mining
at ERPM was halted in October
2008. On July 1, 2012, ERPM sold its
surface mining
assets and its 65% interest
in
ErgoGold to Ergo
in exchange
for shares
in Ergo as part
of the restructuring
of our surface
operations.
In December
2018,
ERPM concluded
revised agreements
to dispose certain
of its underground
assets to OroTree
Limited (“
Orotree
”).
The disposal of the
underground mining and prospecting rights were concluded in
the second half of
the financial year ended June
30, 2019.
Orotree did
not exercise
an option to
purchase the
underground mining
infrastructure.
25
In fiscal
2021, ERPM
completed
the decommissioning
and rehabilitation
of the
last remaining
underground
mining infrastructure,
being
the Far East
Vertical Shaft.
Crown
Crown was
acquired
on September
14, 1998.
Due to the
depletion
of ore
reserves
in the western
Witwatersrand,
the Crown
plant ceased
operation in
March 2017.
4B. BUSINESS
OVERVIEW
We
are
a
South
African
company
that holds
assets engaged in
surface gold
tailings retreatment including exploration, extraction,
processing
and smelting.
Our surface tailings retreatment operations, including the requisite infrastructure and metallurgical processing plants,
are located in South
Africa. Our operating footprint is
unique in that it involves
some of the largest concentration
of gold tailings deposits in
the world, situated within the city boundaries of Johannesburg and its suburbs and the far west rand of the province of Gauteng.
DRDGOLD’s
long-term goal
to extract
as much
gold from
its assets
as possible,
sustainable and
economically viable.
To
a large
extent this
depends on
how effectively
it continues
to manage
its capitals.
DRDGOLD uses
sustainable development
to direct
its strategic
thinking. We
seek sustainable benefits in
respect to financial, manufactured, natural,
social and human capitals,
each of which is
essential to
our operations.
We also aim to align and overlap the interests of each of these capitals in such a manner that an investment
in any one translates into
value-added increases
in as many of the others as possible. We therefore seek to achieve
an enduring and harmonious
alignment between
them,
and we pursue
these criteria
in the feasibility
analysis
of each investment.
We intend to explore
opportunities
made possible
by technology, which
could entail
further investment
in research
and development
(“
R&D
”) to improve
gold recoveries
even further
over the long
term.
On July 31,
2018, we acquired
the gold assets
associated with Sibanye-Stillwater’s
WRTRP,
subsequently renamed FWGR.
This
acquisition represented a significant increase in our assets.
During the
fiscal years
presented in
this Annual
Report, all
of our
operations took
place in
one geographic
region, namely
South
Africa.
Description
of Our Mining
Business
Surface tailings retreatment
Surface tailings
retreatment
involves the
extraction
of gold from
old mine dumps
and slimes
dams,
comprising
the waste material
from
earlier
underground
gold mining
activities.
This is
done by
reprocessing
sand dumps
and slimes
dams.
Sand dumps
are the
result
of the
less efficient
stamp-milling
process employed
in earlier
times. They
consist of coarse-grained
particles which
generally contain
higher quantities
of gold. Sand
dumps are reclaimed
mechanically
using front
end loaders
that load sand
onto conveyor
belts. The
sand is fed
onto a screen
where water
is added
to wash the sand into a sump, from where it is pumped to the plant. Most sand dumps have already been retreated using more efficient milling
methods.
Lower
grade slimes
dams were
the product
of the
“tube
and ball
mill”
recovery
process.
The economic
viability
of processing
this material
has improved due to improved treatment
methods such as the treatment
of large volumes of this material.
The material from the slimes dams is
broken down using
monitor guns
that spray jets
of high pressure
water at the target
area. The resulting
slurry is then
pumped to a treatment
plant
for processing.
Exploration
Exploration activities
are focused on the extension
of existing ore reserves
and identification
of new ore reserves both
at existing sites
and at undeveloped
sites. Once a potential
site has been identified,
exploration is extended
and intensified
in order to enable clearer
definition of
the site
and the
portions with
the
potential to
be
mined. Geological techniques
are
constantly refined to
improve the
economic viability
of
exploration
and exploitation.
Our Metallurgical
Plants and
Processes
A detailed
review of the
metallurgical
plants and
processes is
provided under
Item 4D.
Property, Plant and
Equipment.
Gold Market
The gold market
is relatively
liquid compared
to other commodity
markets, and
the price of
gold is 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.
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
26
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
or economic
uncertainty
gold is often
seen as a
safe haven,
leading to
increased
purchases of
gold and support
for its price.
Investors globally, as they have in so many previous
times of crisis,
turned to gold and gold stocks as a safe haven asset,
leading to a
surge in the average gold price during
fiscal 2020 and 2021 as described
below. The rand/dollar exchange
rate remained volatile
throughout the
fiscal year 2021 mainly
as a result of global, emerging
market and South Africa
economic uncertainty
including uncertainties
resulting from the
COVID-19 pandemic,
global economic slowdown
sentiment, tensions between the
USA and
China, perceived political
instability and
fiscal
strength and
structurally
weak economic
growth of the
South African
economy including
a seemingly
terminally
distressed
power utility, Eskom.
The average
gold spot price
increase by
18% from $1,562
per ounce
to $1,850 per
ounce during
fiscal year
2021 after
having increased
by 24% from $1,263 per ounce to $1,562 per ounce during
the fiscal year 2020 and having decreased by 3% from
$1,297 per ounce to $1,263
per
ounce during
the fiscal
year 2019.
As a
result, the average gold
price received by us
in Rands for
fiscal year 2021
increased by 19%
to
R917,996 per kg compared
to the previous year at R768,675
per kg and for fiscal year 2020 increased
by 33% to R768,675 per kg compared
to
the previous
year at R577,483
per kg.
We generally take full
exposure to the
US dollar spot
price of gold
and rand/dollar
exchange rate.
The higher the gold
price, the higher
our profit margin and
vice versa,
subject to exchange rate fluctuations.
We benefited from a sustained upswing in gold price in fiscal 2020 and
fiscal 2021,
following
the global
response to
the COVID-19
pandemic,
when the gold
price surged
to all-time
highs. The increase
in the spot
gold
price is reflected
in the increase
in our gold price
received and
contributed
to the increase
in our total revenue for fiscal year 2021 amounting to
R5,269.0 million (2020: R4,185.0 million and 2019: R2,762.1 million). All our revenue is generated from our operations in South Africa.
Looking ahead we believe that the global economic environment
(particularly during
the COVID-19 pandemic), including
escalating
sovereign
and personal
levels
of debt,
economic
volatility
and the
oversupply
of foreign
currency, will
continue
to make
gold attractive
to investors.
The supply
of gold
has shrunk
in recent
years and
is likely
to shrink
even more
due to
the significantly
reduced
capital
expenditure
and development
occurring in the sector.
We believe that this, coupled with
global economic
uncertainty, is likely to provide
support to the gold
price in the long
term.
All gold
we produce
is sold
on our
behalf
by Rand
Refinery
Proprietary
Limited
(Rand
Refinery)
in accordance
with a
refining
agreement
entered into
in October
2001 and updated
in July
2018.
The gold bars
which we produce
consist of approximately
85% gold, 7-8%
silver and the
remaining balance
comprises copper
and other common elements.
The gold bars are sent
to Rand Refinery for
assaying and final
refining where
the gold is purified to 99.9% and
cast into troy ounce bars of varying
weights. The Group recognizes
revenue from the sale
of gold at a point in
time when
Rand Refinery, acting
as an agent
for the sale
of all gold
produced by
the Group,
delivers the
gold to the
buyer.
The sales
price is fixed
at the London afternoon fixed dollar price on the day the gold is delivered to the buyer.
Before November 2020, the dollar proceeds
sold were
remitted to
us within two
days at which
date the dollars
were sold.
Since November
2020 the dollars
are also sold
on the day the
gold is delivered
to the buyer. In
exchange for this service,
we pay Rand Refinery a variable refining fee plus fixed marketing and administration
fees. We own
11.3% (fiscal
year 2020 and 2019:
11.3%) of Rand
Refinery.
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 ore reserves are planned
to be mined under the life of mine plan
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
this report,
all ore
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 currently recognize
Mineral Resources. Accordingly,
we do not include
estimates of Mineral Resources in
this Annual Report. The
SEC has
adopted rules that
will rescind Guide
7 from our
next annual
report on Form
20-F and,
inter alia
, require the
inclusion of Mineral
Resources in additional to Mineral Reserves.
Ore Reserve calculations are
subject to a review
conducted in accordance with
SEC Industry Guide 7.
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 operating costs, including overhead costs, to
calculate the pay-limit grade. The
second is the
cut-off grade which includes cash
operating 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.
The pay-limit approach
is based on the minimum in-situ
grade of reclamation
sites, 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
areas 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.
When delineating
the economic
limits to the
ore bodies,
we adhere
to the following
guidelines:
27
●
The potential
ore to be mined
is well defined
by an externally
verified and
approved geological
model;
●
The potential
ore, which
is legally
allowed to
be mined, is
also confined
by the mine's
lease boundaries;
and
●
A business
plan is prepared
to mine the
potential ore.
Our Ore Reserves figures are estimates,
which may not reflect actual ore reserves or future production.
These figures are prepared 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. Ore
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,
ore reserve
estimates may
have to be adjusted
and mining plans
may have to
be altered in a way
that might adversely affect our operations and actual gold recoveries may differ from those indicated in our Ore Reserves.
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
rand gold prices.
We
prepare business plans
using the
forecast rand gold
price at the time of the ore reserve determination.
Gold prices and exchange rates used for Ore Reserves and for our business plan are outlined in the following table.
June, 30
June, 30
June, 30
2021
2020
2019
Three-year
average gold
price
Prevailing gold
price
Three-year
average gold
price
Prevailing gold
price
Three-year
average gold
price
Prevailing gold
price
Reserve gold price –$/oz
1,559
1,796
1,375
1,666
1,272
1,369
Reserve gold price –R/kg
756,355
851,239
629,263
905,774
552,585
629,404
Exchange rate –R/$
15.09
14.74
14.24
16.91
13.53
14.30
Our Ore Reserves
(imperial)
changed in
the past three
fiscal years
as follows:
●
Our Ore Reserves (imperial) decreased from 5.73 million ounces at June 30,
2020, to 5.35 million ounces at June
30, 2021,
mainly
because of depletion through ongoing mining activities. At FWGR there was a non-material increase in reserves due to adjustments
of bulk density assumptions to further test work performed.
●
Our Ore Reserves (imperial) decreased from 5.77 million ounces at June
30, 2019, to
5.73 million ounces at June 30,
2020, mainly
because of depletion through
ongoing mining activities as
well as the Grootvlei dump
6/L/16 of 0.3Moz no
longer being classified
as an Ore Reserve. The decrease was offset by inclusion of Marievale dumps at Ergo of 0.5Moz.
The life-of-mine for Ergo based on proven and probable ore reserves under Industry Guide 7 of the SEC as
at June 30, 2021,
was 13
years (June 30, 2020:
13 years, June 30, 2019:
11 years).
The life of mine for FWGR
based on proven and
probable
ore reserves
under Industry Guide
7 of the SEC as at June 30,
2021 was 18
years (June
30, 2020:
20 years;
June 30, 2019:
15 years).
28
DRDGOLD's Ore Reserves as of June 30, 2021 and 2020 are set forth in the tables below.
The Ore Reserves listed in the table below are estimates of what can be legally and economically recovered from operations, and, as stated, are estimates of tons delivered to the plant.
Ore Reserves: Imperial
At June 30, 2021
At June 30, 2020
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)
('m ozs)
(mill)
(oz/ton)
('000 ozs)
(mill)
(oz/ton)
('m ozs)
(mill)
(oz/ton)
('000 ozs)
Surface
Ergo
32.36
0.01
0.28
279.54
0.01
2.53
50.01
0.01
0.44
291.99
0.01
2.69
FWGR
245.01
0.01
2.40
14.19
0.01
0.14
248.33
0.01
2.46
13.99
0.01
0.13
Total
277.37
0.01
2.68
293.73
0.01
2.67
298.34
0.01
2.90
305.99
0.01
2.82
Ore reserves: Metric
At June 30, 2021
At June 30, 2020
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)
Surface
Ergo
29.36
0.300
8.81
253.59
0.310
78.61
45.37
0.300
13.61
264.89
0.316
83.61
FWGR
222.27
0.337
74.79
12.88
0.330
4.24
225.29
0.340
76.55
12.70
0.330
4.19
Total
251.63
0.333
83.60
266.47
0.311
82.85
270.66
0.333
90.16
277.59
0.316
87.80
29
The measurement
and classification
of our Proven
and Probable
Ore Reserves
are sensitive
to an extent
to the fluctuation
of the rand
gold price.
If we had
used the different
rand gold prices
or as set
forth below
instead of
the three-year
average prices
at the time
of ore reserve
determination,
as of June
30, 2021 and
2020 respectively,
we would not
have had significantly
different ore
reserves as
of those dates.
Using the
same methodology
and assumptions
as were used
to estimate
Ore Reserves
but with different
rand gold prices
as detailed
below, our Ore
Reserves
as of June
30, 2021 and
2020 would be
as follows:
Year ended
June 30, 2021
Three-year average
gold price
Prevailing price
10% Below
prevailing price
10% Above
prevailing price
Rand gold price per kilogram
756,355
851,239
766,115
936,363
Dollar gold price per ounce
1,559
1,796
1,616
1,976
Ore Reserves (million ounces)
5.35
5.35
5.35
5.35
Year ended
June 30, 2020
Three-year average
gold price
Prevailing price
10% Below
prevailing price
10% Above
prevailing price
Rand gold price per kilogram
629,263
905,774
815,197
996,351
Dollar gold price per ounce
1,375
1,666
1,499
1,833
Ore Reserves (million ounces)
5.73
5.73
5.73
5.73
The approximate mining recovery factors for the 2021 ore reserves shown in the above table are as follows:
Mine Call Factor
Metallurgical recovery factor
(%)
(%)
Ergo
100
49
FWGR
100
53
The approximate mining recovery factors for the 2020 ore reserves shown in the above table are as follows:
Mine Call Factor
Metallurgical recovery factor
(%)
(%)
Ergo
100
46
FWGR
100
53
The following table shows the average drill/sample spacing (rounded to the nearest foot) as at June 30, 2021 and 2020, for
each category of Ore Reserves at our mines calculated based on a three year average dollar price of gold.
Proven
Probable
Reserves
Reserves
Ergo and FWGR
328 ft. by 328 ft.
328 ft. by 328 ft.
The pay-limit grades based on the three year average rand price for gold amounting to R756,355/kg and costs used to
reserves as of June 30, 2021, are as follows:
Costs used to determine pay-
Pay-limit grade (g/t)
limit grade (R/t)
Ergo
0.200
84.10
FWGR
0.170
69.94
The pay-limit grades based on the three year average rand price for gold amounting to R629,263/kg and costs used to
reserves as of June 30, 2020, are as follows:
Costs used to determine pay-
Pay-limit grade (g/t)
limit grade (R/t)
Ergo
1
0.220
82.15
FWGR
0.220
61.12
1
Ergo's disclosed Costs used to determine pay-limit grade (R/t), for 30 June 2020, has been updated to reflect the correct amount.
We apply the pay-limit approach to the mineralized material database of our business in order to determine the tonnage and
grade available for mining.
30
Governmental
regulations
and their
effects on
our business
Common Law
Mineral Rights
and Statutory
Mining Rights
Prior to the introduction
of the Minerals
and Petroleum Resources
Development Act,
or MPRDA in 2002,
ownership in mineral
rights
in South Africa
could be acquired
through the common
law or by statute.
With effect from May
1, 2004, all minerals
have been placed
under the
custodianship
of the
South African
government
under the
provisions
of the
MPRDA and
old order
proprietary
rights were
required
to be
converted
to new order rights
of use within certain
prescribed periods,
as dealt with in more
detail below. Mine dumps
created
before the MPRDA
became
law fall outside the
MPRDA and do
not require a
mining license to be
processed nor do
they require the extensive rehabilitation and closure
guarantees that are
a feature
of the
MPRDA. Many
of the
activities to re-process a
mine dump
do fall
under the
provisions of the
National
Environmental
Management
Act though,
which requires
at it most
basic the
compilation
and submission
of an Environmental
Impact Assessment.
Conversion
and renewal of
Rights under
the Mineral
and Petroleum
Resources Development
Act, 2002
Existing old
order rights
were required
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 MPRDA.
In respect
of used old
order mining
rights, the
DMRE
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 a social
and labor
plan. These
applications
had to be
submitted
within five
years after
the promulgation
of the
MPRDA
on May
1, 2004.
Similar
procedures
apply
where
we hold
prospecting
rights
and a
prospecting
permit
and conduct
prospecting
operations.
Under the
MPRDA mining
rights are
not perpetual,
but endure
for a fixed
period, namely
a maximum
period of
thirty years,
after which
they may
be renewed for
a further period of
thirty years. Prospecting rights are limited to
five years, with one
further period of renewal of
three years.
Applications for conversion of our
old order
rights were submitted to
the DMRE
within the requisite time
periods. As at
June 30,
2021 and
September
30, 2021 respectively,
all of our
Ergo operation’s
old order
mining rights
have been
converted
into new order
rights under
the terms
of
the MPRDA
and applications
to renew the
converted
the new order
mining rights
have been
lodged timeously.
The Broad Based
Socio-Economic
Empowerment
Charter
In order to promote broad based participation in mining revenue, the MPRDA provides
for a Mining Charter to be developed by the
MRE Minister
within six
months
of commencement
of the
MPRDA beginning
May 1,
2004. The
Mining
Charter
was initially
published
in August
2004 and was
subsequently
amended in
September
2010. 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.
The Mining Charter
sets certain
goals on equity
participation
(amount of
equity participation
and time frames)
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 by
May 1, 2014.
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
around August
2010. In April
2018, judgment
was handed
down
by the North
Gauteng High
Court in Pretoria
against a
provision in
the 2010 Mining
Charter regarding
the “once
empowered
always
empowered”
principle.”
This principle
refers to
whether a
mining company, after
the exit of
a Black partner
that held a
stake in the
company
consequent
to a result
of a BEE transaction,
continues to
be BEE compliant.
The judgment
was appealed
by the DMRE.
The DMRE in
August
2020, withdrew
their notice
to appeal
to the Supreme
Court of Appeal
in respect
of the judgment
issued in April
2018 by the
Pretoria High
Court.
The Mining Charter and the related
scorecard are not legally
binding and, instead,
simply state a public policy. However, the DMRE
places significant
emphasis on the
compliance
therewith. The
Mining Charter
and scorecard
have a decisive
effect on administrative
action taken
under the MPRDA.
In recognition of the Mining
Charter’s objectives of
transforming the mining
industry by increasing the
number of black people
in
the industry
to reflect
the country’s
population demographics,
to empower
and enable
them to
meaningfully participate
in and
sustain the
growth of the
economy, thereby advancing equal
opportunity and equitable
income distribution, we
have
achieved
our commitment
to ownership
compliance
with the MPRDA
through our historic
black economic
empowerment
structures
which have
subsequently
unwound.
The mining
industry in
South Africa
is extensively
regulated
through legislation
and regulations
issued by government’s
administrative
bodies. These involve
directives with respect
to health
and safety,
mining and
exploration of
minerals, and
managing the
impact of
mining
operations
on the environment.
A change
in regulatory
or government
policies could
adversely
affect our business.
On June
15, 2017, the
Reviewed Broad-Based Black Economic Empowerment Charter for the South
African Mining and Minerals
31
Industry, 2017
(“
2017 Mining
Charter
”) was published
in the
Government
Gazette
No. 40923
of Government
Notice.581.
The publication
of the
charter was met with widespread criticism
and on June 26, 2017 the Minerals Council of South Africa (previously
Chamber of Mines of South
Africa), and
applied to
the High Court
of South Africa,
Gauteng division
for an urgent
interdict
to prevent
the charter
from implementation.
Key provisions
included:
•
50% Black ownership
for new prospecting
rights;
•
30% Black ownership
for mining
rights (up
to 11% offset
for local
beneficiation)
•
For new
mining
rights
to be
issued,
the provision
for 1%
of Earnings
Before
Interest,
Taxes, Depreciation
and Amortisation
(“
EBITDA
”)
is paid to
communities
and employees
as a trickle
dividend from
the sixth year
of a mining
right until
dividends
are declared
or at any point
in a
12-month period
where dividends
are not declared
On February
2016, The President
of South Africa
announced that
a new mining charter
would be developed,
and will follow
a process
which includes
all stakeholders.
The Minerals
Council of
South Africa
subsequently
postponed
its application
in the
High Court
in respect
of the
2017 Mining
Charter.
On September
27, 2018
the Broad-Based
Socio-Economic
Empowerment
Charter
for the
Mining and
Minerals
Industry, 2018
(“
Mining
Charter 2018
”) was
published in
Government Gazette No.
41934 of
Government Notice No.
639 on
September 27,
2018 superseding and
replacing
all previous
charters,
including Mining
Charter III.
Mining Charter
2018 requires
an enduring
30% BEE interest
in respect
of new mining
rights. It
also has extensive
provisions in
respect
of HDP representation
at board and management,
as well provisions
relating to
local procurement
of goods and services.
The procurement
target
of the total
spend on services
from South African
companies has
been set at 80% (up
from 70% in Mining
Charter III)
and 60% of the aggregate
spend thereof
must be apportioned
to BEE entrepreneurs.
Key provisions
of Mining Charter
2018 are:
•
The conditional acceptance
of the continued consequences
of previous compliance
of the BEE ownership threshold
of 26% in respect
of existing
mining rights;
•
Of the 30%
HDP ownership
component, qualifying
employees
and communities
are each to
hold a 5% carried
interest (as
opposed to a
free carry interest
as per Mining Charter III)
the cost of which may be recovered
by the mining right holder from
the development of
the asset.
The community
interest
in turn may
be offset by
way of an
equity equivalent;
•
Removal of
the so-called
1% of EBITDA
trickle dividend
provided for
in the 2017
Mining Charter;
and
•
The removal
of provisions
requiring
community
and employee
representation
at board level.
•
that the continuing
consequences
of HDP ownership
are not recognized
for transfers
of mining rights;
and
•
that a top
up of HDP ownership
back to 30%
is required
for the renewal
of existing
rights.
Subsequently, several
notable developments
have occurred:
In March
2019, the
Mineral Council
of South Africa
brought an
application
in the High
Court, Pretoria
for a judicial
review and
setting
aside of certain
provisions in
Mining Charter
2018.
In June 2020, the
High Court ordered
the Minerals Council
of South Africa to join parties
representing
communities,
trade unions and
BEE entrepreneurs
as a prerequisite
to the continuation
of the lawsuit,
as they
have a
direct and
substantial
interest
in the outcome
of the litigation.
On September
21, 2021,
the High
Court of
South Africa
ruled that
the Mining
Charter
2018 is
not binding
subordinate
legislation
but an
instrument of policy. This ruling
affirmed that the MRE Minister
was not entitled to make
law through the Mining Charter
2018 to require 30%
HDP ownership
for the renewal
of existing
mining rights.
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. The Act was
amended in 2009
and the
amendments to the
Act dealt with
inter alia
the stoppage
of production and
increase punitive measures
including increased financial
fines and legal
liability of mine
management. Some
of the more
important provisions in
the 2009 amendment bill
are the insertion of
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”;
section
86A(2)
creating
an
offence
of
vicarious
liability
for
the
employer
where
a
Chief
32
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 were also 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 dependents
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 of 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 year 2021, we contributed
approximately
R4.3 million under the COID
Act (2020: R3.7
million and
2019: R3.6
million) 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.
These payment
requirements
are based
on a combination
of the employee
costs and claims
made during the
fiscal year.
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 for compliance with
all local
laws and
regulations pertaining to
uranium and radon
management and under
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 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 MPRDA.
The MPRDA
has onerous
provisions
for
personal liability
of directors
of companies
whose mining
operations
have an unacceptable
impact on the
environment.
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 DMRE
as a prerequisite
for the issue
of a new order
mining right.
Various funding mechanisms
are
in place,
including trust
funds, guarantees
and concurrent
rehabilitation
budgets, to
fund the rehabilitation
liability.
The MPRDA
imposes specific,
ongoing environmental
monitoring and
financial
reporting obligations
on the holders
of mining rights.
We
believe that
our
environmental risks
have
been
addressed in
EMPs
which
have
been
submitted to
the
DMRE
for
approval.
Additionally, 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.
Our existing
reporting and
controls
framework
is consistent
with the additional
reporting and
assessment
requirements
of the MPRDA.
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 fund these
environmental
rehabilitation
costs by irrevocable
contributions
to environmental
trust funds
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 call
deposits.
As of June
30, 2021,
we held
a total
of R564.7 million
(2020:
R542.2 million) in trust, the
balance held in
each fund being
R127.2 million (2020: R122.1 million) for
Ergo, R425.1 million (2020:
R408.1
million)
for FWGR
and R12.4
million
(2020:
R12.0 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. If
any of
the operations are
prematurely closed, the
rehabilitation funds may be
insufficient
to meet all
the rehabilitation
obligations
of those operations.
Whereas the old Minerals
Act allowed for the
establishment
of a fully funded rehabilitation
fund over the operational
life of mine, the
MPRDA assumes
a fully compliant fund
at any given time.
Insurance instruments
may also be utilized
to make up the shortfall
in available
cash
33
funds subject
to the DMRE’s consent.
The Company
has subsequently
made use of
approved insurance
products for
a portion of
its rehabilitation
liabilities.
As of June
30, 2021, we
held a total
of R87.5 million
(2020: R83.8
million) in
funds held
in insurance
instruments.
As at June
30, 2021
guarantees
amounting to
R430.1 million
(2020: R427.3
million) were
issued to
the DMRE.
The provision
for environmental
rehabilitation
for the group was
R570.8 million
at June 30, 2021,
compared to
R568.9 million
at June
30, 2020.
New
Financial Provisioning
Regulations (“
FPR
”)
were
promulgated on
November 20,
2015
under
the
National
Environmental
Management Act, 107
of 1998
(“
NEMA
”) by
the Department of
Forestry, Fisheries and
the Environment (“
DFFE
”).
Under the
FPRs to
be
implemented
by the
DMRE, existing
environmental
rehabilitation
trust funds,
of which
DRDGOLD
has R564.7
million,
may be
used only
for post
closure activities and may
no longer be
utilized for their
intended purpose of
concurrent and final rehabilitation on
closure. As a
result, new
provisions will
have to be
made for
these activities.
Several further proposed amendments to
the FPRs,
(“
Proposed Amendments
”) were
published subsequently.
The latest
Proposed
Amendments
were published
in August
2021 which,
inter alia
, extends
the compliance
with these
regulations
to three
months following
the fiscal
year end June
30, 2022.
The Proposed Amendments,
in their current form and which are still subject
to the approval of the DMRE and Treasury, allow under
certain circumstances for the withdrawal against financial
provision (which is currently not contemplated in the FPR). It is
therefore uncertain
whether these
provisions relating
to withdrawal
will remain
in their current
form, or at
all.
Regulation 5(4) of the Proposed Amendments
states that the determination of financial provision
must be undertaken by a specialist,
which according to the definitions
listed in the Proposed Amendments
is an “independent person”.
Regulation 10 of the Proposed Amendments
further requires
the annual review and re-assessment
of financial provision
by an independent specialist,
which in terms of Regulation
11 of the
Proposed Amendments
must also be
audited by an
independent
auditor. The Proposed
Amendments
do not require
that the annual
review and re-
assessment
of financial
provision be
audited by a
financial
auditor.
4C. ORGANIZATIONAL
STRUCTURE
The
following chart
shows our
principal subsidiaries as
of
June 30,
2021
and
as
of
September 30,
2021 respectively.
All
of
our
subsidiaries are incorporated in South Africa. Our voting interest in each of our subsidiaries are equal to our
ownership interests. We hold the
majority of
our subsidiaries
directly or
indirectly
as indicated
below. Refer to
Exhibit 8.1 for
a list of
our significant
subsidiaries.
34
4D. PROPERTY, PLANT AND EQUIPMENT
Description
of Significant
Subsidiaries'
Properties and
Mining Operations
Ergo
Overview
We
own 100%
of Ergo.
Ergo is
a surface tailings
retreatment operation operating
across central and east Johannesburg.
In order to
improve synergies,
effect cost savings and establish
a simpler group structure,
DRDGOLD restructured
the Group’s surface operations
(Crown,
ERPM’s
Cason
Dump
surface
operation
and
ErgoGold) into
Ergo
with effect
from
July 1,
2012. ERPM’s
Cason
Dump
surface
tailings
retreatment operation was depleted in the
first half of fiscal year 2015.
At June 30, 2021,
Ergo employed
771 full-time
employees.
In addition,
specialist
service providers
deployed a
further 1,495
employees
to our
operations
bringing the
total number
of in-house
and outsourced
employees
to 2,266 at
June 30, 2021
(at June 30,
2020: 2,155
;
at June 30,
2019: 2,214
)
.
Properties
The Ergo plant is
located approximately
43 miles (70
kilometers)
east of the Johannesburg’s
central business
district in the
province of
Gauteng on
land owned
by Ergo. Access
to the Ergo plant
is via the
Ergo Road on the
N17 Johannesburg-Springs
motorway.
Following the
restructuring
of the
Crown operations,
which consisted
of three
separate
locations,
City Deep,
Crown Mines
and Knights,
into a single
surface retreatment
operation in
Ergo,
these mining
rights were
transferred
to Ergo in March
2014.
Our ore
reserves
in the
western
Witwatersrand
had become
depleted.
We therefore
took a
decision
to close
the Crown
Mines plant
which
operated as
a pump/milling
station feeding
the metallurgical
plants until
March 2017.
The Crown sites
have been
cleared and
the rehabilitation
of
the Crown plant
site has
been completed.
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 City
Deep plant
continues to
operate as
a pump/milling
station feeding
the metallurgical
plants.
The Knights operation
is located at
Stanley and Knights
Road Germiston
off the R29 Main
Reef Road. The
Knights plant
continues to
operate as
a metallurgical
plant.
As of June
30, 2021 and
September 30, 2021, no material
encumbrances
exist on Ergo's
property.
Mining and Processing
Ergo undertakes the retreatment of surface tailings.
Material processed
by Ergo
is sourced
from primary
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 the
material was deposited.
Our two gold producing metallurgical plants,
Ergo and Knights have an installed capacity
to treat approximately 25 million tons of
material per year based on 92% availability
and are fully operational. All
of the
plants have
undergone
various modifications
during recent
years
resulting in
significant changes
to
the
processing circuits. The
City
Deep plant
continues to
operate as
a
pump/milling station
feeding the
metallurgical
plants.
Ergo’s assets include: access
to tailings deposited
across the western,
central and eastern
Witwatersrand; a 50km
pipeline; and tailings
deposition facilities
including the
significant
Brakpan/Withok
TSF.
The feedstock 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
also
known
as
hydraulic
reclamation. 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.
Set forth below is a description of each of our plants in operation:
Ergo Plant:
Commissioned
by Anglo American Corporation
in 1977, became part
of AngloGold Ashanti
in 1998 from which it was
acquired
for a
consideration
of R42.8
million
in 2007.
The remaining
five CIL
tanks were
refurbished
during fiscal
year 2015
to increase
capacity to
treat up to
25.2Mt per
year.
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.
The
Knights
plant,
although
historically
part
of
the
Crown
operation,
is
located
further
east
and
considerably
closer
to
the
35
Brakpan/Withok
TSF. Due to the
location
of the Knights
plant it
deposits waster
on the Brakpan/Withok
TSF. The Knights
plant has
an
installed
capacity to
treat an estimated
3.6Mt per year.
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. Retreatment
continued at the City Deep Plant until the plant was decommissioned in August 2013 to
operate as
a milling
and pump station
and is currently
pumping material
to the Ergo Plant
for the final
extraction
of gold.
As of June
30, 2021,
the net book
value of Ergo’s mining
assets was
R1,427.8 million
(2020: R 1,283.9
million).
Capital Expenditure
For a
discussion of capital
expenditures in fiscal
years 2019,
2020 and
2021, see
"Item 5.A.
Operating and Financial
Review and
Prospects—Capital
expenditure".
Advance planning is underway
for the expansion of the Brakpan/Withok
TSF to accommodate higher
grade resources in the Far East
area of
the Gauteng province and
further extend the
life of mine
of ERGO. A
legal review of
the existing authorizations was undertaken for
increasing the deposition capacity of the Brakpan/Withok TSF.
The results indicated that most of
the current authorizations are sufficient. An
updated application was
submitted to
the DWAS
for which
we are
awaiting approval. Recommissioning and
design studies
are ongoing
in
anticipation
of the DWAS approval.
We expect this could
increase
the potential
deposition
capacity
by approximately
800Mt, and
thus, our
life of
mine from
13 years to
more than 20
years.
Capital expenditure
related to
material growth
projects are
financed on
a project-by-project
basis which
may include
bank facilities
and
existing
cash resources.
Sustaining
capital
expenditure
is financed
from cash
generated
from operations
and existing
cash resources.
For a
summary
of capital
expenditure,
see Item 5A.
Operating
Results.
The majority
of the Company’s carbon
emissions
are the scope
2 carbon emissions
for electricity
consumption purchased
from Eskom,
who produces electricity, predominately
from coal powered fire stations. In the current year
the Company generated 404
609 tonnes of scope 2
carbon emissions
(2020: 364
950 tonnes).
A large percentage
of the capital
expenditure
in the current
year is
expected
to go towards
our own
solar
photovoltaic
power generation
plant and
battery
storage facility
at Ergo. The
successful
completion
of this
project
is expected
to reduce
our carbon
emissions
footprint. The
project is
subject to
regulatory
approval.
Exploration
and Development
Exploration and development
activity at Ergo involve the drilling of surface dumps and evaluating the potential
gold bearing surface
material.
Environmental
and Closure
Aspects
Municipal infrastructure
as well as commercial and residential
developments have
encroached towards
the Ergo operation. The major
environmental risks are associated
with dust from various reclamation 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
Professor
H. Annagran
from the
Cape Peninsula University of Technology and
appropriate
community
involvement.
Environmental management
programs,
addressing
a
wide
range
of
environmental issues,
have
been
prepared
by
specialist
environmental consultants,
which are audited annually. 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 Ergo’s metallurgical
plants. Overflows
of return
water dams
may, depending
on their
location,
pollute surrounding
streams
and wetlands.
Ergo 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 the capacity
of return water
dams.
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 are
applied. Dust fall-out
is monitored
through an
extensive dust monitoring
network monthly, and is utilized as a management
measure to ensure the effectiveness
of mitigation measures employed.
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
Ergo has several
environmental
merits as
it removes potential
pollution sources
and opens up
land for development.
Environmental management
and compliance is further assisted
by the in–house developed electronic
monitoring system (Compliance
Management Tool) that incorporates
all existing Environmental
Impact Assessments
(“
EIA
s”), EMPs, Mining Right Conversions,
Performance
Assessments
and Social
and Labor
Plans (“
SLP
s”) associated
with each
mining right.
The existing
and most
recent studies
are used
to supplement
the management components with regards to the mining right boundaries and its required compliance parameters.
The individual management
items
are integrated
to provide
a holistic
overview
of the
state
of each
of the
mining
right
areas.
Spatial
data
pertaining
to the
mining
right
boundaries
is stored onto a central
database and is utilized
to create a live map
which illustrates
the mining right area
and various environmental
monitoring
systems. This
map depicts
the mining right
boundaries,
roads, rails,
mine dumps,
plants, rivers,
pipeline routes,
servitudes,
way leaves,
municipal
36
services and
other spatial
data relevant
to our mining
operations.
While the ultimate amount
of rehabilitation costs
to be incurred is uncertain,
we have estimated that the total cost
for Ergo, in current
monetary
terms as
at June
30, 2021 is
approximately
R445.8 million.
As at June
30, 2021, a
total of
R127.2 million
(2020: R122.1
million)
is held
in the Ergo Rehabilitation
Trust Fund, previously
called the Crown
Rehabilitation
Trust Fund, which
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.
In addition, a total of
R62.7 million
(2020: R59.9
million)
is held in
insurance
instruments.
Ore Reserves
As at June 30, 2021, our Proven and Probable
Ore Reserves of Ergo was 2.81 million
ounces, a decrease from
3.13 million ounces at
June 30, 2020
due to depletion
resulting from
ongoing mining.
A Mineral
Reserves and
Mineral Resources
competent
person is
appointed at
each
operation to
review our
Ore Reserve
calculations
for accuracy. For
Ergo, Professor
Steven Rupprecht
is the designated
competent
person in terms
of the SAMREC
Code responsible
for the compilation
and reporting
of ore reserves.
Production
For fiscal
year 2021,
production
increased
to 137,059
ounces
from
128,249 ounces
in fiscal
year 2020
mainly due the
volume
throughput
that increased
from 20.2Mt
to 23.0Mt,
a consequence
of more
stable production
during fiscal
2021 compared
to fiscal
2020 which
was affected
by
the COVID-19
Lockdown, a
cautious
subsequent
ramp-up and
interruptions
in power
supply from
Eskom and
the City of
Ekurhuleni.
The impact
of this increase
was offset
by the decrease
in the average yield from 0.197g/t in fiscal 2020 to 0.186g/t in fiscal 2021.
Ergo temporarily halted
its operations on March
26, 2020 pursuant to the announcement
of the Lockdown.
The Disaster Management
Act regulations
subsequently
issued by the Department
of Co-operative
governance
and traditional
affairs affirmed
that gold mining
and refining
are “essential
services” and
was therefore
exempt from
restrictions
imposed by the
Lockdown. ERGO
recommenced
operations on
April 9, 2020
with limited sites and ramped up to almost full production in June 2020. ERGO’s Knights plant recommenced operations on May 7, 2020 and
ramped up to
almost full
production
in June 2020.
Subsequent
lockdowns
in fiscal
2021 did not
result in any
similar stoppages
in production.
Cash operating
costs increased
by $143 per
ounce,
or 13%, from
$1,129 per
ounce in fiscal
year 2020 to
$1,272 per
ounce in fiscal
year
2021 mainly
due to the
6% decrease
in yield and
a 15% tariff
increase
by power utility, Eskom,
which came
into effect
in April 2021.
The following table details certain production and financial results of Ergo for the past two fiscal years.
2021
2020
Production (imperial)
Ore milled ('000 tons)
22,952
20,228
Recovered grade (oz/ton)
0.006
0.006
Gold produced (ounces)
137,059
128,249
Results of Operations
Revenue (R million)
3,943.0
3,064.3
Cost of sales (R million)
2,871.0
2,453.5
Cash operating costs (R million)
2,666.5
2,274.0
Cash operating costs (R/kilogram)
1
629,585
568,476
All-in sustaining costs (R/kilogram)
1
704,503
614,861
All-in cost (R/kilogram)
1
717,755
621,316
1 Cash operating cost, cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram are financial measures of performance that we use to determine cash generating capacities
of the
mines and to monitor
performance of our mining operations.
These are all non-IFRS
measures. For a reconciliation of
these measures to the nearest
IFRS measure see Item
5A.: “Operating Results - Reconciliation
of
cash cost per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram.”
37
FWGR
Overview
On July 31, 2018,
we acquired WRTRP Assets, which
are surface gold processing
assets and tailing storage
facilities in Carletonville
in the West
Rand Goldfield of
Gauteng, 30km from
Johannesburg, that
include Driefontein 3
and 5, Kloof
1, Venterspost
North and South,
Libanon, Driefontein
4, Driefontein
2 plant,
Driefontein 3
plant, WRTRP
pilot plant,
and land
for the
development of
a central
processing
plant, regional tailings storage
facility and return water
dam associated with
Sibanye-Stillwater’s WRTRP,
subsequently renamed FWGR.
This
acquisition represents a significant increase in our assets, which had a material impact on our results for fiscal years ended June 30, 2019.
In connection with the
acquisition, we issued to Sibanye-Stillwater
new shares equal to 38.05%
of our then outstanding shares
and
granted Sibanye-Stillwater
an option
to acquire
up to
a total
of 50.1%
of our
shares within a period of 2
years from the effective date of the
acquisition
at a 10% discount
to the prevailing
market value.
On January 8, 2020, Sibanye-Stillwater exercised the option. On January 22, 2020
Sibanye-Stillwater subscribed
for 168,158,944
DRDGOLD shares
at an
aggregate subscription
price of
R1,086 million.
These shares
were
allotted and issued at a price of R6.46 per share, being a 10% discount to the 30-day volume weighted average traded price
The WRTRP Assets consisted of the following:
Asset (incl properties)
Description
Additional tailings dams
Surface tailings
dams which
form part
of the
gold assets
of the
WRTRP
Assets and
which include
Driefontein
Dumps 3 and 5, Kloof 1, Venterspost
North and South and Libanon Dump.
DP2 Plant
The Driefontein 2 Plant which is located on Portion 6 of Farm Blyvooruitzicht No 116 Registration Division I.Q.
and Remainder of Portion 1 of the Farm Driefontein No 113, Registration Division I.Q., Gauteng Province.
The
DP2
Plant
processed
surface
rock
dumps
(“
SRD
”)
material,
which
was
delivered
by
rail
and
truck.
Throughput is achieved through two
Semi-Autogenous Grinding (“
SAG
”) mills and a ball
milling circuit, cyanide
leaching and a Carbon-in-Pulp (“
CIP
”) plant. A Carbon-in-leach circuit was commissioned in 2014 at DP2 Plant
to improve recoveries by replacing the aging CIP circuit.
DP3 Plant
The Driefontein 3 Plant which
is located on Portion 6
of Farm Blyvooruitzicht No 116, Registration
Division I.Q.,
Gauteng Province. The DP3 Plant was originally designed as
a uranium plant, but was converted to process low-
grade surface
rock in
1998. Similar to
DP2 Plant,
SRD ore
was delivered
by rail
and truck.
This plant has
four
SAG mills followed by cyanide leaching and a CIP circuit.
Driefontein 4
The current active tailings deposition facility which forms part of the gold assets of the WRTRP Assets.
Pilot Plant
The
moveable
LogiProc
pilot
plant
established
to
test
the
processes, techniques
and
assumptions
made
in
the
definitive
level
design
of
the
full
scale
retreatment
of
dumps
as
part
of
the
WRTRP
Assets
and
located
at
Driefontein 1 Plant.
Plan and Materials
Any and all drawings, plans, studies
(including feasibility studies of a geological or
geotechnical nature), surveys,
reports (including
sampling and
assaying reports),
maps (including
geophysical, geological
and/or drill
maps),
statements, schedules and other data in whatever form of a financial, technical, labour, marketing, administrative,
accounting or other matters pertaining to the WRTRP Assets.
Transferring Land
The land upon which:
·
the CPP will be located after the subdivision of the Farm Rietfontein No 347 Registration Division I.Q.
Portion
35 and 73, Gauteng Province; and
·
the Regional Tailing Storage Facility and Return Water
Dam will be located.
Active Tailings Dams
The Driefontein 1 and 2, Kloof 2 and Leeudoorn currently active tailings dams are also required to be transferred
under
the
acquisition
agreement,
for
no
additional
consideration,
once
they
have
been
decommissioned
by
Sibanye-Stillwater.
Licences to Operate
All
the
licences,
permits,
permissions,
management
plans
and
reports,
as
well
as
amendments,
variations
or
modifications thereof from time to time necessary for Sibanye-Stillwater to operate the WRTRP Assets lawfully.
Access Rights
The grant of access to DRDGOLD of the:
·
Driefontein 10 shaft;
·
Kloof 10
shaft located
in the
Kloof mining
area that
is subject
to the
Kloof Mining
Right, for
the purpose
of
pumping and
supplying, at the cost
of WRTRP,
the required quantities of
water, as licenced,
for the WRTRP
Assets;
·
rights, servitudes
and agreements
for installation,
supply and
distribution and
maintenance of
power supply;
existing and proposed pipeline routes; servitudes; wayleaves and surface right permits; and
·
Driefontein 1 Gold Plant for the purpose of accessing the Pilot Plant.
As of June
30, 2021 and
September 30, 2021, no material
encumbrances
exist on FWGR's
property.
38
At June 30, 2021,
the net book value of FWGR’s mining assets was R1,341.3 million (2020: R1,303.5 million).
At June
30, 2021,
FWGR employed
154 full-time
employees.
In addition,
specialist
service providers
deployed a
further
343 employees
to our operations
bringing the
total number
of in-house
and outsourced
employees
to 497.
Mining and Processing
FWGR undertakes the retreatment of surface tailings.
Slime is reclaimed using high pressure water
monitoring guns also known as
hydraulic reclamation. The re-pulped slime is
pumped to the DP2 plant and the
reclaimed material is treated using screens,
cyclones, ball mills
and Carbon-in-Leach, or CIL, technology to extract the gold.
During Phase 1, the DP2 metallurgical plant
was reconfigured to have an installed capacity to treat
approximately 6 million tons of
material per year
based on 92%
availability. Material
is sourced from
Driefontein Dump 5
. The surface sources
have generally undergone
a
complex depositional
history resulting
in grade
variations associated
with improvements
in plant
recovery over
the period
the material
was
deposited.
The FWGR makes use of and require access to
Sibanye-Stillwater’s mining infrastructure and related services.
FWGR entered into
a smelting agreement
with Sibanye-Stillwater to smelt
and recover gold from
gold loaded carbon produced
at the DP2 plant,
and deliver the
gold to
Rand Refinery.
In exchange for
this service, Sibanye-Stillwater
receives a fee
based on
the smelting costs
plus 10% of
the smelting
costs. Rand Refinery performs the
final refinement of all gold
produced. FWGR also engaged its
fellow subsidiary, Ergo
Mining Proprietary
Limited, to act as its agent and representative and to enter into a refining services arrangement with
Rand Refinery for the sale, marketing and
export of the refined
gold of the Company. This agreement
is expected to be
in place until FWGR
obtains its own precious
metals beneficiation
license.
The Mineral Resources
and Mineral Reserves
held by FWGR
were acquired from
Sibanye Gold Limited
(Sibanye Gold), a
subsidiary
of Sibanye-Stillwater Limited, in a transaction in which common law ownership was established over
the various tailings dams containing the
said
Mineral
Resources
and
Mineral
Reserves,
and
control
was
established
by
Sibanye-Stillwater
over
DRDGOLD.
FWGR
conducts
its
activities inter
alia in
accordance with
Environmental Approvals
and the
provisions of
the Mine
Health and
Safety regulations.
A Use
and
Access Agreement with
Sibanye Gold articulates
the various rights,
permits and licenses
held by Sibanye
Gold in terms
which FWGR operates,
pending the transfer to FWGR of those that are transferable.
Capital Expenditure
For a discussion of capital expenditures in fiscal year 2021,
see "Item 5.A. Operating and Financial Review and Prospects—Capital
expenditure".
Financing for significant growth projects may
be obtained through specific financing
arrangements if required. In
fiscal year 2019,
capital expenditure
incurred on the development
of Phase 1 of FWGR of approximately
R330.7 million were
financed through
a combination
of
borrowings (refer
to the Revolving Credit Facility
described in Item 10C.
Material Contracts) and cash resources and operational
cash flows of
the Group.
FWGR appointed an engineering consulting company to undertake the
definitive feasibility study and detailed design for the Phase
2
project.
The
available
information
was
independently
reviewed
by
an
external
consultant,
Sound
Mining.
The
project
includes
the
construction of a new CPP with a capacity of between 1.2 Mtpm to 2.4Mtpm and the equipping of the required reclamation sites and pipeline
infrastructure to supply the relevant resources to the CPP.
Phase 2 also includes the construction of a new RTSF capable of accepting 3Mtpm
to a capacity of approximately 800Mt. The definitive feasibility study was concluded in the current year and is subject to obtaining regulatory
approvals on the amended design of the RTSF.
Capital expenditure related to material growth projects are financed
on a project-by-project basis which may include bank facilities
and existing cash resources. Sustaining capital expenditure is financed from cash generated from operations and existing cash resources. For
a
summary of
capital expenditure,
see Item
5A. Operating
Results.
Exploration
and Development
Exploration
and development
activity
at FWGR
involves the
drilling of
surface
dumps and
evaluating
the potential
gold bearing
surface
material,
as well as
exploratory
and development
activities
around Phase
2 of the project.
Environmental
and Closure
Aspects
The major environmental
risks are associated
with dust from various
reclamation
sites, and effective
management of relocated
process
material on certain tailings dams. The impact of
nuisance dust fallout on the
surrounding environment and community is addressed through a
comprehensive monitoring network, with active input
from Professor H.
Annagran from the
Cape
Peninsula
University
of
Technology
and
appropriate
community
involvement.
Environmental
management
programs,
addressing
a wide
range of
environmental
issues,
have been
prepared
by independent specialist
environmental
consultants, which
are audited annually. Water pollution where appropriate
is controlled by means of a
comprehensive
system
of return
water
dams which
allow
for used
process
water to
be returned
for use
in FWGR’s
metallurgical
plant and
hydraulic
reclamation.
FWGR has an ongoing monitoring
program to ensure
that its water balances
(in its reticulation
system, on its tailings
and its return
39
water dams)
are maintained
at levels
that are sensitive
to the capacity
of return water
dams.
Nuisance dust fallout is controlled through active mitigation measures described in
the environmental management program for the
management of our
activities.
These mitigation
measures include
environmentally
friendly dust suppressants
applied to high impact
areas, active
wetting of access
roads by water
bowsers,
a network of
high velocity
sprayers on
our active
TSF. Dust fall-out is
monitored through
an extensive
dust monitoring network
monthly and is utilized as a management
measure to ensure the effectiveness
of mitigation measures
employed. In the
long-term,
dust suppression
and water
pollution will
be managed
through concurrent
rehabilitation
of the
tailings
dam, thus
reducing
water ingress
and dust from
exposed areas.
FWGR
will
undertake concurrent
rehabilitation of
areas affected
by
mining
operations during
the
life
of
the
mine.
The
surface
reclamation
process at
FWGR has several
environmental
merits as
it removes
pollution sources
and opens up
land for development.
Environmental
management
and compliance
is further assisted
by the in–house
developed electronic
monitoring system
that details
the
commitments made
within the EMPs and Water Use Licenses
to aid in keeping the operation
compliant to its
statutory obligations.
The existing
and most recent
specialist
studies are
used to supplement
the management
components
with regards
to the compliance
parameters.
The individual
management
items are integrated
to provide a
holistic overview
of the state
of the operation.
Spatial data
pertaining
to the operation
is stored on
a
Geographical Information
System (GIS) which provides a spatial overview
of the operation which includes environmental
monitoring systems,
right boundaries, roads,
rails, mine dumps, plants, rivers, wetlands,
pipeline routes, servitudes,
way leaves, municipal services
and other spatial
data relevant
to our mining
operations.
While the
ultimate
amount of rehabilitation
costs to be
incurred is
uncertain,
we have estimated
that the total
cost for FWGR,
in current
monetary
terms as
at June
30, 2021
is approximately
R116.4 million
(June 30,
2020: R103.3
million).
As at
June 30,
2021, a
total of
R425.1
million
is held in
the Ergo Rehabilitation
Trust Fund for
the benefit
of FWGR’s rehabilitation.
The Ergo Rehabilitation
Trust Fund 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
As at June 30, 2021,
our Proven and
Probable Ore
Reserves of FWGR
was 2.54 million ounces,
an decrease from
2.60 million ounces
at June
30, 2020.
The small
increase
in
reserves
despite
depletion
through
ongoing
mining
activities
is
due
to
the
application
of
revised
modifying factors
i.e. being
the dilution
from footwall
soil and
mining loss.
A Mineral Reserves and Mineral Resources
competent person is
appointed to
review our
Ore Reserve
calculations
for accuracy. For
FWGR, Mr. Vaughn Duke is the
designated
competent person
in terms of
the
SAMREC
Code responsible
for the compilation
and reporting
of ore reserves.
Production
For fiscal
year 2021,
production
increased
to 46,940 ounces
from 46,136
ounces produced
in fiscal
year 2020.
This was
mainly due the
volume throughput
that increased
from 6.1Mt in
fiscal 2020
to 6.2Mt
in fiscal
2021.
The average yield remained stable at 0.237g/t.
FWGR temporarily
halted its
operations
on March
26, 2020
pursuant
to the announcement
of the Lockdown.
The Disaster
Management
Act regulations
subsequently
issued by the Department
of Co-operative
governance
and traditional
affairs affirmed
that gold mining
and refining
are “essential services” and was therefore exempt from restrictions imposed
by the Lockdown. FWGR was able to
recommence operations on
April 3, 2020 and was able to ramp up production to almost full capacity in May and June 2020, respectively.
Subsequent lockdowns
in fiscal
2021 did not
result in
any similar
stoppages in
production.
Construction of Phase
1 commenced during
August 2018 with
R330.7 million spent
on,
inter alia
, the reconfiguration
of the DP2
plant
and relevant
infrastructure to
process tailings
from the
Driefontein 5
slimes dam
and deposit
residues on
the Driefontein
4 Tailings
Storage
Facility.
During
this
construction
phase,
some
gold
was
produced
at
the
adjacent
Driefontein
3
plant
(“
DP3
”).
Early-stage
commissioning of the
DP2 plant commenced on
December 6, 2018
with the pumping of
reclaimed tailings into
the carbon in
leach (“
CIL
”)
circuit. Testing of the reconfigured plant and ramp-up of production continued during the third quarter of the fiscal year ended June 30, 2019.
Management considered,
inter alia
, the design capacity of the plant, recoveries and the ability to sustain production in determining the
date of
commercial production. The
date of commercial
production for Phase
1 (excluding the
milling section) was
determined to be
April 1, 2019.
The mills
were subsequently
commissioned
in September
2019.
Cash operating
costs increased
by $74 per
ounce, or
15%, from
$484 per
ounce in
fiscal year
2020 to $558
per ounce
in fiscal
year 2021
mainly due
to FY2021 being
FWGR’s first full
year of milling.
40
The following table details certain production and financial results of FWGR for the past two fiscal years.
2021
2020
Production (imperial)
Ore milled ('000 tons)
6,159
6,052
Recovered grade (oz/ton)
0.008
0.008
Gold produced (ounces)
46,940
46,136
Results of Operations
Revenue (R million)
1,326.0
1,120.7
Cost of sales (R million)
517.1
473.3
Cash operating costs (R million)
406.2
352.0
Cash operating costs (R/kilogram)
1
276,174
243,542
All-in sustaining costs (R/kilogram)
1
377,210
299,792
All-in cost (R/kilogram)
1
400,829
311,597
1 Cash operating cost, cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram are financial measures of performance that we use to determine cash generating capacities
of the
mines and to monitor
performance of our mining operations.
These are all non IFRS
measures. For a reconciliation of
these measures to the
nearest IFRS measure see Item
5A.: “Operating Results - Reconciliation
of
cash cost per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram.”
See Item 5A.
Operating Results
– Capital
expenditure
for a discussion
on capital
expenditure.
ERPM
Overview
In December
2018,
ERPM concluded
revised agreements
to dispose
certain of
its underground
assets
to OroTree Limited
(“
OroTree
”).
The revised agreements
consisted of a
disposal of
ERPM's underground mining
and prospecting rights and
an option
agreement, at the
sole
discretion
of OroTree,
to purchase
the underground
mining infrastructure
exercisable
on or before
June 30, 2019.
The disposal
of the underground
mining and prospecting rights were concluded in the second
half of the financial year
ended June 30, 2019.
OroTree’s option to
purchase the
underground mining
infrastructure
lapsed on June 30, 2019
when it did not exercise
said option.
The underground mining
infrastructure
remains
under care
and maintenance.
Certain infrastructure
was demolished
during fiscal
2021.
At June
30, 2021,
ERPM had
no employees. The
financial results and
remaining assets and
liabilities of these halted
underground
operations
are included
in ‘Corporate
office and other
reconciling
items’ in the
financial
statements
for segmental
reporting purposes
for all three
years presented.
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 on
land owned
by ERPM.
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. 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
concluded the
disposal of
its underground
mining and
prospecting
rights in
the second
half of the
financial
year ended
2019.
Surface reclamation
operations including
the treatment
of sand
from ERPM’s
Cason Dump,
was conducted
through the
Knights
metallurgical plant, tailings deposition facilities and associated facilities until
ERPM’s surface mining assets were transferred
to Ergo as part
of the restructuring which took place on July 1, 2012.
As of June 30, 2021, and
September 30, 2021, no encumbrances
exist on ERPM's
property.
At June 30,
2021, the net
book value
of ERPM’s mining
assets was
zero (2020: zero).
Mining and Processing
ERPM’s underground gold mining infrastructure
is under care and maintenance. Surface reclamation operations and
surface mining
assets were transferred to Ergo as part of the restructuring which took place on July 1, 2012.
Exploration
and Development
ERPM disposed
prospecting
right ERPM
Extension
1 covering
an area
of 1,252ha
(3,094 acres)
of the adjacent
Sallies mine
and ERPM
Extension 2,
for an additional
area of 5,500ha
(13,590 acres)
to OroTree Limited
during the second
half of the
fiscal year
ended June
30, 2019.
41
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.
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.
The government has
appointed Trans-Caledon
Tunnel Authority (“
TCTA
”) to construct a partial
treatment plant
(neutralisation
plant)
to prevent
the ground
water
being
contaminated.
TCTA completed
the construction
of the
neutralisation
plant
for the
Central
Basin and
commenced
treatment
during July
2014. As
part of
the heads
of agreement
signed
in December
2012 between
EMO, Ergo,
ERPM and
TCTA, sludge
emanating
from this plant is co-disposed
onto the Brakpan/Withok
TSF together with
processed material
from the Ergo plant. Partially
treated water
is then
discharged
by TCTA into
the Elsburg
Spruit. This
agreement
includes
the granting
of access
to the
underground
water basin
through one
of ERPM
shafts and the rental of a site onto which it constructed its neutralisation
plant. In exchange, Ergo and its associate companies
including ERPM
have a set-off
against any future
directives
to make any contribution
toward costs
or capital of
up to R250 million.
Through this
agreement,
Ergo
also secured the right to purchase
up to 30 ML of partially treated Acid
Mine Drainage (“
AMD
”), a day, from TCTA at cost, in order to reduce
Ergo’s reliance on
potable water
for mining and
processing
purposes.
While the
ultimate
amount of
rehabilitation
costs to
be incurred
in the future
is uncertain,
we have
estimated
that as at
June 30,
2021 the
present
discounted
value of
the total
cost of
rehabilitation
for ERPM
is approximately
R8.6 million
(2020: R17.9
million).
A total
of R12.4
million
(2020: R12.0 million)
is held in the Ergo Rehabilitation
Trust Fund for the benefit of ERPM and R24.8 million
(2020: R23.8 million)
is held in
insurance instruments
and is available for
the settlement of these
rehabilitation
costs. The Ergo Rehabilitation
Trust Fund 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.
Ongoing Legal
Proceedings
Ekurhuleni
Metropolitan
Municipality
(“Municipality”)
Electricity
Tariff Dispute
Refer to Item 18.
‘‘Financial Statements
- Note 24 –
Payments made
under Protest”.
Silicosis
Litigation
Refer to Item 18.
‘‘Financial Statements
- Note 26.1
– Contingencies”.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
This
section
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.
Comparison of financial performance for the fiscal year ended June 30, 2020 with fiscal year ended June 30, 2019
This comparison analysis can be found in Item 5A of the Company’s
annual report on Form 20-F for the fiscal year ended
June 30,
2020.
42
5A. OPERATING RESULTS
Business overview
We
are
a
South
African
gold
mining
company
engaged
in
surface gold
tailings retreatment,
including
exploration,
extraction,
processing and
smelting. All
our surface
tailings retreatment
operations, including
the requisite
infrastructure and
metallurgical processing
plants, are located in South Africa.
The success of DRDGOLD’s long-term goal to extract as much gold from its assets as possible and is economically viable depends,
to a large extent, on how effectively it continues to manage its resources.
DRDGOLD’s
strategic thinking
is informed
by principles
of sustainable
development. Our
goal is
to optimally
exploit our
entire
resource over the long term,
thereby seeking sustainable benefits
in respect to the
following capitals, each of which
is essential to our operation
– financial, manufactured, natural, human and social capital.
We also aim to align and overlap the interests of each of these capitals
in such a manner that an investment in any
one translates into
value-add in
as many of
the others as
possible. We
therefore seek to
achieve an enduring
and harmonious alignment
between them, and
we
pursue these criteria in the feasibility analysis of each investment.
Our profit
for fiscal
year 2021 increased
compared to
fiscal 2020,
mainly due to,
inter alia
, the following:
●
gold production
increased
by 6%
to 5,723kg
together
with an
increase
in gold
sold
by 5%
to 5,734kg.
The increase
in production
reflected
an 11% increase
in throughput
to 29,111t,
offsetting the
4% decrease
in average
yield to 0.197g/t;
and
●
the average
rand gold price
received increased
by 19%.
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 both in terms of dollars and rands;
●
our production tonnages and gold content thereof, impacting on the amount of gold we produce at our operations;
●
our cost of producing gold, including the effects of mining efficiencies; and
●
general economic factors, such as exchange rate fluctuations and inflation, and factors affecting mining operations in South Africa.
Gold price
Our revenues
are derived
primarily from
the sale
of gold
produced at
our surface
tailings retreatment
operations. 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 U.S. 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. In response
to the COVID19
pandemic and measures
taken to deal with the outbreak, investors
globally, as they have in so many previous times of crisis,
turned to gold and
gold stocks
as a safe
haven asset,
leading to a
surge in the
average gold
price during
fiscal 2020
and 2021.
The demand
for and supply
of gold affects
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.
The following table indicates data relating to the dollar gold spot prices for the 2021 and 2020 fiscal years:
2021 fiscal year
2020 fiscal year
Change
$ per ounce
$ per ounce
%
Closing gold spot price on June 30,
1,770
1,781
(1)
Lowest gold spot price during the fiscal year
1,676
1,382
21
Highest gold spot price during the fiscal year
2,072
1,785
16
Average gold spot price for the fiscal year
1,850
1,562
18
All our
operations and
gold production
are based
in South
Africa, and
as a
result, the
impact of
movements in
relevant exchange
rates is significant to our operating results.
The average gold price in rand (based
on average spot prices for the year) increased
by 37% from
R17,914 per ounce in 2019 to R24,466 per ounce in 2020, and increased by 16% to R28,490 per ounce in 2021.
An increase/(decrease) of 20% in the US dollar gold price throughout
fiscal year 2021 would have increased/(decreased) revenue by
approximately R1,053.8 million (2020: R837.0 million).
An increase/(decrease) of 20% in
the Rand to US dollar exchange
rate throughout fiscal year 2021
would have increased/(decreased)
revenue by approximately R1,053.8 million (2020: R837.0 million).
43
Gold production
In fiscal year 2021,
gold production increased to
183,999 ounces (produced from 29.1
million tonnes milled at an
average yield of
0.197g/t) from 174,385 ounces in fiscal
year 2020 (produced from 26.3 million tonnes
milled at an average yield of
0.206g/t). This was mainly
due to Ergo’s gold production which increased to 137,059 ounces in fiscal year 2021 (produced from 23.0 million tonnes milled at an average
yield of
0.186g/t) from
128,249 ounces
in fiscal year
2020 (produced
from 20.2
million tonnes milled
at an
average yield
of 0.197g/t). The
increase was a
consequence of stable production during fiscal 2021 compared to fiscal 2020 when production suffered from the impact of the
Lockdown, subsequent
cautious ramp-up
and interruptions
in power supply
from Eskom
and the City
of Ekurhuleni.
In fiscal year 2020,
gold production increased to
174,385 ounces (produced from 26.3
million tonnes milled at an
average yield of
0.206g/t) from 155,159 ounces in fiscal
year 2019 (produced from 24.4 million tonnes
milled at an average yield of 0.197g/t).
This was mainly
due to the first full year of gold production
of FWGR resulting in production
of 46,136 ounces (produced from 6.1
million tonnes milled
at an
average yield of 0.237g/t), mitigating the impact of
Ergo’s gold production which
decreased to 128,249 ounces in fiscal year 2020
(produced
from 20.2 million tonnes milled at an average yield
of 0.197g/t) from 144,453 ounces in fiscal year 2019
(produced from 23.2 million tonnes
milled at an average
yield of 0.194g/t).
This was
a consequence
of the
Lockdown,
subsequent
cautious
ramp-up
and interruptions
in power
supply
from Eskom
and the City
of Ekurhuleni.
Cash operating costs
Cash operating costs is a non-IFRS financial measure of performance that
is reported to the group’s chief
operating decision maker
(CODM) and is used
to monitor performance –
refer to Item 18. ‘‘Financial Statements
- Note 23 – Operating Segments”.
For a reconciliation
of this measure see Item 5A.: “Reconciliation of cash cost per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram”.
Cash operating
costs include
consumables, labor,
specialized service
providers, electricity
and other
related costs
incurred in
the
production of gold. Consumables, water and electricity, labor, specialized service providers and other costs are the largest components of cash
operating costs. A breakdown of cash operating costs into
these costs is described in Item 5A.: “Comparison of financial performance for
the
fiscal year ended June 30, 2021 with fiscal year ended June 30, 2020”.
General economic factors
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 are subject to the
inherent risks and uncertainties of
the industry, and
the
wasting nature of the assets.
Effect of exchange rate fluctuations
For the fiscal years 2021
and 2020, all 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
before being
translated to
rands. As
the price
of gold
is denominated
in
dollars which is then translated into
rands, the appreciation of the dollar
against the rand increases our profitability,
whereas the depreciation
of the dollar against the rand reduces our profitability.
In fiscal year 2021
the Rand gold
price received increased by
19% compared to fiscal
year 2020, outperforming the
combined impact
of the average Dollar gold price which increased
by 18% and the average exchange rate of
the rand against the dollar that strengthened
by 2%.
In line with our long-term strategy of being an unhedged gold producer,
we generally 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 plants
or to continue the
development of some or
all of our projects.
However, during periods
when medium-
term debt is incurred
to fund growth projects and
hence introduce liquidity risk
to the Group, we
may mitigate this liquidity
risk by entering
into hedging instruments to
achieve price protection (refer
Item 11.
Quantitative and Qualitative Disclosures
About Market Risk –
General).
For example in fiscal year
2019 we entered into a hedging
instrument in the form of a
collar in respect of 50,000 ounces
of gold that expired
at the end of May 2019.
Effect of inflation and exchange rates
In the past, our operations have been materially adversely affected by inflation. If there is a significant increase in inflation in South
Africa, our costs will
increase and if such
a cost increase is not
offset by an
increase in the rand
price of gold, this
will negatively affect 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:
44
Fiscal year ended
Year
ended June 30,
2021
2020
2019
(%)
(%)
(%)
The average rand/dollar exchange rate (strengthened)/weakened by:
(2)
10
10
CPI (inflation rate)
4.9
2.2
4.5
Production
stoppages
due to the
impact of the
COVID-19 pandemic
on current
operations
The Group
temporarily halted its operations at
Ergo and
FWGR on
March 26,
2020 pursuant to
the announcement of
the national
lockdown in South African (“
Lockdown
”). Operations gradually recommenced through April and May 2020. Subsequent lockdowns in fiscal
2021 did not resulting
in any similar
stoppages in production.
(Refer to Item
4D. ‘‘Property, plant and production
– Ergo Production
and FWGR
production”).
Key financial and operating indicators
The table
below presents
the key
performance measurement
data for
the past
two fiscal
years: The
financial results
for the
fiscal
years below are stated in accordance with IFRS as issued by the IASB. The table includes the key performance measures for our business and
its profitability, which are revenue, gold production, gold prices, operating costs, cash operating costs per kilogram, all-in sustaining costs per
kilogram and all-in costs per kilogram, capital expenditure (additions to property, plant and equipment) and Ore Reserves.
Operating data
Year ended
June 30,
2021
2020
Revenue (R'm)
5,269.0
4,185.0
Gold production (ounces)
183,999
174,385
Gold production (kilograms)
5,723
5,424
Gold sold (ounces)
184,352
174,804
Gold sold (kilograms)
5,734
5,437
Average spot gold price (R/kilogram)
915,972
786,601
Average gold price received (R/kilogram)
917,996
768,675
Cost of sales (R'm)
3,388.2
2,937.9
Operating costs (R'm)
3,122.5
2,692.1
Cash operating costs (R'm)
(1)
3,072.7
2,626.0
Cash operating costs (R/kilogram)
(1)
540,338
482,417
All-in sustaining costs (R/kilogram)
(1)
626,247
541,475
All-in costs (R/kilogram)
(1)
643,338
551,646
Additions to property, plant and equipment (R'm)
395.7
182.7
Ore Reserves (million ounces)
5.35
5.73
(1) Cash
operating costs,
cash operating
costs per kilogram,
all-in sustaining
costs, all-in
sustaining costs per
kilogram and
all-in costs
and all-in
costs per kilogram
are non-IFRS financial
measures of performance
that we use
to monitor performance.
A reconciliation of
these measures to the nearest IFRS measure is included in Item 5A.: “Operating Results - Reconciliation of cash cost per
kilogram, all-in
sustaining costs per kilogram and all-in costs per kilogram.”
Revenue
Revenue increased by 26% to R5,269.0
million in fiscal year 2021 from R4,185.0
million in fiscal year 2020 mainly due
to the 5%
increase
in gold sold
from 5,437
kilograms
in fiscal
2020 to 5,734
kilograms
in fiscal
2021 and the
average
rand gold
price received
that increased
by 19% to R917,996
per kilogram.
Refer to Item 5A:. “Operating results: Key drivers of our operating results
and principal factors affecting our operating results”
for a
discussion
regarding the
gold price
received and
sales volumes.
Ore Reserves
As at June 30, 2021, our Ore Reserves (imperial) were estimated at 5.35 million ounces, as compared to 5.73 million ounces at
June 30, 2020. The decrease was mainly because of depletion through ongoing mining activities. The decrease was offset by a non-material
increase in FWGR’s ore reserves despite depletion through ongoing mining activities due to the application of revised modifying factors i.e.
being the dilution from footwall soil and mining loss. The table
below sets
forth our Ore
Reserves as
of the date
indicated:
45
Year ended
June 30,
2021
2020
Ore Reserves
Ounces
Tonnes
Ounces
Tonnes
‘m ozs
‘m ozs
Ergo
2.81
87.42
3.13
97.22
FWGR
2.54
79.03
2.60
80.74
Total Ore
Reserves
5.35
166.45
5.73
177.96
Capital expenditure
During fiscal year 2021 capital expenditure increased by R214.6 million to R395.7 million from R181.1 million in fiscal year 2020.
Ergo’s capital expenditure during fiscal year 2021 increased by R136.5 million to R250.9 million from R114.4 million in fiscal year
2020. This was mainly
due to infrastructure development
for reclamation of the
4L3 and 4L4 dumps
amounting to R47.5 million,
upgrading
of
the
Brakpan
plant’s
carbon
in
leach
circuit
to
provide
more
capacity
and
achieve
better
efficiencies
amounting
to
R10.8
million,
the
installation of a
third regeneration kiln
amounting to R13.2
million, both for
additional carbon regeneration
capacity to manage
the planned
higher plant throughput and
as back-up for the two
existing kilns and improved tailings
deposition and recommissioning studies
and designs
for the Brakpan/Withok TSF expansion amounting to R10.2 million.
FWGR’s capital expenditure during fiscal year 2021 increased by R83.2 million to R143.3 million from R60.1 million in fiscal year
2020. This was mainly due
to the construction of an
additional thickener amounting to R40.3
million at reporting date (total
cost is expected
to be approximately
R88 million),
feasibility studies and
designs for Phase
2 amounting to
R32.5 million and
the installation of
a copper elusion
circuit amounting to R12 million.
During fiscal year
2020, capital expenditure
was R181.1 million
primarily consisting of
expenditure incurred on
sustaining capital
expenditure on the Brakpan/Withok TSF,
upgrade of CIL tanks and site establishment costs and authorisations for reclamation sites.
Critical accounting policies
The
preparation
of
the
consolidated financial
statements
requires
management
to
make
accounting
assumptions, estimates
and
judgements
that affect the application
of the Group's
accounting policies
and reported amounts
of assets and liabilities,
income and expenses.
By
their nature, judgements
are subject to an inherent
degree of uncertainty. Accounting
assumptions,
estimates and
judgements are
reviewed on an
ongoing basis.
Revisions
to reported
amounts are
recognized
in the period
in which
the revision
is made and
in any future
periods affected.
Actual
results may
differ from
these estimates.
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.
This discussion
and analysis should
be read in
conjunction
with the
consolidated
financial
statements
and related
notes included
in Item 18.
“Financial
Statements”.
Critical accounting policies that require significant judgment
Management
believes
the following
critical
accounting
policies
require more
significant
judgements
to be used
in the preparation
of our
consolidated
financial
statements
and could potentially
impact our
financial
results and
future financial
performance:
●
Payments
made under
protest: Judgement
regarding the
outcome of
the matter, and
●
Contingencies:
Judgement
regarding the
outcome of
the respective
matters
Payments made
under protest
The assessment
to develop and apply the relevant
accounting policy
for payments made
under protest that
arise from the Municipality
Electricity Tariff Dispute (refer
Item 18. ‘‘Financial
Statements - Note 24
Payments made under protest”) requires the
exercise of significant
judgement.
The judicial
proceedings
that impact
the Payments
made under
protest
are inherently
complex
legal
issues
that are
subject
to uncertainties
and complexities
and are subject
to interpretation.
Contingencies
The assessment
of the impact of contingent
liabilities
require the exercise
of significant judgement
regarding the outcome
of uncertain
future events.
Litigation
and other
judicial
proceedings
inherently
entail complex
legal issues
that are
subject to
uncertainties
and complexities
and
are subject
to interpretation.
Critical accounting policies that require significant assumptions and estimates
46
Management
believes the
following are
critical accounting
policies which
involve the
more significant
assumptions
and estimates
used
in the preparation
of our consolidated
financial statements,
and are therefore
considered DRDGOLD’s critical
accounting estimates
which could
potentially
impact our
financial
results and
future financial
performance:
●
Depreciation:
Estimation
of the life-of-mine
●
Provision for
environmental
rehabilitation:
Estimation
of future environmental
rehabilitation
costs
●
Income tax:
Estimation
of the deferred
tax rate
●
Payments
made under
protest: Estimation
of the carrying
value and recoverability
●
Other investments:
Estimation
of the fair
value of financial
assets
Depreciation:
Estimation
of life-of-mine
Depreciation
of
mine plant
facilities and
equipment, as
well as
mining
property and
development (including
mineral rights)
are
calculated using the units of production method which is based on the life-of-mine of each site. The life-of-mine is primarily based on proved
and probable
mineral reserves. It
reflects the estimated
quantities of
economically recoverable
gold that
can be
recovered from
reclamation
sites based on
the estimated
gold price.
Changes in the
life-of-mine will impact
depreciation on a
prospective basis. The
life-of-mine is prepared
using a methodology that takes account of current information
to assess the economically recoverable gold from specific
reclamation sites and
includes the consideration of historical experience.
Provision
for environmental
rehabilitation:
Estimation
of future environmental
rehabilitation
costs
Provisions for environmental
rehabilitation
are provided at the present
value of the costs expected
to be incurred in the future to settle
the obligation 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.
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.
Estimates
of future environmental
rehabilitation
costs are
based on the
Group’s environmental
management
plans which
are developed
in accordance
with regulatory requirements,
the life-of-mine
plan and the planned method
of rehabilitation
which is influenced
by developments
in trends and
technology.
Income tax:
Estimation
of the deferred
tax rate
Deferred tax
is recognized
in
respect of
temporary differences between the
carrying amounts of
assets and
liabilities for financial
reporting purposes
and the amounts
used for tax
purposes.
The deferred
tax liability
is calculated
by applying a
forecast
weighted average
tax rate
that is based
on a prescribed
formula. The
calculation
of the forecast
weighted average
tax rate requires
the use of assumptions
and estimates
and
are inherently uncertain and could change materially over time. These assumptions and estimates include the expected future profitability and
timing
of the
reversal
of the
temporary
differences.
Due to
the forecast
weighted
average
tax rate
being based
on a
prescribed
formula
that increases
the effective
tax rate with
an increase
in forecast
future profitability,
and vice versa,
the tax rate
can vary significantly
year on year
and can move
contrary to
current period
financial performance.
Payments made
under protest:
Estimation of
the carrying
value and recoverability
The discounted
amount of
the Payments
made under
protest is
determined using
assumptions about the
future that
are inherently
uncertain
and can change
materially over
time and includes
the discount
rate and discount
period.
These assumptions about the future include estimating
the timing of concluding on the main application, i.e. the discount period, the
ultimate settlement terms (refer Item
18. ‘‘Financial
Statements -
Note 24
Payments made under
protest”), the discount
rate applied and
the
assessment
of recoverability.
Recognition
and measurement
The asset that arises from the Ekhurhuleni electricity dispute (refer Item 18. ‘‘Financial Statements - Note 24
Payments made under
protest”) and that are payments made under protest is
initially measured at a discounted amount and any
difference between the face value of
payments made
under protest
and the discounted
amount on initial
recognition is
recognised
in profit or loss
as a finance expense.
Subsequent to
initial recognition, the Payments made under
protest is measured using
the effective interest method to
unwind the discounted amount to
the
original face value
less any write downs for recovery. Unwinding
of the carrying value and
changes in the discount
period are recognised
in the
statement
of profit or
loss.
Assessment
of recoverability
The discounted amount of the payments under protest is assessed at
each reporting date to determine whether there is any
objective
evidence that the full amount
is no longer expected to be recovered.
The Group considers the reasonable
and supportable information
related to
the
creditworthiness of Ekurhuleni
Metropolitan Municipality and
events surrounding
the outcome
of
the
Main Application
(refer Item
18.
‘‘Financial Statements
- Note 24 Payments
made under
protest”).
Any write
down is recognised
in the statement
of profit or
loss.
47
Other investments:
Estimation
of the fair
value of financial
assets
The fair value of
other investments are determined using assumptions about the future that
are inherently uncertain and can change
materially over time.
It includes several
assumptions that are based
on both
observable and unobservable inputs. Assumptions applied in
the
estimation
of the fair
value of the
investment
in Rand Refinery
include the
following:
Amounts in R million
Observable/unobservable
Unit
2021
2020
Rand Refinery operations
Average gold price
Observable input
R/kg
847,317
852,098
Average silver price
Observable input
R/kg
11,751
9,453
Average South African CPI
Observable input
%
4.4
4.8
South African long-term government bond rate
Observable input
%
9.5
9.5
Terminal growth rate
Unobservable input
%
4.4
5.0
Weighted average cost of capital
Unobservable input
%
15.1
15.1
Investment in Prestige Bullion
Discount period
Unobservable input
Year
12
13
Cost of equity
Unobservable input
%
16.5
13.2
Marketability and minority discounts (both
unobservable inputs) were also applied
of 16.5%
and 17.0%
(2020: 16.5% and
17.0%)
respectively. The latest budgeted cash flow
forecasts provided by Rand Refinery as
at June
30, 2021 was
used, and therefore classified as an
unobservable
input into
the models.
New standards, amendments to standards and interpretations
Refer to Item 18. ‘‘Financial Statements - Note 3 – New standards, amendments to standards and interpretations”
for a discussion of
relevant standards,
amendments to standards
and interpretations
that may be applicable
to the business of the Group
and may have an impact
on
future consolidated
financial
statements.
Comparison of financial performance for the fiscal year ended June 30, 2021 with fiscal year ended June 30, 2020
Gold revenue
The following table illustrates the year-on-year change in gold revenue for fiscal year 2021 in comparison to fiscal year 2020:
R million
Total
Impact of change in amount
of gold sold
Impact of
change in
gold price
Net change
Total
gold revenue
gold revenue
2020
2021
Ergo
3,060.5
221.3
658.0
879.3
3,939.9
FWGR
1,118.7
6.2
199.0
205.2
1,323.9
Consolidated
4,179.2
227.5
857.0
1,084.5
5,263.8
Gold revenue increased by
R1,084.5 million,
or 26%, to R5,263.8 million
during fiscal year 2021.
This was
mainly due
to the
average
rand gold price
received
which increased
by 19% to R917,996
per kilogram
as well as
gold sold having
increased by
5%. The increase is mainly
due to Ergo’s gold production
which increased
by 7%, a consequence
of more stable
production
during fiscal
2021 compared
to fiscal
2020 when
production suffered
from the impact
of the Lockdown,
subsequent cautious
ramp-up and interruptions
in power supply
from Eskom and
the City
of Ekurhuleni.
Cost of sales
Cost of sales
amounted to R3,388.2
million in fiscal
year 2021, consisting
mainly of operating
costs of R3,122.5
million, depreciation
of
R252.5
million,
movement
in
gold
in
process
of
R25.6
million
and
a
positive
movement
in
the
change
in
estimate
of
environmental
rehabilitation of R12.4 million. These are discussed as follows:
Operating costs
Operating costs increased by 16.0% to R3,122.5 million for fiscal year
2021 compared to R2,692.1 million for fiscal year 2020. The
increase is mainly due
to a 13% increase in
Ergo’s throughput
to 23.0Mt compared to 20.2Mt
in fiscal year 2020
and a 15% electricity tariff
increase by power utility Eskom which came into effect in April 2021.
48
Depreciation
Depreciation charges were
R252.5 million for
fiscal year
2021 compared to
R270.8 million for
fiscal year
2020. Depreciation charges
decreased as a result of an increase in the life of mine for both Ergo and FWGR.
Change in estimate of environmental rehabilitation
As of June 30,
2021, we estimate our total
environmental rehabilitation provision, being the
discounted estimate of future
costs, to
be R570.8 million as compared
to R568.9 million at June
30, 2020.
A change in estimate of environmental rehabilitation of R12.4
million was
recognized due
to changes
in the
estimated timing
of the
vegetation of
reclamation sites,
as well
as an
increase in
contractor rates
for the
establishment of vegetation based on ongoing test work performed.
A total
of R564.7 million
was invested in
our various
environmental trust
funds as
at the
end of
fiscal year
2021, as
compared to
R542.2 million at
the end
of fiscal
year 2020.
The increase
is attributable
primarily due
to R
22.5 million
interest received
on these
funds
during fiscal
year 2021.
A total
of R87.5 million
(2020: R83.8 million)
is invested
in funds held in insurance instruments to secure financial
guarantees provided to the DMR
through an insurance cell captive
company, the
Guardrisk Cell Captive. The increase
is attributable to R3.7
million interest received on
these funds during fiscal
year 2021. As at June 30, 2021, guarantees
amounting to R430.1
million were in issue
to
the
DMR
(2020:
R427.3 million).
The
shortfall
between
the
invested
funds
and
the
estimated
provisions
is
expected
to
be
financed
by
contributions to the
Guardrisk Cell Captive
from time to
time as required
over the remaining
production life of
the respective mining
operations
and, at the time of mine closure, the proceeds on the disposal of remaining assets and gold from plant clean-up.
Movements in gold in process
Movement in gold in
process in fiscal
year 2021 amounted to
R25.6 million mainly
due to a decrease
in the lock up
of gold in
process
at the plants and finished inventories - Gold Bullion.
Administration expenses and general costs
Administration expenses and general costs decreased by R245.9 million from R309.9 million in fiscal
year 2020 to R64.0 million in
fiscal year
2021. Administration
expenses and
general costs
in fiscal
year 2021
included a
share-based payments
benefit of
R44.3 million
(2021: share-based payments expense of R218.1 million). The share-based payment
benefit in 2021 is mainly due to the remeasurement
of the
cash-settled share-based
payment liability
at a seven-day
volume weighted
average price (VWAP)
of the
DRDGOLD share from
R25.14 at
June 30, 2020 to R18.62 at November 5, 2020. This liability was fully settled on November 5, 2020.
Finance income
Finance income increased
from R109.8 million in
fiscal year 2020 to
R216.2 million in fiscal year
2021, mainly due
to a dividend
received from Rand Refinery of R72.3
million (2020: nil) and an increase
in interest income earned of R46.7 million
mainly due to higher
cash
and cash equivalents
balances during
the year.
Finance expense
Finance expenses increased
from R68.8 million
in fiscal year
2020 to R69.5 million
in fiscal year
2021, mainly attributable
to the
unrealized
foreign
exchange
loss
of
R8.4
million
in
fiscal
2021
compared
to
nil
in
fiscal
2020.
The
unwinding
of
the
provision
for
environmental rehabilitation decreased by R7.3 million as a result of a lower provision estimated as at June 30, 2020.
Income tax
Income tax amounted to a charge of R523.8 million for fiscal year 2021 (2020: charge of R343.9 million) and consisted of a current
tax charge of R423.7 million (2020: charge of R263.2 million)
and deferred tax charge of R100.0 million (2020: deferred tax charge of R80.7
million).
The current tax increased
to R423.7 million in
fiscal 2021 from R263.2
million in fiscal 2020
mostly due to an
increase in the taxable
mining income
of both
Ergo and
FWGR resulting
mainly from
the increase
in the
Rand gold
price received.
The current
tax expense
was
mitigated by the full redemption of
capital expenditure incurred during the fiscal year 2021
and resulted in the deferred tax charge
of R100.0
million.
The forecast
weighted average
deferred tax
rate for
both Ergo
and FWGR
remained unchanged
in fiscal
year 2021
at 25.0%
and
30.0% respectively.
49
Non-IFRS Measures
Set forth below is a discussion of non
-IFRS measures presented in this report, including a
reconciliation of such measures from the
nearest measure under IFRS, as well as an explanation as to why we believe that presentation of such
information provides useful information
to investors and additional purposes, if any, for which we use such measures.
Adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”)
Set forth below
is a
presentation of our
Adjusted EBITDA, which
is a
non-IFRS measure, including
the items
included in this
measure
and a reconciliation from profit for
the year.
Our calculation of Adjusted EBITDA
is based on the calculation of
this measure as included in
our
RCF
agreement
and
may not
be
comparable
to
similarly
titled measures
of
other
companies.
Adjusted
EBITDA
is
not
a
measure
of
performance under
IFRS and
should be
considered in
addition to,
and not
as a
substitute for,
other measures
of financial
performance and
liquidity. We
consider Adjusted EBITDA for the purpose of evaluating compliance with the covenants imposed by the Company’s borrowing
agreements entered into
during fiscal
2019. The Group
considers the
presentation of
Adjusted EBITDA provides
useful information to
investors
to enable investors to assess compliance with our covenants in the RCF agreement.
Year ended,
June 30
Reconciliation of adjusted EBITDA
2021
2020
Profit for the year
1,439.9
635.0
Income tax
523.7
343.9
Profit before tax
1,963.6
978.9
Finance expense
69.5
68.8
Finance income
(216.2)
(109.8)
Results from operating activities
1,816.9
937.9
Depreciation
252.5
270.8
Share based payment (benefit)/expense
(28.3)
224.1
Change in estimate of environmental rehabilitation recognised in profit or loss
(12.4)
(21.9)
Gain on disposal of property, plant and equipment
(0.1)
(0.7)
IFRS 16 Lease payments
1
(15.8)
-
Transaction costs
3.1
1.4
Adjusted earnings before interest, tax depreciation and amortisation ("Adjusted EBITDA")
2
2,015.9
1,411.6
1
The amended RCF includes IFRS 16 lease payments in the calculation of the adjusted EBITDA.
2
See Glossary of Terms for definitions.
50
Cash operating costs, cash operating costs per kilogram, all-in sustaining costs and all-in costs per kilogram
Cash operating costs per
kilogram, all-in sustaining costs
per kilogram and all-in
costs per kilogram are
non-IFRS financial measures
that should not
be considered by
investors in isolation
or as alternatives
to cost of
sales, 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 World Gold Council has provided guidance for the calculation of cash operating costs, cash
operating
costs
per
kilogram,
all-in
sustaining
costs
and
all-in
costs
per
kilogram,
such
measurements
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
these
measures
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 margin per kilogram, by comparison of the cash operating costs per kilogram to the price of gold; and
●
a benchmark of performance to allow for comparison against other mines and mining companies.
51
For fiscal
year 2021,
consolidated cash
operating costs
per kilogram
increased by
12% to
R540,338 per
kilogram from
R482,417 per
kilogram in fiscal year 2020. Consolidated all-in sustaining costs
per kilogram increased by 16% to R626,247 per
kilogram in fiscal year 2021
from R541,475 per kilogram
in fiscal year 2020.
Consolidated all-in costs per
kilogram increased by 17%
to R643,338 per kilogram
of gold
in fiscal 2021 from R551,646 per kilogram of gold in fiscal year 2020.
The increase in consolidated cash operating costs
per kilogram,
all-in sustaining costs
per kilogram and all-in costs per kilogram
was
mainly due to an
increased in cash
operating costs, which is
due to a
13% increase in Ergo’s throughput to
23.0Mt in fiscal
year 2021 compared
to 20.2Mt in
fiscal year 2020
and a 15%
tariff increase by
power utility Eskom
which came into
effect in April
2021. At FWGR,
there was
increased electricity usage due to fiscal 2021 being the first full year of milling.
The
increase
in
sustaining
capital
expenditure
during
fiscal
year
2021
contributed
to
the
increase
in
all-in
sustaining
costs
per
kilogram. The increase in
growth capital expenditure
incurred during fiscal year
2021 similarly contributed to
the increase in all-in
costs per
kilogram.
Reconciliation of cash operating costs, cash operating costs per kilogram, all-in sustaining costs, all-in
sustaining costs per kilogram, all-in costs and all-in costs per kilogram
R millions
2021
2020
Cost of sales
3,388.2
2,937.9
Depreciation
(252.5)
(270.8)
Change in estimate of environmental rehabilitation
12.4
21.9
Movement in gold in process
(25.6)
3.1
Operating costs
3,122.5
2,692.1
Ongoing rehabilitation expenditure
(48.3)
(24.3)
Care and maintenance costs
(3.9)
(11.1)
Other operating income/(costs)
1
2.4
(30.7)
Cash operating costs
2
3,072.7
2,626.0
Movement in gold in process
25.6
(3.1)
Administration expenses and other costs excluding non-recurring items
2
109.7
96.1
Other operating income/(costs)
(2.4)
30.7
Change in estimate of environmental rehabilitation
(12.4)
(21.9)
Unwinding of rehabilitation provision
44.7
52.0
Sustaining capital expenditure
2
353.0
164.2
All-in sustaining costs
2
3,590.9
2,944.0
Care and maintenance costs
3.9
11.1
Ongoing rehabilitation expenditure
48.3
24.3
Transaction costs
3.1
1.4
Growth capital expenditure
2
42.7
18.5
All-in costs
2
3,688.9
2,999.3
Gold produced (kilograms)
5,723
5,424
Cash operating costs per kilogram (R per kilogram)
540,338
482,417
All-in sustaining costs per kilogram (R per kilogram)
626,247
541,475
All-in costs per kilogram (R per kilogram)
643,338
551,646
Reconciliation of sustaining capital expenditure and growth capital expenditure
Additions - property, plant and equipment owned
395.7
182.7
Less
Growth capital expenditure
2
42.7
18.5
Sustaining capital expenditure
2
353.0
164.2
1
Decrease from 2020 to 2021 of other operating costs as a result of reduction in costs at the Company's
training centre as a result of a change in structure of the centre
2
See Glossary of Terms for definitions.
52
Cash operating costs
Cash operating costs are linked directly to the level of throughput of a specific fiscal year.
The following table
illustrates the year-on-year
change in
cash operating costs
for fiscal year
2021 in comparison
with fiscal year
2020
.
R million
Cash operating
costs
Impact of change in
throughput
Impact of change in
costs
Net change
Cash operating
costs
2020
2021
Ergo
2,274.0
306.2
86.3
392.5
2,666.5
FWGR
352.0
6.2
48.0
54.2
406.2
Total
2,626.0
312.4
134.3
446.7
3,072.7
Cash operating costs
in fiscal year
2021 increase by
R446.7 million to
R3,072.7 million compared
to cash operating
costs of R2,626.0
million in fiscal
year 2020.The increase
is mainly due to
a 13% increase
in Ergo’s throughput to 23.0Mt
in fiscal year
2021 compared to
20.2Mt
in fiscal year 2020 and a 15% tariff increase by power utility Eskom which came into effect in April 2021 and an increase in electricity usage
at FWGR due to fiscal 2021 being the first full year of milling.
The following
table lists
the major
components of
cash operating
costs for
the Group
for each
operation and
fiscal year
set forth
below respectively:
Ergo
FWGR
Years ended
Year ended
Costs
2021
2020
Costs
2021
2020
Consumables
28%
30%
Consumables
33%
31%
Labor
19%
22%
Labor
20%
22%
Electricity and water
18%
18%
Specialized service providers
9%
9%
Specialized service providers
16%
17%
Electricity and water
19%
12%
Machine hire
4%
4%
Machine hire
2%
2%
Security expenses
4%
3%
Security expenses
5%
4%
Other costs
11%
6%
Other costs
12%
20%
5B. LIQUIDITY AND CAPITAL
RESOURCES
Cash flows
from operating
activities
Cash generated
from operating
activities
amounted to
R1,573.4 million
for fiscal
year 2021 (fiscal
year 2020:
R1,128.9 million).
Cash generated
from operating
activities
increased
during fiscal
year 2021 mostly
due to a 5% increase
in gold sold and a
19% increase
in the average rand gold price
received to R917,996 per
kilogram. In addition,
interest received increased by
R42.2 million to
R105.9 million,
mainly due
to higher cash and cash equivalents balances
during the year and the Group received dividends from Rand
Refinery amounting to
R72.3 million (2020: nil).
The increase in cash
inflows was partially mitigated by a
R212.0 million increase in current tax paid
to R452.1 million and
the net
movement
in working capital
that amounted
to a cash
outflow of R194.9
million in
fiscal year
2021.
Cash flows
from investing
activities
Net cash
utilized by
investing
activities
amounted to
R446.6 million
in fiscal
year 2021
compared
to R202.5 million
in fiscal
year 2020.
In fiscal
year 2021,
net cash
utilized by
investing activities consisted mainly of
R395.7 million in
additions to
property, plant
and
equipment and R51.0 million spent
on environmental rehabilitation payments. These outflows were reduced by R0.1
million proceeds on the
disposal of
property, plant and
equipment.
In fiscal
year 2020,
net cash
utilized by
investing activities consisted mainly of
R181.1 million in
additions to
property, plant
and
equipment and R22.1 million spent
on environmental rehabilitation payments. These outflows were reduced by R0.7
million proceeds on the
disposal of
property, plant and
equipment.
Cash flows
from financing
activities
53
Net cash outflow from financing activities
was R653.5 million in fiscal year 2021 compared
to net cash inflows of R509.2 million in
fiscal year
2020.
During fiscal
year 2021,
the net cash
outflow consisted
mostly of dividends
paid on ordinary
shares amounting
to R640.9 million.
During fiscal
year 2020,
the
net cash inflow
consisted
mostly of proceeds
received on
the issue
of ordinary
shares to Sibanye-Stillwater
amounting to
R1,085.6 million
offset by dividends
paid on ordinary
shares amounting
to R564.5 million.
Cash and cash
equivalents
Cash and cash equivalents as at June 30, 2021
amounted to R2,180.0 million compared to R1,715.1 million at the end of fiscal year
2020.
Substantially
all of our cash
and cash equivalent
balances were
denominated
in South African
rand. Cash and
cash equivalent
denominated
in foreign
currency amounted
to USD 3.4
million at
June 30, 2021
compared
to nil at the
end of fiscal
year 2020.
Cash and
cash equivalents
as at June
30, 2021 includes
restricted
cash related
to guarantees
of R10.4 million
compared
to R19.3 million
at the end
of fiscal
year 2020.
At September
30, 2021,
our cash and cash equivalents were R1,898.9 million.
Borrowings
and funding
At
June
30,
2021
and
September
30,
2021,
our
external sources
of
capital included
our
RCF
described in
Item
10C.
Material
Contracts’’.
In September 2020 the RCF was amended as described in Item
10C. “Material Contracts”.
The amendments include
a reduction in
the size of the
facility from R300million to
R200 million as well as
removing any commitment towards
the performance guarantee issued
to
Ekurhuleni Metropolitan Municipality. No amounts were drawn under this facility as of June 30, 2021 or September 30, 2021.
Anticipated funding requirements and sources
Our cash
and cash
equivalents are set
out above
under “Cash
and cash
equivalents”. Our management believes
that existing
cash
resources, net
cash generated
from
operations and
the
availability of
negotiated funding
facilities will
be
sufficient to
meet
the
anticipated
commitments of our existing operations
for fiscal year 2022. As a result of the significant increase
in the gold price, at September 30, 2021 the
Group has
a cash
and cash
equivalents balance of R1,898.9
million. In addition,
the Group has
an undrawn
R200 million RCF
available as
additional
backstop liquidity.
Liquidity
has been enhanced
by the continued
high rand gold
price levels.
5C. RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
DRDGOLD
has a
dedicated
team that
looks at
ways and
means
of improving
recoveries.
While the
team remains
active with
an ongoing
focus on improving
extraction efficiencies,
the projects undertaken
during the year
ended June 30, 2021
were focused
on optimizing the
existing
facilities
rather than
implementing
new technologies
to improve
extraction
efficiencies.
We have no registered
patents or
licenses.
5D. TREND INFORMATION
In response
to the
COVID-19
pandemic
and measures
taken to
address
the outbreak,
investors
globally, as
they have
in so
many previous
times of crisis,
turned to gold and
gold stocks as
a safe haven asset,
leading to a surge
in the average
gold price during
fiscal 2020 and
2021. The
rand/dollar exchange rate remained volatile throughout the year mainly as
a result of
economic uncertainty and perceived political instability,
global market
slowdown sentiment,
tensions between
the USA and
China, low
economic growth,
and a seemingly
terminally
distressed
Eskom.
Any sustained
decline in
the market
price of
gold from
the current
elevated gold
price levels
would adversely
affect us,
and any
decline in
the price
of gold
below the
cost of
production could
result in
the closure
of some
or all
of our
operations which
would result
in
significant costs and expenditure, such as,
incurring retrenchment costs earlier than expected
which could lead to a decline
in profits, or losses.
In addition, as most of our production costs are in rands, while gold is sold in dollars and then converted to rands, our results of operation and
financial condition
have been
and could
be in
the future
materially affected
by an
appreciation in
the value
of the
rand. Accordingly,
any
sustained decline in
the dollar price
of gold and/or
the strengthening
of the South
African rand
against the dollar
would negatively and
adversely
affect our business, operating results and financial condition.
For the fiscal year 2022,
we are planning Group gold production
of 160,000 (4 977kg) to 180,000
(5 599kg) ounces
at cash operating
unit cost of
approximately
R600,000 per
kilogram and
expect a capital
investment
of approximately
R600 million.
54
Reconciliation of budgeted cost of sales to budgeted cash operating costs (R’million)
Cost of sales
3,502.9
Reconciling items
1
(327.5)
Cash operating costs
2
3,175.4
1
Includes expected depreciation
of R270.6 million, ongoing environmental expenses
of R49.7 million, care and maintenance expenses of R6.7 million and other
operating
expenses
of R0.5 million
2
See glossary
of terms
for definition
Rounding of
figures may
result in computational
discrepancies
Our ability to meet the full year’s production target could be impacted by COVID-19 in a number of ways, including potential
further national
lockdowns,
stoppages
in production
due to
outbreaks
of infections
in our
workforce
and interruptions
to our
supply chain.
It could
also be
impacted
by lower
grades,
failure
to achieve
the throughput
targets
set at
Ergo and
FWGR,
power interruptions
and other
risks (refer
Item 3D.
Risk Factors—
Risks related to our business and operations and “–Forward Looking Statements”).
We
are also subject to cost pressures in the event of
above
inflation increases
in labor, electricity
and water; crude
oil and steel costs.
Unforeseen changes
in ore grades and
recoveries,
unexpected changes
in the quality or quantity
of reserves and
resource, technical
production issues,
environmental
and industrial accidents,
gold
theft, environmental
factors and pollution could adversely
impact the production, sales
and cash operating costs for fiscal year
2022 and cause us to fail to meet our
targets for
the year.
Refer to Item 5A.: “Key drivers of our operating
results and principal factors affecting
our operating results” for a discussion of the
trends
in the US Dollar
gold price
as well as
exchange rates
impacting our
business.
Set forth below
is our summary
results for
the first
quarter of
fiscal 2022.
This information
has not been
audited.
Operating results
for the quarter
ended September
30, 2021
55
Quarter ended
Quarter ended
Sep 30, 2021
Jun 30, 2021
% change
Production
Gold produced
kg
1,449
1,357
7%
oz
46,587
43,629
7%
Gold sold
kg
1,428
1,365
5%
oz
45,912
43,886
5%
Ore milled
Metric (000't)
7,421
7,506
-1%
Yield
Metric (g/t)
0.195
0.181
8%
Reconciliation of adjusted EBITDA
Profit for the period
217.3
240.7
Income tax
87.8
67.6
Profit before tax
305.1
308.3
Finance expense
12.6
24.7
Finance income
(35.0)
(78.8)
Results from operating activities
282.7
254.2
Depreciation
68.8
62.9
Share based payment (benefit)/expense
4.2
4.7
Change in estimate of environmental
-
(12.4)
Gain on disposal of property, plant and
-
-
IFRS 16 Lease payments
1
(5.2)
(7.9)
Transaction costs
0.3
1.6
Adjusted EBITDA
1,2*
350.8
303.1
1
The amended RCF includes IFRS 16 lease
2
See Glossary of Terms for definitions.
* The adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is not a measure of performance under IFRS and should be
considered in addition to, and not as substitute for other measures of financial performance and liquidity
Reconciliation of cash operating costs, cash operating costs per kilogram, all-in sustaining costs, all-in sustaining
costs per kilogram, all-in costs and all-in costs per kilogram
(R'millions)
Cost of sales
892.6
851.7
Depreciation
(68.8)
(62.9)
Change in estimate of environmental
-
12.4
Movement in gold in process
37.9
(0.5)
Operating costs
861.7
800.7
Ongoing rehabilitation expenditure
(9.6)
(7.5)
Care and maintenance costs
(2.2)
1.6
Other operating income/(costs)
(3.3)
18.3
Cash operating costs
1
846.6
813.1
Movement in gold in process
(37.9)
0.5
Administration expenses and other costs
excluding non-recurring items
1
27.5
16.3
Other operating costs
3.3
(18.3)
Change in estimate of environmental
-
(12.4)
Unwinding of rehabilitation provision
12.2
8.6
Sustaining capital expenditure
1
74.8
106.7
All-in sustaining costs
1
926.5
914.5
Care and maintenance costs
2.2
(1.6)
Ongoing rehabilitation expenditure
9.6
7.5
Transaction costs
0.3
1.6
Growth capital expenditure
1
13.9
9.1
All-in costs
1
952.5
931.3
56
Quarter ended
Quarter ended
September 30,
June 30, 2021
% change
Price and costs
Average gold price received
R per kg
839,983
821,647
2%
US$ per oz
1,786
1,810
-1%
Cash operating costs
R/t
114
108
6%
US$/t
8
8
-
Cash operating costs
R per kg
566,317
595,824
-5%
US$ per oz
1,204
1,312
-8%
All-in sustaining costs **
R per kg
648,880
669,744
-3%
US$ per oz
1,380
1,475
-6%
All-in cost **
R per kg
667,157
681,905
-2%
US$ per oz
1,419
1,550
-8%
Capital expenditure
Sustaining
Rm
74.8
106.7
-30%
US$m
5.1
7.6
-33%
Non-sustaining/growth
Rm
13.9
9.1
53%
US$m
1
0.6
67%
Average R/US$ exchange rate
14.63
14.12
4%
Reconciliation of sustaining capital
Additions - property, plant and equipment
88.7
115.8
Less
Growth capital expenditure
1
74.8
106.7
Sustaining capital expenditure
1
13.9
9.1
1
See Glossary of Terms for definitions.
Rounding of figures may result in computational discrepancies
**
All-in cost definitions based on the guidance note on non-GAAP Metrics issued by the World Gold Council on 27 June 2013
.
Gold production
increased
by 7% from
the previous
quarter to
1,449kg primarily
due to a 8%
increase
in yield. Gold
sold increased
by
5% to 1,428kg.
Although increases
in electricity
and labour costs
with effect
from July 2021
resulted in
higher cash
operating costs,
the increase
in the
number of gold
units produced
and sold resulted
in a 5% decrease
in cash operating
costs per
kilogram to R566,317/kg.
The cash
operating cost
per ton of material
processed increased
by 6% to R114/t.
All-in sustaining
costs per
kilogram and
all-in costs
per kilogram
were R648,810/kg
and R667,017/kg,
respectively, decreasing
quarter
on quarter
mainly due
to a decrease
in sustaining
capital expenditure.
Adjusted EBITDA
increased by
16%
from the previous
quarter to
R350.8 million
primarily
due to a 5%
increase
in gold sold
and a
2% increase
in the average
Rand gold price
received of
R839,983/kg.
Payment of
the final
dividend declared
for the fiscal
year ended
June 30, 2021
of R345.2 million
and negative
working capital
changes
of R173.5 million
at September
30, 2021 reduced
cash and cash
equivalents
by R276.8 million
to R1,903.2
million at
September
30, 2021 (June
30, 2021: R2,
180 million).
External
borrowings
remained
at Rnil as
at September
30, 2021 (June
30, 2021: Rnil).
The cash
generated during
the current
quarter will,
inter alia
, be applied
towards the
Company’s extended
capital expenditure
programme
for the fiscal
year ending June
30, 2022. Despite
the capital
expenditure
planned for
the fiscal
year, the Company
remains in
a
favourable
position to,
in the absence
of unforeseen
events, consider
declaring
an interim
cash dividend
in February
2022.
57
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.
5F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Estimated and actual payments due by period
Total
Less than
Between
Between
More than
5 years
1 year
1-3 years
3-5 years
R m
R m
R m
R m
R m
Provision for environmental rehabilitation
2
570.8
53.0
134.9
91.7
291.2
Lease liabilities
54.8
16.9
26.9
10.0
1.0
Trade and other payables
509.8
509.8
-
-
-
Purchase obligations – contracted capital expenditure
1
65.5
65.5
-
-
-
Other contractual obligations
1.4
1.4
-
-
-
Total contractual and cash obligations
1,202.3
646.6
161.8
101.7
292.2
1
Represents planned capital expenditure for which contractual obligations exist.
2
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
11
-
“Provision
for
environmental
rehabilitation” under Item 18. “Financial Statements".
5G.
SAFE HARBOR
See ‘Special
Note Regarding
Forward-Looking
Statements”.
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 at June
30, 2021, our
board consisted
of
ten 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.
Mr Geoffrey Campbell’s tenure as a director and chairman of the board of directors of the Company will come to an end with effect
from December 1, 2021. Mr Timothy Cumming,
a non-executive director
of the Company, will replace Mr Campbell as chairman
of the Board
and the nominations
committee with
effect from December
1, 2021 subject
to shareholder
approval at
the Annual General
Meeting to be held
on
November 29,
2021.
In order to ensure
good corporate
governance
in accordance
with the recommendations
of the King IV
Report on Corporate
Governance
for South Africa
2016, Mr Edmund
Jeneker will
remain as
the lead independent
director of
the Company.
Mrs Toko
Mnyango, an
independent non-executive director of the
Company, has
been appointed as
a member
of the
nominations
committee
with effect from
August 19, 2021
The address
of each of
our Executive
Directors
and non-executive
directors
is the address
of our principal
executive
offices.
Executive
Directors
Daniël (Niel)
Johannes Pretorius
(54)
Chief Executive
Officer. Niël Pretorius
has two
decades of
experience
in the mining
industry. He
was appointed Chief Executive Officer designate
of DRDGOLD on August 21, 2008 and Chief Executive Officer on January 1, 2009. Having
joined the company on May 1,
2003 as legal advisor, he
was promoted to Group Legal Counsel on September 1, 2004
and General Manager:
Corporate Services on
April 1,
2005. Niël
was appointed Chief
Executive Officer of
Ergo Mining
Operations Proprietary Limited (formerly
DRDGOLD SA)
on July 1, 2006
and became
Managing Director
thereof on April
1, 2008.
58
Adriaan
(Riaan)
Jacobus
Davel
(45)
Chief
Financial Officer.
Riaan
Davel
joined
DRDGOLD
in
January
2015.
Before
joining
DRDGOLD, he gained
17 years’ experience
in the professional
services industry, the
majority obtained
in the mining
industry in Africa.
As part
of gaining
that experience,
Riaan provided
assurance
and advisory
services,
including support
and training
on IFRS
to clients
and teams
across the
African continent.
He has
spent seven
years at
KPMG as
an audit
partner, performing,
inter alia
, audits
of listed
companies
in the mining
industry,
including SEC
registrants.
Riaan has
also gained
experience
as an IFRS
technical
partner and
represented
the South African
Institute of
Chartered
Accountants
on the
International
Accounting
Standards
Board’s project
on extractive
activities
from 2003
to 2010.
Riaan
has served
on committees
that compile/update the South African codes for reporting and valuation
of mineral reserves and resources.
Riaan is a member of
the Social &
Ethics Committee
of DRDGOLD.
Non-Executive
Directors
Geoffrey Charles
Campbell (60).
Geoffrey Campbell was
appointed a
Non-executive Director in
2002, a
senior independent non-
executive
director
in December
2003 and Non-executive
Chairman
in October
2005. A qualified
geologist,
he has worked
on gold mines
in Wales
and Canada. He spent 15 years as a stockbroker
before becoming a fund manager, managing
the Merrill Lynch Investment Managers
Gold and
General Fund, one of the
largest gold mining
investment
funds. He was also research
director for Merrill
Lynch Investment Managers.
Geoffrey
is a director
of Oxford Abstracts
Limited. Geoffrey
chairs the
Nominations
Committee
of DRDGOLD.
Edmund Abel
Jeneker (59)
. Edmund Jeneker was appointed Non-executive Director in November 2007 and Lead Independent
Non-
executive
Director
in
August
2017.
He
has
more
than
30
years’
experience
as
an
executive
in
banking,
business
strategy,
advisory
and
management at Grant Thornton South
Africa Proprietary Limited, Swiss Re
Corporate Solutions Advisors South Africa
Proprietary Limited,
the World
Bank Competitiveness Fund
and Deloitte South
Africa.
He spent over
13 years at
Absa Bank and
Barclays Africa, where
he was
Managing Executive
and served
as director
on the
boards of
several subsidiary
companies in
the ABSA
Bank Group.
Edmund is
active in
community social upliftment
and served
as a member
of the Provincial
Development Commission of
the Western Cape Provincial
Government.
He currently serves
on the National
Social Ethics Forum
of the Institute
of Directors, Chairman
of the BADISA
Investment Committee and
serves on
the board
of the
Cape Town
Philharmonic Orchestra.
He is
a Chartered
Director (SA)
with a
focus on
Board Development
and
Strategy, Climate Change and ESG. Edmund
chairs the Social & Ethics Committee and is a member of the Remuneration Committee and the
Nominations Committee of DRDGOLD.
Johan Andries
Holtzhausen
(75)
. Johan Holtzhausen holds a B.Sc.
(Geology and Chemistry) from the University
of Stellenbosch and
a B. Compt.
(Hons) from the University
of South Africa.
He has been a
Chartered Accountant (South
Africa) since 1975. He
was appointed
independent Non-executive Director in on April 25, 2014. He has more than 42 years’ experience in the accounting profession, having served
as a senior
partner at
KPMG Services Proprietary
Limited, and
held the
highest Generally Accepted
Accounting Principles
(United States),
Generally
Accepted Auditing
Standards and
Sarbanes-Oxley Act
accreditation
required to
service clients
listed on
stock exchanges
in the
United States. His
clients included major
corporations listed in
South Africa, Canada,
the United Kingdom,
Australia and the
United States.
Johan
currently
serves
as
a
voluntary
independent
director
and
chairman
of
the
Audit
and
Risk
Committee
of
the
Tourism
Enterprise
Partnership. He
also chairs
the Audit
and Risk
Committee of
Tshipi
é Ntle
Manganese Mining
Proprietary Limited.
He is
a Non-executive
Director of Caledonia
Mining Corporation Plc, a
Canadian corporation listed in
the United States and
the United Kingdom. Johan
chairs the
Audit Committee and is a member of the Remuneration Committee and the Nominations Committee of DRDGOLD.
Jean Johannes
Nel (49). Jean Nel was appointed as an independent Non-executive Director on November 30, 2018. He qualified as
a CA(SA)
in 1998
obtained the
CFA
(AIMR) qualification.
Mr.
Nel has
20 years
of mining
finance and
mining executive
and operational
management experience. He was appointed to the Aquarius Platinum Board in April 2012 and became CEO of the Group in November 2012,
a position he
held until Aquarius
Platinum was acquired
by Sibanye- Stillwater
in April 2016.
From April 2016
to January 2017
he was the
CEO of the Platinum division of Sibanye Stillwater. He is currently a non-executive director of Mimosa Investments which owns the Mimosa
platinum mine in Zimbabwe
and Northam Platinum
. Jean chairs the
Remuneration Committee and
is a member of
the Audit Committee and
the Risk Committee of DRDGOLD.
Toko Victoria Buyiswa Nomalanga Mnyango
(56). Toko Mnyango was
appointed independent Non-executive Director
on December
1, 2016. Toko began
her career
as a
prosecutor for
the KaNgwane
homeland, before
becoming a legal
advisor for
the Eastern Cape
Development
Corporation.
She
has
held
directorships
on
company
boards
including
Gijima, EOH
Mthombo
Proprietary
Limited,
AllPay
Eastern
Cape
Proprietary Limited,
a subsidiary
of ABSA
Limited, and
the Ryk
Neethling Foundation.
She currently
holds the
position of
CEO of
Vitom
Technologies Proprietary Limited and Vitom Brands Communication Proprietary Limited.
Toko is a member of the
Remuneration Committee,
Nominations Committee, and the Social & Ethics Committee of DRDGOLD.
Kuby Prudence Lebina
(40). Prudence Lebina was appointed as independent non-executive director on 03 May 2019. She qualified
as a chartered
accountant in December 2005
after serving her articles
at PricewaterhouseCoopers Incorporated. A
member of the South
African
Institute of Chartered
Accountants, with extensive
experience in corporate
finance, financial management,
investor relations and
the mining
industry, she is currently Chief Executive Officer of TriAlpha Investment Management and Non-executive director of Growthpoint Properties
Limited
and
lemas
Financial
Services
Co-operative
Limited.
Prudence
chairs
the
Risk
Committee
and
is
a
member
of
the
Nominations
Committee and the Audit Committee of DRDGOLD.
Timothy John Cumming
(63) holds a B.Sc (Hons) in Civil Engineering
from the University of Cape
Town and an MA in Philosophy,
Politics and Economics from Oxford University.
His career spans mining,
financial services and consulting. He is
the founder of
Scatterlinks
Proprietary
Limited,
a South African-based
company providing
leadership
development
and advisory
services
to senior
business executives.
He is
also
an
independent non-executive director
of
Sibanye-Stillwater Limited and
Nedgroup Investments
Limited and
serves
as
non-executive
Chairman of
Riscura Holdings
Limited. Timothy
started out
as an engineer
at the Anglo American
Corporation
of South Africa
Limited working
59
on a number of gold and diamond mines including involvement in the geo-technical
design of the Ergo tailings dam. Thereafter he held senior
roles in
financial
services including
General Manager
at Allan Gray
Limited,
Head of Investment
Research at
HSBC Securities
(SA), CEO of
Old
Mutual Asset Managers and MD of various divisions within the Old Mutual Group. Other involvements
include Chairmanship of the Mandela
Rhodes Foundation’s Investment Committee and the
Woodside Endowment Trust
and membership of
the Greenpop advisory board
(a social
enterprise committed
to
restoring ecosystems
and
sustainable development).
Timothy
is
a
member
of
the
Risk
Committee, Remuneration
Commmittee,
and Nominations
Committee
of DRDGOLD.
Charmel Diane Flemming (38)
holds a B.Acc (Hons) from the
University of the Free State and
is a qualified Chartered Accountant
(South Africa)
with 10 years´ post
articles experience
primarily within
the mining space.
She started her
career as a trainee
accountant at KPMG
South Africa
and held
various
positions
within the
De Beers
Group over
a period
of 11 years.
She also
served as
a trustee
on the boards
of both the
De Beers Benefit Society Medical
Aid and De Beers Pension Fund from 2014 to 2018. Charmel is the founder and chief
executive officer of F
Twelve and is also a non-executive director at Acorn Agri & Food Limited and at ATKV.
Charmel is a member of the Risk Committee, Audit
Committee
and Social & Ethics Committee of DRDGOLD.
Senior Management
and Prescribed
Officers
Wilhelm Jacobus
Schoeman (47)
(Dip Analytical
Chemistry, BTech Analytical
Chemistry).
Jaco Schoeman
joined DRDGOLD
in 2011
as Executive
Officer: Business
Development
to focus
on expanding
the Group’s
surface retreatment
business
and extracting
maximum value
from
existing resources.
In July 2014,
he was appointed
Operations
Director: Ergo
Mining Operations
Proprietary
Limited.
Henry Gouws (52)
(National Higher Diploma
(Extraction Metallurgy),
MDP)
Managing Director:
Ergo. Henry Gouws has more than
30
years’ experience
in
the
mining industry.
He
graduated from
Technikon
Witwatersrand and
obtained a
National Diploma
in
Extraction
Metallurgy
in 1990
and a
National
Higher
Diploma
in Extraction
Metallurgy
in 1991.
He completed
a Management
Development
Program in
2003
through
Unisa
School of
Business
Leadership
and an
Executive
Development
Programme
in 2012
through
the University
of Stellenbosch
Business
School. He was appointed Operations Manager
of Crown in January 2006 and General Manager in July 2006. He was appointed to his current
position in
October 1,
2011.
Mark
Burrell
(59)
(BCom
Accounting, MDP)
Financial Director:
Ergo.
Mark
Burrell holds
a
B.Comm Accounting
degree,
has
completed
a Management
Development
Programme (MDP)
and has more
than 20 years’
experience
in the mining
sector. He joined
DRDGOLD
in 2004
on a
consulting basis and later that
year, was
appointed as Financial Manager of the
Blyvooruitzicht operation. He was appointed as
Financial
Director of
Ergo in January
2012. Mark serves
as a director
on the Board
of Rand Refinery
Proprietary
Limited.
Kevin Kruger
(53)
(BscEng (Mechanical
Engineering),
MDP, PMD, Government
Certificate
of Competency
(Mines)). Kevin
has more
than 30 years’ experience in the mining industry in Africa. He joined the mining industry in January 1987 as second year engineering student.
Kevin graduated from the University
of the Witwatersrand at the end of 1989 obtaining his BSc (Mechanical
Engineering) and his government
certificate of Competency
(mines) during 1993. Kevin was appointed
as junior engineer in December 1989, section
engineer - March 1994 and
engineer in September 1994. He was
appointed engineering manager 2003, general manager – technical services 2004 and managing director
Chizimgold
2010. On 01
October 2013
he was appointed
as technical
director at
Ergo where he
was responsible
for the
environmental,
health and
safety, mineral
resources and
engineering
portfolios.
On 1 August
2018, Kevin
was
appointed Managing
Director
of FWGR.
Henriette
Hooijer (41)
(BCom (Hons),
CA(SA)). Henriette
Hooijer is
the Financial
Director
of FWGR. She
joined DRDGOLD
in May
2016 and was
appointed as Financial Director of FWGR in
August 2018. Before joining DRDGOLD, she spent
11 years’ in
the professional
services industry
at KPMG, performing,
inter alia,
audits of listed
companies
in the mining
industry, including
SEC registrants.
Elise Beukes (44)
(BProc). Elise
Beukes was appointed
as Company Secretary
of DRDGOLD with effect
from October 01, 2019.
She
has broad governance experience in all aspects of commercial law, having spent several years in both litigation and commercial practice as an
admitted attorney
and four years
as corporate
legal counsel.
She has dealt
extensively
with broad-based
black economic
empowerment
structures,
employee ownership schemes, enterprise development and share incentive schemes involving complex company restructuring for both
multi-
nationals
and large local
entities. She
has extensive
knowledge on
the new Companies
Act and has
particular interests
in company secretarial
and
corporate
governance
matters.
There are no family relationships between
any of our non-executive directors,
executive directors or members
of the group executive
and senior
management.
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. Furthermore, none of the non-executive directors, executive
directors, group
executive and senior
management members
or other key management
personnel are
elected or appointed
under any undertaking
by, arrangement
or understanding
with any major
shareholder,
customer, supplier
or otherwise.
60
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, 2021
was R62.6 million.
Non-Executive
Directors
received the
following fees
for fiscal
year 2021:
●
Base fee
as Non-Executive
Chairman of
R1,388,518 per
annum up to
December
1, 2020 and R1,457,944
thereafter;
●
Base fee
as Lead Independent
Non-Executive
Director of
R640,261 per
annum up to
December
1, 2020 and
R672,274 thereafter;
●
Base fee
as Non-Executive
Directors of
R617,119 per annum
up to December
1, 2020 and R647,975
thereafter;
●
Annual fee for Audit Committee
Chairman of R30,856 (excluding
fee received as a committee
member) up to December 1, 2020 and
R32,399 thereafter;
●
Annual fee
for Audit Committee
member of
R30,856 up to
December
1, 2020 and
R32,399 thereafter;
●
Annual fee
for the
chairman of
Remuneration Committee, Nominations Committee and
Social and
Ethics Committee of
R23,142
(excluding
fee received
as a committee
member) up to
December
1, 2020 and R24,299
thereafter;
●
Annual fee for members
of Remuneration Committee
and Social and Ethics
Committee of R23,142
each up to December
1, 2020 and
R24,299 thereafter;
●
Daily
fee of R23,142
up to December
1, 2020 and
R24,299 thereafter;
●
Hourly rate
of R3,086 up
to December
1, 2020 and R3,240
thereafter;
●
Half-day fee
for participating
by telephone
in special
board meetings
of R11,571 up to
December
1, 2020 and R12,150
thereafter;
and
●
The Chairman
of the board,
Lead Independent
Non-Executive
Director and
other Non-Executive
Directors
to receive
committee
fees.
The following table sets forth the compensation for our directors and prescribed officers for the year ended June 30, 2021.
The disclosure detailed in this table is consistent with the disclosure requirements of the Companies Act, 2008 (Act 71 of 2008)
and the JSE Listings Requirements.
Directors / Prescribed Officer
Total
remuneration
recognised
during the year
Short-Term
Incentives
recognised
related to this
cycle
Discretionary
Short-Term
Incentives
recognised
related to this
cycle (1)
Long-term
Incentives paid
during this
cycle
Total
remuneration
related to this
cycle
R'000
R'000
R'000
R'000
R'000
Executive directors
D J Pretorius
7,253
6,927
1,732
21,627
37,539
A J Davel
4,089
3,891
973
12,150
21,103
11,342
10,818
2,705
33,777
58,642
Non-executive directors
G C Campbell
1,545
-
-
-
1,545
E A Jeneker
794
-
-
-
794
J Holtzhausen
712
-
-
-
712
T B V N Mnyango
724
-
-
-
724
J J Nel
756
-
-
-
756
K P Lebina
769
-
-
-
769
T J Cumming
681
-
-
-
681
C D Flemming
674
-
-
-
674
6,655
-
-
-
6,655
Prescribed officers (2)
W J Schoeman
3,877
3,891
973
12,150
20,891
E Beukes
1,357
1,292
-
-
2,649
5,234
5,183
973
12,150
23,540
Total
23,231
16,001
3,678
45,927
88,837
(1)
Awarded after 30 June 2021
(2)
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.
61
Also see Item 6E. Share Ownership for details of share options held by directors.
Compensation
of key management
Refer to Item 18. ‘‘Financial
Statements
– Note 19.2 –
Related party
transactions’’ for
the total compensation
paid to key management
(including executive
and non-executive
directors
as well as
prescribed officers).
The Group applies
a pool-based Short-Term Incentive
scheme, based on
modified free cash
flow, because it drives
a strong teamwork
culture with
all participants
working primarily
towards a
single goal,
maximising free
cash flow
which is
an easy
measure to
understand.
Salient features of the short-term incentive scheme are as follows:
• Participants include the executive directors, prescribed officers and senior management.
•
The
pool
is
calculated
as
15%
of
the
Free
Cash
Flow
with
90%
of
the
pool
accruing
to
employees
achieving
a
satisfactory
performance rating;
• 10%
of
the
pool is
available
for allocation
at the
discretion
of the
remuneration
committee as
recommended
by
the executive
committee which provides the ability to recognise exceptional discretionary effort;
• A production modifier that can modify the pool upwards as well as downwards based on gold produced measured against budget;
• A safety and a
fatality modifier, both supporting the Company’s strong commitment to its
strategy of a renewed focus
on employee
safety, development, values and wellbeing; and
• The
individual performance
moderator model
has been
expanded to
include employee
performance ratings
between 2
and 3
to
participants in the STI scheme on a broader sliding scale set out below:
Individual performance rating
Individual performance modifier
< 2
(100%)
2 to 2.24
(80%)
2.25 to 2.49
(60%)
2.5 to 2.74
(40%)
2.75 to 2.99
(20%)
>= 3
0%
Performance measures
The STI
is funded
out of
a pool
created from
the Adjusted
Free Cash
Flow (“
Adjusted
FCF
”) generated
by DRDGOLD
in the
financial year:
• Adjusted FCF is defined for the performance
measure as cash generated from operations, less
capital expenditure (“
Capex
”), and
tax. In the budgeting
process, if the Group believes
that any Capex, Investment
or other item/s should be
excluded or amortised or
treated in
any different way for determining Adjusted FCF at the end of the year, they may make representations to the Remuneration Committee on the
treatment of such
item/s for the
purposes of calculating Adjusted
FCF for purposes
of the STI
pool. Remco has
absolute discretion in approving
the treatment of such items;
• The STI Pool is modified as per the Tables below;
Modifiers of the incentive pool
To drive strategic initiatives, the short-term incentive pool is modified by up to
20% for isolated non-achievements of targets and up
to 50% for systemic or
repetitive non-compliance. The modifiers are
approved by the Remuneration Committee.
These strategic initiatives and
their measures
are assessed
at the
beginning of
each financial
year to
ensure that
current strategies
are driven
in that
year.
These strategic
modifiers
and
their
weightings
are
communicated
to
participants
at
the
beginning
of
each
financial
year
to
ensure
understanding
and
compliance.
The Group performance measures set out by the Remuneration Committee and the weightings for FY2021 are as follows:
Strategic Initiatives Modifiers
Environmental:
4%
Safety:
4%
Social development:
4%
Labour development:
4%
Transformation:
4%
Fatality Modifier
• Up to 25% per fatality, depending on the degree of culpability of the company,
as assessed by the Remuneration Committee.
• If the fatality/ies is/are as a result of a breakdown in or disregard for a safety culture, the STI Pool can be modified by up to 100%
at the Remuneration Committee’s discretion.
Production Modifier
The calculated
STI Pool
may be
modified, upwards
or downwards,
based upon
gold (kg)
produced measured
against budget,
as
follows:
Gold (Kg) Produced:
STI
% of Budget
Pool Adjustment
62
< 93%
-10%
93% to < 97%
-5%
97% to < 103%
0%
103% to < 107%
+5%
≥ 107%
+10%
Distribution of the Incentive pool
The STI pool, after any moderation, will be distributed as follows:
• 90% formulaically, pro-rata to each individual’s
“% of STI Pool” taking
inter alia
the following factors into account:
• All-inclusive package of the individual for the financial year;
• Market-related STI quanta applicable to the Category;
• The level of accountability and responsibility of the role of the individual.
•
10%
on
a
discretionary
basis
allocated
by
the
Executive
Committee
after
recommendations
from
line
management.
The
Remuneration Committee will approve any allocations from the 10% discretionary pool to Executive Committee members.
Distributions are moderated for individual performance as follows:
Individual Performance Rating
Modifier %
< 2
-100%
2 to < 2.25
-80%
2.25 to < 2.5
-60%
2.5 to < 2.75
-40%
2.75 to < 3
-20%
≥ 3
0%
In order
to be
able to
reward exceptional
individual performance
appropriately,
the formulaic
plus discretionary
allocations may
exceed this amount, but these instances, if any, would be subject to the Executive Committee’s and ultimately the Remuneration Committee’s
approval.
Further considerations for the CEO and CFO
For
the
CEO and
CFO
(“executive directors”)
the
formulaically calculated
STI
amounts
will
be
reviewed by
the
Remuneration
Committee, who has absolute discretion to further modify the STI amounts, upwards or downwards:
• If compelling, exceptional and objective circumstances warrant such application of discretion; and
• To ensure that the STI amounts awarded are balanced and equitable.
Executive Directors’
STI amounts
may be
settled in
a combination
of cash
and DRDGOLD
shares (deferred
bonus shares),
with
Remco having discretion to make up to 40% of the award in deferred bonus shares.
Deferred Bonus Shares will vest / be released to the Executive Directors as follows:
• 50% after 9 months;
• 50% after 18 months.
The following provisions apply to the deferred bonus shares:
• The Executive Director needs to be in active service and not under notice of resignation on the vesting dates in
order to be eligible
to receive the deferred bonus shares and any dividends accrued thereon; and
• The deferred bonus shares carry voting and dividend rights; however, the dividends will accrue and will only be paid out upon the
vesting / release of the shares to which the dividends relate.
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 Committee.
The Company’s current executive directors, Mr. D.J. Pretorius and Mr. A.J. Davel, entered into agreements of employment with us,
on January 1,
2009 and
January 1, 2015,
respectively. These
agreements regulated
the employment relationship
with Messrs. D.J.
Pretorius
and A.J. Davel during the year ended June 30, 2021.
On July 1, 2019
Mr. D.J.
Pretorius entered into a
new agreement of employment
for a period of 3
years and thereafter it
continues
indefinitely until
terminated by
either party on
not less than
three months’
written notice. Under
the employment agreement
effective up
to
June 30,
2022 Mr.
D.J. Pretorius
receives from
us a
guaranteed remuneration
package of
R6.2 million
per annum.
Mr. D.J.
Pretorius was
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
the condition
that DRDGOLD
achieves certain
key
performance indicators.
In
addition, he is
eligible to participate in
the cash-settled long-term
incentive scheme (awarded 2,323,009
phantom shares in
November 2015)
and the equity-settled
long-term incentive scheme
(awarded 1,069,321 conditional
shares in December 2019
and 332,497 conditional
shares
in October 2020).
63
Mr.
A.J.
Davel entered
into
a
new employment
agreement
effective
from
July 1,
2019
for
a
period
of
3
years
and
thereafter
it
continues indefinitely until
terminated by either
party on not
less than three
months’ prior written
notice. Mr.
A.J. Davel receives
from us a
guaranteed remuneration
package of
R3.4 million
per annum.
Mr. A.J.
Davel is
eligible under
his employment
agreement, for
a short
term
incentive of up to 100% of his annual remuneration package in respect of one bonus cycle
per annum over the duration of his appointment, on
the condition that
DRDGOLD achieves certain
key performance indicators.
In addition, he
is eligible to
participate in the
cash-settled long-
term incentive scheme
(awarded 1,305,033 phantom
shares in November
2015) and the
equity-settled long-term incentive
scheme (awarded
517,522 conditional shares in December 2019 and 160,919 conditional shares in October 2020)
Messrs. G.C. Campbell and E.A. Jeneker each have service agreements which run for fixed periods until October 31, 2021. Mr.
J.A
Holtzhausen has a service agreement
which runs for a fixed period until April 25, 2022. Mrs. TVBN
Mnyango has a service agreement which
runs until March 31, 2023. Mr. J Nel entered into a service agreement
which runs for a fixed period until March 31, 2022, and Ms. K.P Lebina
entered into a service
agreement which runs until May
02, 2023. Mr.
T J
Cumming and Ms
Charmel Diane Flemming entered into a
service
agreement which
runs for a fixed
period until July
31, 2022. After
expiration of
the initial
two-year periods,
the agreements
continue indefinitely
until terminated
by either party
on not less
than three
months’ prior
written notice.
The Company
does not administer
any pension,
retirement
or other similar
scheme in which
the directors
receive a
benefit.
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, upon the
director reaching
a
certain age, or by
the director upon the occurrence of a
change of control. A termination of a
director's employment upon the occurrence of a
change of control
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.
6C. BOARD PRACTICES
Board of Directors
As at June 30, 2021 and as at September
30, 2021,
the board of directors comprises two Executive Directors (Mr. D.J. Pretorius and
Mr. A.J.
Davel),
and eight
Non-Executive Directors
(Messrs. G.C. Campbell,
J.J.
Nel, E.A. Jeneker,
J.A. Holtzhausen,
T.J.
Cumming and
Mmes. K.P. Lebina, T.V.B.N.
Mnyango,
C.D. Flemming). The
Non-Executive Directors are
independent under the
New York Stock Exchange,
or NYSE, requirements (as affirmatively determined by
the Board of Directors)
and the South African King IV
Report except Mr. T Cumming
who also serves as an independent non-executive director of Sibanye-Stillwater Limited, DRDGOLD’s controlling shareholder.
In
accordance
with
the
King
IV
Report
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.
A.J Davel 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 NYSE 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 Nominations Committees formally
evaluate the executive 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
64
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.
Board
meetings
are
held
quarterly
in
South
Africa
and
occasionally
abroad.
The
structure
and
timing
of
the
Company’s
board
meetings, which
are scheduled over
two 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
Audit
Committee,
Risk
Committee,
Remuneration
Committee
&
Nominations Committee as well as the Social & Ethics Committee which act
as subcommittees to the board. Each subcommittee is chaired by
one of
the Independent
Non-Executive Directors,
each of
whom provides
a formal
report back
to the
board. Each
subcommittee meets
for
approximately half a day. Certain senior personnel of the Company attend the subcommittee meetings as invitees.
The board sets the
standards and values of
the Company and much of
this has been embodied in
the Company’s Code
of Conduct,
which is available
on our website
at www.drdgold.com.
The Code of
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
NYSE rules.
The Code
contains provisions
for employees
to report
violations of
Company policy
or any
applicable
law, rule or regulation, including US securities laws.
A description of the significant ways in which our corporate governance practices
differ from practices followed by U.S. companies
listed on the NYSE can be found in Item 16G. Corporate Governance.
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,
2021:
Director
Title
Year first
appointed
Term of
current office
Unexpired
term of
current office
D.J. Pretorius
Chief Executive Officer
2008
3 years
12 months
A.J. Davel
Chief Financial Officer
2015
3 years
12 months
G.C. Campbell
Non-Executive Director
2002
2 years
4 months
E.A. Jeneker
Non-Executive Director
2007
2 years
4 months
J. Holtzhausen
Non-Executive Director
2014
2 years
9 months
T.V.B.N.
Mnyango
Non-Executive Director
2016
2 years
19 months
J.J Nel
Non-Executive Director
2018
2 years
19 months
K.P Lebina
Non-Executive Director
2019
2 years
22 months
T.J. Cumming
Non-Executive Director
2020
2 years
13 months
C.D. Flemming
Non-Executive Director
2020
2 years
13 months
Executive
Committee
As at June
30, 2021,
the Executive
Committee
consisted of
Mr. D J Pretorius
(Chairman),
Mr. A J Davel, Mr. W.J. Schoeman
and Ms.
E. Beukes.
The Executive
Committee meets
on a weekly
basis to review
current operations,
develop strategy
and policy
proposals for
consideration
by the board
of directors.
Members of
the Executive
Committee,
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. The
subsidiary
companies’
executives
are permanent
participants
on the Executive
Committee.
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 of Non-Executive Directors for their services on the committees concerned is determined by the board. The
committees are subject to annual 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
Nominations
Committee
As at June
30, 2021 the
Nominations
Committee
consisted of
G C Campbell
(Chairman),
E A Jeneker,
J A Holtzhausen, T V B N
Mnyango, K
P Lebina,
and T J Cumming.
65
The Nominations Committee meets on an
ad hoc
basis. All members of this committee are independent non-executive directors
who are independent according to the definition set out in the NYSE Rules, except for T Cumming. It is chaired by the board chairman who
is an independent non-executive director (“
NED
”).
The primary role of the committee is to execute the following functions:
●
ensure the
establishment
of a formal
process for
the appointment
of directors;
●
ensure that
inexperienced
directors are
developed through
a mentorship
programme;
●
ensure that
directors receive
regular briefings
on changes
in risks, laws
and the appropriate
contribution;
●
drive an annual
process to
evaluate the
board, board
committees
and
individual
directors;
●
ensure that
succession
plans for the
board, chief
executive officer
and senior
management
appointments
are developed
and
implemented.
The key nominations responsibilities of the committee include the following:
●
make recommendations
to the board
on the appointment
of new directors;
●
make recommendations
on the composition
of the board
and the balance
between executive
and non-executive directors appointed
to the board;
●
review board
structure,
size and composition
on a regular
basis;
●
make recommendations
on directors
eligible to
retire by
rotation; and
●
apply the principles
of good corporate
governance
and best practice
in respect
of nominations
matters.
Remuneration
Committee
As at June
30, 2021 the
Remuneration
Committee
consisted of
J J Nel (Chairman),
E A Jeneker,
J A Holtzhausen, T V B N Mnyango
and T J Cumming.
The Remuneration Committee meets on a quarterly basis. All members of this committee are independent non-executive directors
who are independent according to the definition set out in the NYSE Rules, except for T J Cumming. It is chaired by an independent non-
executive director.
The committee has a mandate to offer competitive packages that will attract and retain executives of the highest caliber and
encourage and reward superior performance. Industry surveys are provided for comparative purposes, and to assist the committee in the
formulation of remuneration policies that are market related.
Audit Committee
As at June
30, 2021 the
Audit Committee consisted
of J.A. Holtzhausen (Chairman), J.J. Nel, K P Lebina and C.D. Flemming.
All members of the Audit Committee are independent according to the definition set out in the NYSE Rules. The committee’s
charter deals with all the aspects relating to its functioning.
The Audit Committee charter sets out the committee’s terms of reference which include responsibility for:
●
appointment
and oversight
of external
auditors, audit
process and
financial reporting;
●
oversight of
internal audit;
●
overseeing
the integrated
reporting and
assurance
model;
●
overseeing the
development
and annual review
of a policy
and plan for
risk management;
●
ensuring that
risk management
assessments
are performed
on a continuous
basis;
●
ensuring that
reporting on
risk management
assessment
is complete,
timely, accurate
and accessible;
●
ensuring that
frameworks
and methodologies
are implemented
to increase
the possibility
of anticipating
unpredictable
risks;
●
ensuring that
continuous
risk monitoring
by management
takes place.
The Audit Committee meets each quarter with the external auditors, the company’s manager: risk and internal audit, and the CFO.
The committee reviews the audit plans of the internal auditors to ascertain the extent to which the scope of the audits can be relied upon to
detect weaknesses in internal controls. It also reviews the annual and interim financial statements prior to their approval by the board.
The committee is responsible for making recommendations to appoint, reappoint or remove the external auditors, and the
designated external audit partner as well as determining their remuneration and terms of engagement. In accordance with its policy, the
committee preapproves all audit and non-audit services provided by the external auditors. KPMG Inc. was reappointed by shareholders at the
last AGM on December 2, 2020 to perform DRDGOLD’s external audit function, such appointment was made by the shareholders in
accordance with the laws of South Africa and upon recommendation of the board following the Audit Committee.
The internal audit function is performed in-house, with the assistance of Pro-Optima Audit Services Proprietary Limited. Internal
audits are performed at all DRDGOLD operating units and are aimed at reviewing, evaluating and improving the effectiveness of risk
management, internal controls and corporate governance processes.
66
Significant deficiencies, material weaknesses, instances of non-compliance and exposure to high risk and development needs are
brought to the attention of operational management for resolution and reported to the Audit Committee.
The committee members have access
to all the records of the internal audit team.
DRDGOLD’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 the CEO. All significant findings arising from audit procedures are brought to the attention of the
committee and, if necessary, to the board.
Section 404(a) of the Sarbanes-Oxley Act of 2002 stipulates that management is required to assess the effectiveness of the internal
controls surrounding the financial reporting process. The results of this assessment are reported in the form of a management attestation
report that is filed with the SEC as part of the Form 20-F. Additionally,
DRDGOLD’s external auditors are required to express an opinion on
the effectiveness of internal controls over financial reporting, which is also contained in the Company’s Form 20-F.
Risk Committee
As at June
30, 2021 the
Risk Committee consisted
of K.P. Lebina (Chairwoman), Mr D.J. Pretorius, J.J. Nel, C.D. Flemming and
T.J. Cumming.
All members of the Risk Committee are independent according to the definition set out in the NYSE Rules, except for T Cumming.
It is chaired by an independent NED.
An important aspect of risk management is the transfer of risk to third parties to protect the company from disaster. DRDGOLD’s
major assets and potential business interruption and liability claims are therefore covered by the group insurance policy, which encompasses
all the operations. Most of these policies are held through insurance companies operating in the United Kingdom, Europe and South Africa.
The various risk-management initiatives undertaken within the group as well as the strategy to reduce costs without compromising cover
have been successful and resulted in substantial insurance cost savings for the Group.
Social and
Ethics Committee
As at June 30, 2021, the Social and Ethics Committee consisted of Mr. E.A. Jeneker (Chairman), Mr. A.J. Davel, Mrs. TVBN
Mnyango and C.D. Flemming
The Social and Ethics Committee is a statutory body established in terms of section 72 of the Companies Act, 2008; the objectives
of which are to facilitate transformation and sustainable development by,
inter alia,
promoting transformation within the Company and
economic empowerment of previously disadvantaged communities particularly within the 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.
The following terms of reference were approved by the board to enable the committee to function effectively. These are to be
responsible for and make recommendations to the board with respect to the following matters:
●
monitor the
Company’s activities
regarding the
10 principles
set out in
the United
Nations Global
Compact Principles
and the
OECD recommendations
regarding Corruption,
the Employment
Equity Act
and the Broad
Based Black
Economic Empowerment
Act;
●
maintaining
records of
sponsorship,
donations
and
charitable
giving;
●
reviewing
matters relating
to the environment,
health and
public safety, including
the impact
of the company’s
activities
and of its
products or
services;
●
reviewing
matters relating
to labor and
employment
●
reviewing and
recommending
the company’s code
of ethics;
●
reviewing and
recommending
any corporate
citizenship
policies;
●
reviewing significant
cases of employee
conflicts
of interests,
misconduct or
fraud, or any
other unethical
activity by
employees
or
the Company
6D. EMPLOYEES
Employees
The total
number of employees
at June 30,
2021, of 2,791
comprises
1,838 specialized
service providers
and 953 employees
who are
directly employed
by us and our
subsidiary
companies.
Of the 953
employees
directly employed
by us and our
subsidiary
companies,
42
employees
are on a fixed
term employment
contract.
The total
number of employees
at June 30,
2020, of 2,573
comprises
1,615 specialized
service providers
and 958 employees
who are
directly employed
by us and our
subsidiary
companies.
Of the 958
employees
directly employed
by us and our
subsidiary
companies,
34
employees
are on a fixed
term employment
contract.
67
The total
number of employees
at June 30,
2019, of 2,617
comprises
1,591 specialized
service providers
and 1,026 employees
who are
directly employed
by us and our
subsidiary
companies.
Of the 1026
employees
directly employed
by us and our
subsidiary
companies,
34
employees
are on a fixed
term employment
contract.
The total
number of employees
at September
30, 2021, of
2,741 comprises
1,788 specialized
service providers
and 953 employees
who are directly
employed by us
and our subsidiary
companies.
Of the 953 employees
directly employed
by us and our
subsidiary
companies,
43
employees
are on a fixed
term employment
contract.
All of our
employees
are based at
our operations
that operate
exclusively
in South
Africa.
Labor Relations
As at June
30, 2021,
approximately
82% of our Ergo
employees
and 93% of our
FWGR 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,
(“
NUM
”),
one of the
main South
African mining
industry unions,
is influential
in the tripartite
alliance between
the ruling African
National
Congress,
the Congress
of South African
Trade Unions,
(“
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
organized labor
coordinating
forum meets
regularly
to
discuss matters
pertinent to
both parties.
On February
28, 2021, ERGO
signed a one-year
wage extension
agreement
with organized
labour for the
period July
1, 2021 to
June
30, 2022 with
a 5.9% average
increase
per annum
across the
ERGO workforce
with individual
increases
ranging from
5.5% to 7% per
annum.
The transitional
arrangement
regarding wage
increases
with the workforce
at FWGR when
these employees
were incorporated
into DRDGOLD
have now come
to an end. As
a consequence,
negotiations
are currently
underway with
organized labour
at FWGR with
the intention
of trying to
reach a 3-year
wage agreement.
We recognize the
need for transformation
and have put
systems and
structures
in place to
address this
at both management
and board
level. We aim to recruit
in line with
our transformational
objectives.
The composition
of the Board
of Directors
specifically, changed
significantly
over the past
two fiscal
years
and is more
diverse and
reflective
of transformation
and South Africa’s
demographics.
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 fiscal
2021 overall
safety statistics
for our operations:
(Per million man hours)
Ergo
FWGR
Consolidated
Year ended
June 30,
Year ended
June 30,
Year ended
June 30,
2021
2020
2021
2020
2021
2020
Lost time injury frequency rate (LTIFR)
1
0.78
1.25
0.97
1.3
0.80
1.27
Reportable incidence frequency rate (RIFR)
1
0.47
0.9
-
1.3
0.40
0.96
Fatalities
-
-
-
-
-
-
1 Calculated as follows: actual number of instances divided by the total number of man hours worked multiplied by one million.
6E. SHARE OWNERSHIP
To the best of our
knowledge,
we believe
that our ordinary
shares held
by prescribed
officers and
directors,
in aggregate,
do not exceed
one percent
of the Company’s
issued ordinary
share capital.
For details
of share
ownership
of directors
and prescribed
officers see
Item 7A.
Major
Shareholders.
As of June
30, 2021, directors
and prescribed
officers do not
hold any options
to purchase
ordinary shares.
Closed periods
apply to
share trading
by directors,
prescribed officers
and other
employees, whenever
persons become
or could
potentially become aware of
material price sensitive information, such
as information relating to
an acquisition, bi-annual results
etc., which
is not in
the public domain.
When these persons
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 interim and year-end results
the closed-period is group-wide.
DRDGOLD Phantom
Share Scheme
(Amended November
2015) – Cash
Settled Long-Term
Incentive Scheme
Salient terms
of the
DRDGOLD Phantom
Share Scheme
are disclosed
in Item
18. ‘‘Financial Statements - Note
19. Cash Settled
Long-Term Incentive
Scheme’’
68
During fiscal year 2016, DRDGOLD’s Remuneration
Committee approved a revised long-term incentive scheme. On November 4,
2015,
the
committee
approved
an
allocation
of
20,527,978
phantom
shares
which
is
driven
by
share
price
performance
and
individual
performance and is based on phantom share allocations. The vesting of any shares allocated
is staggered over a five-year period commencing
in the third year after the allocation is
granted in line with King IV Report recommendations.
The objectives of the revised scheme are
to drive
the longer-term strategies
of DRDGOLD, to
align participants’ interests with
shareholders’ interest, to
incentivise and motivate participants,
to
attract
and
retain
scarce
human
resources
and
to
reward
superior
performance
by
the
Company
and
participants.
The
Remuneration
Committee has the authority to amend in part or in its entirety or withdraw the long-term incentive scheme at any time.
No phantom shares were granted during fiscal
year 2021 (2020: nil, 2019: 388,547). No phantom
shares were outstanding June 30,
2021 (2020: 9,845,638; 2019: 16,157,058).
Equity-Settled
Long-Term Incentive
Scheme
On December 2, 2019 shareholders approved an Equity-Settled Long-Term Incentive Scheme (“
Scheme
”) for purposes of
replacing the current Cash-Settled Long-Term Incentive Scheme. The Cash-Settled Long-Term
incentive scheme has a finite life and
comes to an end with the vesting of the last phantom shares during fiscal year 2021. Certain key features of the Scheme are:
Equity settled
The Scheme will be equity-settled.
Equity-settlement will be implemented by way of market acquisition of DRDGOLD ordinary shares
or through the issue of authorised but unissued shares or treasury shares.
Participants
Persons eligible to participate in the Scheme will be permanent employees (which, for the avoidance of doubt, includes an executive
director, but excludes a non-executive director) of the Company and its subsidiaries, in Category 19 and above (“
Participants
”).
Award of Conditional Shares
Pursuant to the Scheme, the Company’s Remuneration Committee will resolve, on an annual basis, to award “Conditional Shares”
(“
Award
”) which are comprised of:
●
“Performance Shares” which are subject to conditions, as set out in the rules of the Scheme and performance conditions; and
●
“Retention Shares” which are subject to conditions, as set out in the rules of the Scheme.
Participants are not required to pay for Awards or Shares Settled in terms of vested Awards.
Annual awards of Conditional Shares will be made, in two forms:
●
80% of the Award will be comprised of Performance Shares
●
20% of the Award will be comprised of Retention Shares
The target award value will be referenced to market-related award quanta, and will be adjusted based upon individual performance as
follows:
Individual Rating
% of Target Value
Awarded
< 2.75
0%
2.75 to < 3.00
50%
3.0 to < 3.75
100%
3.75 to < 4.5
133.33%
4.5 to < 5.0
166.67%
5.0
200%
Dividend and Voting
Rights
The Conditional Share Awards carry no dividend or voting rights, until Settled, and therefore any transfer and other rights associated
with the Conditional Shares will only vest following settlement.
Vesting
of the Conditional Shares
The first grant was made on December 2, 2019 and will vest in two tranches, 50% on the 2nd anniversary and the remaining 50% on the
3rd anniversary of the grant date respectively, provided the employee is still within the employment of the Group until the respective
vesting dates.
Retention shares:
100% of the retention shares will vest if the employee remains in the employ of the Company at vesting date and individual performance
criteria are met.
Performance shares:
Total shareholder’s return (“
TSR
”) measured against a hurdle rate of 15% referencing DRDGOLD’s Weighted
Average Cost of Capital
“WACC”:
•
50% of the performance shares are linked to this condition; and
•
all of these performance shares will vest if DRDGOLD’s TSR exceeds the hurdle rate over the vesting period
TSR measured against a peer group of 3 peers (Sibanye-Stillwater, Harmony Limited and Pan-African Resources Limited):
69
•
50% of the performance shares are linked to this condition; and
•
The number of performance shares which vest is based on DRDGOLD’s actual TSR performance in relation to percentiles of peer
group’s performance as follows
Percentile of Peers
% of Conditional Shares Vesting
< 25th percentile
0%
25th to < 50th percentile
25%
50th to < 75th percentile
75%
≥ 75th percentile
100%
Awarded Conditional Shares which do not Vest
to the Participant, as a result of forfeiture or which lapse, revert back to the Scheme.
Share Limits
Overall Company Limit
The aggregate number of Shares at any one time which may be awarded for Settlements under the Scheme shall not exceed 34,500,000
(thirty four million, five hundred thousand) Shares (representing approximately 4.95% of the total issued share capital of the Company at
the date of this Notice).
Individual Limit
Subject to certain dilution adjustments, the aggregate number of Shares at any one time which may be awarded under the Scheme to any
one Participant shall not exceed 14,500,000 Shares.
70
ITEM 7. MAJOR
SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS
7A. MAJOR SHAREHOLDERS
As of September
30, 2021,
our issued
capital consisted
of:
●
864,588,711 ordinary
shares of
no par value;
and
●
5,000,000 cumulative
preference
shares.
To our knowledge, as
of June 30,
2021, we were
not directly
or indirectly
owned or controlled
by another
corporation
or any person
or
foreign government,
other than
the controlling
interest
held by Sibanye-Stillwater.
On July 31,
2018, 265 million ordinary shares were issued to
Sibanye-Stillwater
as settlement of the
purchase consideration for the
acquisition
of the WRTRP Assets.
On January 8,
2020, Sibanye-Stillwater
exercised the
option granted
to it to subscribe
for such number
of new
ordinary shares
in the share capital of DRDGOLD
for cash resulting in Sibanye-Stillwater
holding in aggregate
50.1% of all DRDGOLD shares
in issue
(including
treasury
shares).
Sibanye-Stillwater
subscribed
for 168,158,944
Subscription
Shares
at an
aggregate
subscription
price
of R1,086
million, on January
22, 2020. The
Subscription
Shares were
allotted and issued
at a price of
R6.46 per share,
being a 10% discount
to the 30-day
volume weighted
average traded
price.
Other than
the above 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, 2021:
●
there were 10,468 record holders of
our ordinary shares in South
Africa, who held 559,688,990 or
approximately 64.7% of our
ordinary shares;
●
there was one record holder of our cumulative
preference shares in South Africa,
who held 5,000,000 ordinary
shares or 100% of
our cumulative
preference
shares;
●
there were
36 US record
holders of
our ordinary
shares,
who held
approximately
33,974,859 ordinary
shares
or approximately
3.9%
of our ordinary
shares excluding
those shares
held as part
of our ADR program;
and
●
there
were 664
registered
holders
of our
ADRs in
the United
States,
who held
approximately
215,869,190
shares
(21,586,919 ADRs)
or approximately
25.0% of our
ordinary shares.
The following
table sets
forth information
regarding the
beneficial
ownership of
our ordinary
shares as
of September
30, 2021,
by:
●
each of our
directors
and prescribed
officers; and
●
any person whom the
directors are
aware of as at September
30, 2021 who is interested
directly or indirectly
in 1% or more of our
ordinary shares.
There was
significant
change in
the percentage
ownership of
the major
shareholders
over the
preceding
three years.
Shares Beneficially owned
Holder
Number
Percent of outstanding
ordinary shares
Directors/prescribed officers
D.J. Pretorius
475,255
*
A.J. Davel
200,000
*
Other
Sibanye-Stillwater
433,158,944
50.10%
The Bank of New York Mellon
227,674,416
26.33%
Government Employees Pension Fund
31,135,434
3.60%
GSI Equity Seperation Account
14,739,438
1.70%
CLEARSTREAM BANKING S.A LUXEMBOURG
11,078,446
1.28%
Ergo Mining Operations Proprietary Limited
9,474,920
1.10%
*
Indicates share ownership of less than 1% of our outstanding ordinary shares.
No shareholder
has voting rights
which differ
from the voting
rights of
any other shareholder.
71
Cumulative
Preference Shares
Randgold and Exploration Company
Limited, or Randgold, owns 5,000,000
(100%) of our cumulative preference
shares. Randgold's
registered
address is
Suite 25, Katherine
& West Building, Corner
of Katherine
and West Streets,
Sandown, Sandton,
2196.
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. 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. Holders
of cumulative preference shares 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. The
development of the project is not expected to materialise and therefore no dividend is expected to be paid.
7B. RELATED PARTY TRANSACTIONS
Transactions with related parties are disclosed in Item 18. ‘‘Financial
Statements
- Note 5.2 –
Cost of sales’’
Remuneration
paid
to key
management is
disclosed
in
Item 18. ‘‘Financial
Statements - Note
19.3 –
Key management personnel
remuneration’’
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.
Please refer
to Item 4D.
Property, plant and
equipment—Ongoing
Legal Proceedings.
8.
Please refer
to Item 10B.
Memorandum of
Incorporation.
8B. SIGNIFICANT
CHANGES
Significant changes that have occurred since June 30, 2021, the date of the last
audited financial statements included in this Annual
Report, are discussed in the relevant notes to the financial statements under Item 18. Financial Statements.
72
ITEM 9. THE
OFFER AND LISTING
9A. OFFER AND
LISTING DETAILS
The principal trading market
for our
equity securities is the
JSE (symbol: DRD)
and our
ADSs that trade
on the
New York
Stock
Exchange
(symbol:
DRD). The
ADRs are
issued by
The Bank
of New
York Mellon, as
depositary. Each
ADR represents
one ADS
and each ADS
represents
ten of our ordinary
shares. Until
July 23, 2007,
each ADS
represented
one of our ordinary
shares.
The cumulative
preference
shares are
not traded
on any exchange.
There have
been no trading
suspensions
with respect
to our ordinary
shares on
the JSE during
the past three
years ended
June 30, 2021,
nor have there
been any trading
suspensions
with respect
to our ADRs
on the New
York Stock Exchange
since our
listing on that
market.
9B. PLAN OF
DISTRIBUTION
Not applicable.
9C. MARKETS
Nature of Trading Markets
See “Offer and
Listing Details”
above
.
9D. SELLING
SHAREHOLDERS
Not applicable.
9E. DILUTION
Not applicable.
9F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL
INFORMATION
10A. SHARE CAPITAL
Not applicable.
10B. MEMORANDUM
OF INCORPORATION
As
of
June 30,
2021,
we
had
authorized for
issuance 1,500,000,000 ordinary
shares of
no
par
value (as
of
September 30,
2021:
1,500,000,000),
and 5,000,000
cumulative
preference
shares of
R0.10 par
value (as
of September
30, 2021:
5,000,000).
On this
date, we
had issued
864,588,711 ordinary shares (as of September 30, 2021:
864,588,711)
and 5,000,000 cumulative preference
shares (as of September 30, 2021:
5,000,000).
Set out below
are brief
summaries
of certain
provisions
of our Memorandum
of Incorporation,
or our
MOI, the
Companies
Act of South
Africa and
the JSE
Listings
Requirements,
all as
in effect
on June
30, 2021
and September
30, 2021.
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
JSE Listings
Requirements.
We are registered
under
the Companies
Act of
South Africa
under
registration
number
1895/000926/06.
As set
forth
in our
Memorandum
of Incorporation,
the main object
and business
of our company
is mining
and exploration
for gold and
other minerals.
Borrowing Powers
73
Our directors may from time to time borrow for the purposes of the company, such sums as they think fit and secure the payment or
repayment of any such sums,
or any other sum, as they think fit, whether
by the creation and issue of securities,
mortgage or charge upon all or
any of
the property
or assets
of the company.
The directors
shall procure
that the
aggregate
principal
amount at
any one
time outstanding
in respect
of monies
so borrowed
or raised
by the company
and all the
subsidiaries
for the time
being of the
company shall
not exceed
the aggregate
amount
at that time
authorized
to be borrowed
or secured
by the company
or the subsidiaries
for the time
being of the
company (as
the
case may be).
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
is a majority
of the directors
present at
a meeting
before a
vote
may be called
at any meeting
of directors.
Directors
are required
to notify
our board
of directors
of interests
in companies
and contracts.
If a
director
has a
personal
financial
interest
in respect
of a matter
to be
considered
at a meeting
of the
board he
or she
must disclose
the interest
and its
nature,
any material
information
relating
to the matter and thereafter leave the meeting immediately
after making the disclosure. Such director
must not take part in consideration of the
matter. He is
not to be regarded
as being present
for the purpose
of determining
whether a
resolution has
sufficient
support to be
adopted.
The King IV Report on Corporate Governance for South Africa, 2016 (King IV) was published on 1 November 2016 and came into
effect on 1
April 2017 for companies with financial years commencing thereafter. The application regime for King IV is
"apply and explain",
requiring companies to substantially
and meaningfully strive towards good corporate
governance. King IV is principles and outcomes based: a
departure from mere
compliance-based mindset. King IV
recognises that sound
governance outcomes, exemplified by integrity,
competence,
responsibility,
accountability,
fairness
and transparency,
are the
cardinal
pillars of
good corporate
citizenship.
The JSE
Limited has
since made
the
adoption and
application
of King IV
mandatory
for all listed
companies.
The remuneration of non-executive directors is typically determined
by the board, but
subject to approval by the shareholders at the
AGM of the Company. In terms of section
65(11)(h) of the Companies
Act, 2008 read with sections
66(8) and 66(9) thereof,
remuneration may
only be paid
to directors
for their
services as
directors in
accordance
with a special
resolution approved
by the shareholders
within the
previous 2
(two) years.
A special resolution
was passed
at the 2019
AGM on December
2, 2019 to increase
the NED remuneration.
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.
These common
law duties
have now been
codified by
the Companies
Act.
Age Restrictions
There is
no age limit
for directors.
Election of
Directors
Each
director
shall be
appointed
by election
by way
of an
ordinary
resolution
of shareholders
at a
general
or annual
meeting
of company
(“elected director (s)”) and
no appointment of
a director by
way of
a written
circulated shareholders resolution in terms of
section 60 of
the
Companies
Act shall
be competent.
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. An amendment to the MOI which also subjects executive
directors to re-election by rotation
was approved
by shareholders
at the 2014
annual general
meeting.
General Meetings
On the request
of any shareholder
or shareholders
holding not less
than 10 percent
of our share capital
which carries
the right of
voting
at general
meetings,
we shall
issue a
notice to
shareholders
convening
a general
meeting
for a
date not
less than
15 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
15 days advance
written notice
of that meeting.
For any other
general meeting
of our shareholders,
15 days advance
written notice
is required.
Our MOI provides
that if at a
meeting convened
upon request
by our shareholders,
a quorum is not
present within
fifteen minutes
after
the time selected for the meeting,
such meeting shall be postponed
for one week. However the chairman has
the discretion to extend the fifteen
minutes for
a reasonable
period on certain
grounds. The
necessary
quorum is
three members
present with
sufficient
voting powers
in person or
by
proxy to exercise
in aggregate
25% of the voting
rights.
Voting Rights
74
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 vote 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 certain
circumstances 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 June
30, 2021 and
September
30, 2021, 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.
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
Company 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.
An amendment
to the MOI to increase
the number of authorized
shares was approved
by shareholders
at the 2018 general
meeting on March
28,
2018.
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
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.
We also need
to consider
the solvency
and liquidity
requirements
stated in
the
Companies
Act of South
Africa.
Directors’
power to vote
compensation
to themselves
The remuneration
of non-executive
directors
may not
exceed
in any
financial
year the
amount fixed
by the
Company
in general
meeting.
The Companies
Act requires that
remuneration
to non-executive
directors may be paid
only in accordance
with a special resolution
approved by
shareholders
within the
previous two
years.
75
Time limit for
dividend entitlement
All unclaimed monies that are due
to any shareholder/s shall be held
by the company in
trust for an indefinite period until
lawfully
claimed by
such shareholder/s,
subject to
the Prescription
Act, 1969 as
amended or
any other law
which governs
the law of
prescription.
Staggered director
elections
& cumulative
voting
At each annual general meeting of the Company one-third of the directors shall retire and be eligible for re-election. No provision is
made for
cumulative
voting.
Sinking fund
provisions
and liability
to further
capital calls
There are no
sinking fund provisions in
the MOI
attaching to any
class of
the company shares,
and the
company does not
subject
shareholders
to liability
to further
capital calls.
Provision
that would delay/prevent
change of control
The Companies
Act provides
that companies
which propose
to merge
or amalgamate
must enter
into a written
agreement
setting out
the
terms thereof.
They must
prove that
upon
implementation of the
amalgamation or
merger each
will
satisfy the
solvency and
liquidity test.
Companies
involved in disposals,
amalgamations
or mergers,
or schemes
of arrangement
must obtain a
compliance
certificate
from the Takeover
Regulation
Panel, pass
special resolutions
and in some
instances
they must obtain
an independent
expert report.
10C. MATERIAL CONTRACTS
Amendment
and extension
to ZAR300 million
Revolving
Credit Facility
On September
14, 2020,
DRDGOLD Limited
amended the
initial R300
million Revolving
Credit Facility
(“
RCF
”) secured
with
ABSA Bank Limited (acting through its Corporate and Investment Banking division) to a R200
million RCF and simultaneously extended the
final repayment date to September 14, 2022. The RCF remained undrawn at June 30, 2021.
The RCF
bears interest
at JIBAR
plus a
margin of
275 basis
points (initial
RCF: 325
basis points)
nominal annual
compounded
quarterly. A
commitment fee of 35% of the
applicable margin per annum is
due on the undrawn RCF.
A debt origination fee of 0.5%
(initial
RCF: 1%) is payable on the available commitment of R200 million.
Relevant covenants include that, during any rolling 12 month period, (i) the interest cover
1
shall not be less than 4 times and (ii) net
debt
2
to Adjusted EBITDA shall not exceed 2 times.
1 Interest cover means the ratio of Adjusted EBITDA to Total
Net Interest (interest charged on Financial Indebtedness after deducting all interest received on Cash and cash
equivalents (excluding interest received on restricted cash)).
2 Means Total Net Debt after deducting Cash and cash equivalents
(excluding restricted cash)
The description of the amended RCF is qualified by reference to the addendum to the RCF filed herewith as an Exhibit to our
Annual Report on Form 20-F for the year ended June 30, 2020.
Performance
Guarantee
On December 10, 2018, ABSA Bank Limited (acting through its Corporate and Investment Banking division) issued a performance
guarantee (“
Guarantee
”) to Ekurhuleni Metropolitan Municipality (refer to Item 18. “Financial Statements
- Note 24 – Payments made under
protest”). R125 million of the initial R300 million RCF was committed to the Guarantee.
The amended R200 million RCF dated September 14, 2020 does not include any commitment towards the Guarantee.
The description of the performance guarantee issued
to the Municipality is qualified by reference to the
Addendum to the RCF and
the Performance Guarantee filed herewith as Exhibits to this report.
76
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
the 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
the 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
the SARB.
Foreign investment
and outward loans
by South African companies
are also restricted.
In addition, without
the approval of the
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 the
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 the SARB is required in advance for investments in excess of R500 million. On application
to the 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, the
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,
the SARB may
instruct that
the
equity be disposed of. In our experience the SARB has taken a commercial
view on this, and has on occasion extended the period of
time for compliance;
and
77
●
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 the 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
ADRs 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.
Any cash dividends
paid by us are
paid in rands.
Holders of ADRs
on the relevant
record date
will be entitled
to receive any
dividends
payable in respect
of the shares
underlying the
ADRs, 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 ADRs,
net of conversion
expenses of
the depositary, in accordance with the deposit
agreement. The depositary
will charge holders of ADRs, 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.
78
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, individuals
not resident in South Africa
do not
pay tax in South
Africa except
in the following
circumstances:
Income Tax and Withholding
Tax on 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) R34,500
if the taxpayer
is 65 years
of age or
older or (b)
R23,800 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.
Section 64F of the amendments to the Income Tax Act as set out in Part VIII in Chapter II of the Income Tax Act sets out beneficial
owners
who are
exempt
from the
dividend tax
which includes
resident
companies
receiving
a dividend
after
the effective
date, being
April 1,
2012.
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
ADRs
to a U.S.
resident
(within the
meaning of
the Tax Treaty)
to 5% of
the gross
amount of
the dividends
if such
U.S.
resident is
a company which
holds directly
at least 10%
of our voting
stock and 20%
of the gross
amount of the
dividends
in all other
cases.
The above
provisions
shall not
apply if
the beneficial
owner of
the dividends
is resident
in the
United States,
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.
In fiscal years
2021 and 2020,
the corporate tax
rates for taxable mining
and non-mining income,
to which the
Companies in the
Group is subject, were 34% and
28%, respectively. The formula for determining the South African
gold mining tax rate for fiscal
years ended
2021 and 2020 is: Y = 34 – 170/X. 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 income derived, expressed as a percentage.
With effect from April 1, 2014, Section 8F of the
Income Tax Act results
in any amount of interest which is incurred in respect of a
“
hybrid debt
instrument
” is
deemed to
be a
dividend
in specie
declared by
the payor
and received
by the
recipient which
is exempt
from
income tax, as opposed
to interest which is
taxable. The terms of
some of our intercompany
loans cause the affected
loans to be deemed
as
“
hybrid debt instruments
” and the interest thereof
to be deemed to
be an exempt dividend
in specie
. This characterization of
the affected loans
as a “
hybrid debt instrument
” was not impacted by subsequent
amendments
to Section
8F of the
Income Tax Act
that became
effective
in fiscal
year 2017.
U.S. Federal
Income
Tax Considerations
The following discussion
is a summary of the U.S.
federal income
tax considerations
to U.S. holders of the ownership
and disposition
of ordinary shares or
ADRs. It
deals only with
U.S. holders who
hold ordinary shares or
ADRs
as capital assets
for U.S.
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 U.S. federal
income taxation
that may be
applicable
to holders
in light of
their particular
circumstances and
does not
address special
classes of
U.S. holders
subject to
special treatment (such
as
dealers in
securities or
currencies,
partnerships
or other
pass-through
entities,
banks and
other financial
institutions,
traders
in securities
that elect
mark-to-market
treatment,
insurance
companies,
tax-exempt
organizations
(including
private
foundations),
certain
expatriates
or former
long-term
residents
of the
United
States,
persons
holding ordinary shares or
ADRs
as part
of a
“hedge,” “conversion transaction,” “synthetic security,” “straddle,” “constructive sale” or other
integrated investment,
persons
who
acquired
the
ordinary
shares
or
ADRs
upon
the
exercise of
employee
stock
options
or
otherwise as
compensation,
persons whose
functional currency
is not the U.S. dollar,
or persons that
actually or constructively
own ten percent
or more of the
voting power
or value
of our shares).
This discussion
addresses
only U.S. federal
income tax
considerations
and does not
address
the effect
of any
state, local,
or foreign
tax laws
that may apply, the
alternative
minimum tax,
the Medicare
tax or the
application
of the federal
estate or
gift tax.
79
For purposes of this
discussion, a “U.S. holder” is
a beneficial owner of ordinary shares or
ADRs
who or
that is, for
U.S. federal income tax
purposes:
●
a citizen or
individual
resident of
the United
States;
●
a corporation (or any entity treated as a corporation for U.S. federal income
tax purposes) created or organized under the laws of the
United States
or any political
subdivision
thereof;
●
an estate,
the income
of which is
subject to U.S.
federal income
tax without
regard to
its source;
or
●
a trust, if a court within the United States is able to exercise primary
supervision over the administration
of the trust and one or more
U.S. 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
U.S. person.
If a partnership (or
an entity treated
as a partnership
for U.S. federal income
tax purposes) holds
any ordinary shares
or ADRs, the tax
treatment of a partner will generally
depend on the status of the partner and on the activities
of the partnership. Partners
in partnerships holding
any ordinary
shares or
ADRs
are urged to
consult their
tax advisors.
Because
individual
circumstances
may differ,
U.S. holders
of ordinary
shares
or ADRs
are urged
to consult
their tax
advisors
concerning
the U.S. federal
income tax
considerations
applicable
to their particular
situations
as well as any
considerations
to them arising
under the tax
laws
of any foreign,
state or
local taxing
jurisdiction.
Ownership
of Ordinary
Shares or ADRs
For purposes
of the
Code, a
U.S. holder
of ADRs
will be
treated
for U.S.
federal
income tax
purposes
as the
owner of
the ordinary
shares
represented by those ADRs.
Exchanges of ordinary
shares for ADRs
and ADRs
for ordinary shares generally
will not be subject to U.S. federal
income tax.
Subject to the discussion below under the heading “Passive
Foreign Investment Company”,
distributions with respect
to the ordinary
shares or
ADRs, other
than distributions
in liquidation
and distributions
in redemption
of stock that
are treated
as exchanges,
will be taxed
to U.S.
holders as ordinary
dividend
income to the
extent that the
distributions
do not exceed
our current and
accumulated
earnings and
profits. For U.S.
federal income
tax purposes,
the amount of any
distribution
received by a
U.S. 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 U.S.
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 U.S. 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
ADRs.
To the extent
that these
distributions
exceed
the U.S.
holder's
tax basis
in the
ordinary
shares
or ADRs,
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 U.S.
federal income
tax purposes.
U.S. holders
should therefore
assume that any
distributions
with respect
to
our ordinary
shares or
ADRs
will constitute
dividend income.
“Qualified dividend income” received by
individual U.S. holders (as
well as
certain trusts and
estates) generally will be
taxed at
a
maximum U.S.
federal income
tax rate applicable
to capital gains.
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 United
States or
(ii) our
ordinary shares
or ADRs
with respect to which such
dividends were paid
are readily tradable
on an established securities
market in the United States.
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”. U.S.
holders are
urged to consult
their tax
advisors regarding
the U.S. federal
income tax
rate that
will be applicable
to their receipt
of
any dividends
paid with respect
to the ordinary
shares and
ADRs.
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 U.S. Internal
Revenue Service
has the authority
to determine
the spot rate.
Dividend
income
derived
with respect
to the
ordinary
shares or
ADRs will
not be eligible
for the
dividends
received
deduction
generally
allowed to
a U.S. 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
U.S. holders,
“general category
income.”
80
Passive Foreign
Investment
Company
A special
and adverse
set of
U.S. federal
income
tax rules
apply
to a
U.S. holder
that holds
stock
in a
passive
foreign
investment
company,
or PFIC. We would be a PFIC
for U.S. 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, U.S.
holders
of the
ordinary
shares
or ADRs
would be
subject
to special
rules with
respect
to (i) any
gain recognized
upon the
disposition
of the
ordinary
shares
or ADRs
and (ii)
any receipt
of an
excess
distribution
(generally, any
distributions
to a
U.S. holder
during a
single
taxable
year that
is greater
than 125% of
the average
amount of distributions
received
by such U.S.
holder during
the three
preceding taxable
years in respect
of the ordinary
shares or
ADRs
or, if shorter, such
U.S. holder's
holding period
for the ordinary
shares or
ADRs). Under
these rules:
●
the gain
or excess
distribution
will
be allocated
ratably
over a
U.S.
holder's
holding period
for the
ordinary
shares
or ADRs,
as applicable;
●
the amount
allocated
to the taxable
year in
which a U.S.
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
U.S. holder
if we
are a
PFIC for
any year
during a
U.S. holder's
holding period,
if we cease to satisfy
the requirements
for PFIC classification,
the U.S. 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 ADRs through the
close of the tax year
in which we cease
to be a PFIC.
A U.S. holder of a PFIC is
required to file an annual
report with the Internal
Revenue Service
containing such
information as
the U.S.
Secretary
of Treasury may
require.
A U.S. holder of
the ordinary shares or ADRs
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 U.S. 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 ADRs
and the
U.S. holder's
adjusted
tax basis
in such
ordinary
shares
or ADRs.
Losses
would be
allowed
only to the
extent of
net mark-to-market
gain previously
included
by the U.S.
holder under
the election
for prior
taxable years.
If a mark-to-market
election with respect
to ordinary shares
or ADRs
is in effect on the date of a U.S. holder's
death, the tax basis
of the ordinary shares
or ADRs in
the hands
of a U.S.
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 ADRs. U.S.
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
ADRs.
In the case of
a U.S. holder who
holds ordinary
shares or ADRs
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
ADRs
and if we
comply with
certain reporting
requirements.
However, we
do not intend
to supply
U.S. 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.
We believe that we
were not a PFIC for
our fiscal year ended June 30, 2021. However, under the PFIC rules income and assets are
require to be measured
and classified in accordance
with U.S. federal income
tax principles.
Our analysis is based
on our financial statements
as
prepared in accordance
with IFRS, which
may substantially
differ from U.S.
federal income
tax principles.
Therefore, no
assurance can
be given
that we were not a PFIC. 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.
U.S. holders
are urged to consult
their tax advisors
regarding the application
of the PFIC
rules to their
investments
in our ordinary
shares or ADRs.
Disposition
of Ordinary
Shares or ADRs
Subject to the
discussion above under the heading “Passive Foreign Investment Company”, upon a
sale, exchange, or other taxable
disposition
of ordinary
shares
or ADRs,
a U.S.
holder will
recognize
gain or
loss in
an amount
equal to
the difference
between the
U.S. dollar
value
of the amount realized
on the sale or exchange
and such holder's adjusted
tax basis in the ordinary
shares or ADRs. Subject
to the application
of
the “passive foreign investment company”
rules discussed above, such gain or loss generally will be capital gain or loss and will be
long-term
capital gain
or loss if
the U.S. holder
has held the
ordinary shares
or ADRs for
more than
one year. The deductibility
of capital
losses is
subject to
limitations.
Gain or
loss recognized
by a U.S.
holder on
the taxable
disposition
of ordinary
shares
or ADRs
generally
will be
treated as
U.S.-source
gain or loss
for U.S. foreign
tax credit
purposes.
81
In the case of a cash basis U.S. holder who receives rands in connection
with the taxable disposition
of ordinary shares or ADRs, the
amount realized
will be
based on
the spot
rate as
determined
on the settlement
date of
such exchange.
A U.S. holder
who receives
payment in
rand
and converts rand
into U.S. 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 U.S.
holder may elect
the same treatment required of
cash basis taxpayers with respect to
a taxable disposition of
ordinary
shares
or ADRs,
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 U.S.
holder may
have a foreign
currency gain
or loss for
U.S. federal
income tax
purposes because
of the differences
between the
U.S. 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 U.S.
holder on the
disposition
of such ordinary
shares or
ADRs.
Information
with respect
to Foreign Financial
Assets
Certain U.S. holders may be required
to report on Internal Revenue Service
Form 8938 information relating
to an interest in ordinary
shares or ADRs,
subject to certain
exceptions (including an exception for assets held
in accounts maintained by
certain financial institutions,
although the account
itself may be reportable
if held at a non-U.S. financial
institution). U.S.
holders should consult
their tax advisers regarding
the effect, if any, of this reporting requirement on their acquisition,
ownership and disposition
of ordinary shares or ADRs. U.S. holders should
consult their
tax advisors
regarding application
of the information
reporting and
backup withholding
rules.
10F. DIVIDENDS AND PAYING AGENTS
Not applicable
10G. STATEMENT BY EXPERTS
Not applicable.
10H. DOCUMENTS
ON DISPLAY
DRDGOLD files annual
reports on Form 20-F and reports
on Form 6-K with the SEC. You may access this information
at the SEC’s
home page (http://www.sec.gov). Copies of the documents referred to herein may be inspected at DRDGOLD Limited’s offices by
contacting
DRDGOLD Limited,
P.O. Box 390, Maraisburg,
Johannesburg,
South Africa
1700. Attn:
Company Secretary.
Tel No. +27-11-470-2600.
10I. SUBSIDIARY
INFORMATION
Not applicable.
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. Refer to Item 18. ‘‘Financial Statements - Note 27 - Financial instruments’’ of the consolidated financial statements
for a qualitative and
quantitative
discussion
of our exposure
to these market
risks.
Our long-term strategy
is to
remain unhedged and
to keep
borrowings to a
minimum.
During fiscal 2021
we do
not hold
or issue
derivative financial instruments
for speculative purposes, nor did we hedge forward gold
sales.
However, in instances where we need
to incur
medium-term
borrowings
to finance
growth projects
that introduce
some liquidity
risk to
the Group,
we may
mitigate
this liquidity
risk by
entering
into an arrangement
to provide price
protection against
a possible decrease
in the Rand gold price
while borrowings
are in place.
For example in
fiscal 2019
we entered
into a hedging
instrument
in the form
of a collar
in respect
of 50,000 ounces
of gold that
expired at
the end of
May 2019.
Commodity
price risk
The rand 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,
rand 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
rand gold price
is impossible
for us to predict.
The rand price
of gold may
not remain
at a level
allowing us
to economically
exploit our reserves.
82
It is
our long-term
policy
not to
hedge
this commodity
price
risk. However,
in instances
where
we need
to incur
medium-term
borrowings
to finance growth
projects that introduce
some liquidity risk
to the Group, we may mitigate
this liquidity risk
by entering into an arrangement
to
provide price
protection
against a
possible decrease
in the Rand
gold price
while borrowings
are in place.
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 trade
and other receivables
from customers
.
The Group
manages
its exposure
to credit
risk on
cash and
cash equivalents
and cash
and cash
equivalents
in environmental
rehabilitation
trust
funds (classified
as investments
in rehabilitation
obligation
funds
in the
statement
of financial
position),
by investing
cash
and cash
equivalents
across several
major financial
institutions,
considering
the credit
ratings of
the respective
financial institutions,
funds and
underlying
instruments.
The Group
manages its
exposure
to credit
risk on trade
receivables
by maintaining
a short
term cycle
to settlement
of 2 days.
The Group
manages its
exposure to
credit risk
on other receivables
by dealing with
a number of
counterparties,
ensuring that
these counterparties
are of good
credit standing
and transacting on
a
secured or
cash basis
where considered required.
Receivables are regularly
monitored and
assessed for
recoverability.
Foreign currency
risk
Our reporting
currency
is South
African
rand. Although
gold is
sold in
US dollars,
the Company
is obliged
to convert
this into
rands. No
hedges
were
entered
into during
fiscal
2021. 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
mostly held
in South African
rands. Holdings
denominated
in other currencies
are not material.
Liquidity risk - Long-term debt
Set out below is an analysis of our debt as at June 30, 2021 consisting of capital and interest related to lease liabilities. All of
our long-term debt is denominated in South African rand.
Interest rate
Total
8.8% - 10.3%
R'm
Repayment period
2022
20.5
2023
18.3
2024
12.6
2025
5.9
2026
5.2
2027
1.3
Total
63.8
Based on our fiscal year 2021 financial results, a hypothetical 100 basis points (increase)/decrease in interest rate activity would
(increase)/decrease our interest expense by R0.5 million.
ITEM 12. DESCRIPTION
OF SECURITIES
OTHER THAN EQUITY
SECURITIES
See Item 9.
"The Offer and
Listing Details".
12A. DEBT SECURITIES
Not applicable
.
12B. WARRANTS AND RIGHTS
Not applicable.
12C. OTHER SECURITIES
Not applicable.
83
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, or
NYSE under
the symbol “DRD”
(until December
29, 2011 our ADSs
were traded
on the Nasdaq
Capital Market
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)
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)
[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.
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
The Bank of
New York Mellon, as
Depositary, has
agreed to
reimburse DRDGOLD
an annual amount
of $75,000 mainly
consisting
of
accumulated contributions towards the Company’s
investor relations activities (including investor meetings, conferences and
fees of
investor
relations
service vendors).
After the
deduction
of other
fees, the
annual reimbursement
for the
year ended
June 30,
2021 amounts
to approximately
$51,944 (June 30, 2020:
$16,237, June 30, 2019:
$5,974). DRDGOLD is also entitled to
a 25%
share of the
dividend fees which amounts to
approximately
$65,551 for
the year
ended June
30, 2021 (June
30, 2020:
$nil, June
30, 2019: $20,195).
84
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
None
ITEM 15. CONTROLS AND PROCEDURES
15A. Disclosure
Controls and
Procedures
As
of
June
30,
2021,
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 in
Rules 13a-15(e) and 15d-15(e)
of the Exchange
Act).
Our
management,
including
the
Chief
Executive
Officer
and
Chief
Financial
Officer,
concluded
that
our
disclosure
controls
and
procedures were effective as of June 30, 2021.
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 of 1934 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(a) 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.
Our
management
assessed
the
effectiveness
of
our
internal
control
over
financial
reporting
as
of
June 30, 2021.
In
making
this
assessment, our
management used
the criteria
set forth
by the
Internal Control
-Integrated Framework
(2013)
issued by
the Committee
of
Sponsoring Organizations of the Treadway Commission (COSO). Based
on our assessment and those criteria,
our management concluded that
as of June 30, 2021 our internal control over financial reporting was effective.
15C. Attestation
Report of the
independent registered
public accounting
firm
The effectiveness of internal control over financial reporting as of June
30, 2021 was audited by KPMG Inc., independent registered
public accounting firm, as stated in their report on page F-1 of this Form 20-F.
85
15D. Changes
in Internal
Control Over
Financial Reporting
During the
year ended
June 30,
2021, 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 16.
ITEM 16A. AUDIT
COMMITTEE FINANCIAL
EXPERT
Mr. J.A. Holtzhausen, 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 New
York Stock Exchange, or
NYSE, and
rules promulgated
by the SEC
and independent both under
the New York Stock Exchange 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 Conduct that
applies to all
senior executives including
our Non-Executive Chairman,
the Chief Executive
Officer,
Chief Financial Officer,
Chief Operating Officer
and the Financial
Director at our
mining operation as
well as all
other employees.
The Code of Conduct can be accessed on the Company’s website at the following web address: www.drdgold.com/about-us/governance.
ITEM 16C. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
KPMG Inc. has served
as our independently
registered
public accountant
for the fiscal years
ended June 30, 2021,
2020 and 2019,
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
year 2021 and
2020:
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.
Auditors' remuneration
Year ended
June 30,
2021
2020
R m
R m
Audit fees
9.1
8.4
All other fees
0.7
0.4
Total
9.8
8.8
All Other
Fees
The all other fees during fiscal year 2021 consist of the following:
●
R0.5 million with
respect to limited assurance
provided by KPMG on
specified items contained in
our Integrated Report
for fiscal
year 2020; and
●
R0.2 million with
respect to limited assurance
provided by KPMG on
specified items contained in
our Integrated Report
for fiscal
year 2021;
The all other fees during fiscal year 2020 consist of the following:
●
R0.2 million with
respect to limited assurance
provided by KPMG on
specified items contained in
our Integrated Report
for fiscal
year 2019; and
●
R0.2 million with
respect to limited assurance
provided by KPMG on
specified items contained in
our Integrated Report
for fiscal
year 2020
The Audit Committee
is directly responsible
for recommending the
appointment, re-appointment 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.
86
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 NYSE, we are subject to corporate governance
requirements imposed by NYSE.
Under section 303A.11 of the NYSE Listing Standards, a foreign private issuer such as us may
follow its home country corporate governance
practices in lieu
of certain of the NYSE Listing
Standards on corporate
governance. DRDGOLD's
home country corporate
governance practices
are regulated by the Listing Requirements of the
JSE
(the "
JSE Listing
Requirements
").
We
are also exempt from certain NYSE
corporate
governance requirements as a "controlled company". The following paragraphs summarize the significant ways in
which DRDGOLD's home
country
corporate
governance
standards
and its
corporate
governance
practices
differ from
those followed
by domestic
companies
under the
NYSE
Listing Standards.
Shareholder meeting
quorum requirements
●
Section 310.00 of the NYSE
Listing Standards
provides that the
quorum required for
any meeting of holders
of common stock should
be
sufficiently high
to
insure a
representative vote.
Consistent with
the
practice of
companies incorporated
in
South
Africa, our
Memorandum of Incorporation requires a quorum of
three members present with sufficient voting
powers in person or
by proxy
to
exercise
in aggregate
25% of the voting
rights and
we have elected
to follow our
home country
rule.
●
The NYSE Listing
Standards require
that the non-management
directors of
US-listed companies
meet at regularly
scheduled executive
sessions without
management.
The JSE Listings
Requirements
do not require
such meetings
of listed
company non-executive
directors.
The board
has unrestricted access
to all
company information, records, documents and
property. Directors
may,
if necessary,
take
independent professional advice at the
Company’s expense and
non-executive directors have access to
management and may
meet
separately
with management,
without the
attendance
of executive
directors.
●
The NYSE Listing Standards
require U.S. listed companies
to have a nominating/corporate
governance committee
composed entirely
of independent
directors.
The JSE
Listing
Requirements
also require
the appointment
of such
a committee,
and stipulate
that all
members
of
this
committee must
be
non-executive
directors, the
majority of
whom
must
be
independent. DRDGOLD has
a
Nominations
Committee
which currently
comprises
six non-executive
directors,
all of whom
are independent
under the
NYSE Listing
Standards
and
the JSE Listing
Requirements,
except for
T.J. Cumming. The Nominations
Committee
is chaired
by the Chairman
of DRDGOLD.
●
The NYSE
Listing Standards require
U.S. listed
companies to
have a
compensation committee composed entirely
of
independent
directors.
The JSE Listing
Requirements
merely require
the appointment
of such a committee
but not that its
members be
independent.
DRDGOLD has appointed
a Remuneration Committee,
currently comprising
five board members,
all of whom are independent
under
both the JSE
Listing Requirements
and the NYSE
Listing Standards,
except for
T.J. Cumming.
●
The NYSE Listings
Standards require
U.S. listed companies
to have an Audit Committee
composed entirely
of independent directors.
The South African Companies Act requires
that the audit committee be approved by shareholders
on an annual basis at a company’s
annual general
meeting. The Companies
Act and the JSE Listings
Requirements also
require an audit
committee composed
entirely of
independent non-executive
directors. DRDGOLD
has appointed an Audit
Committee, currently
comprised of four board
members, all
of whom
are non-executive
and independent,
as defined
under both
the JSE
Listings
Requirements
and the
NYSE Listing
Requirements
●
The Companies
Act and
the JSE
Listings
Requirements
require the
appointment
of a Social
and Ethics
Committee,
and DRDGOLD
has
appointed a
Social and
Ethics Committee,
comprising four
directors,
three of whom
are independent
non-executive
directors.
ITEM 16H. MINE
SAFETY DISCLOSURES
Not applicable.
87
88
PART III
ITEM 17. FINANCIAL
STATEMENTS
Not applicable.
ITEM 18 FINANCIAL STATEMENTS
The following annual financial statements and related auditor’s report are filed as part of this Annual
Report
Page
Report of the Independent Registered Public Accounting Firm
F‑1
Consolidated statement of profit or loss and other comprehensive income for the years ended June 30, 2021,
2020 and 2019
F-4
Consolidated statement of financial position at June 30, 2021 and 2020
F‑5
Consolidated statement of changes in equity for the years ended June 30, 2021, 2020 and 2019
F‑6
Consolidated statement of cash flows for the years ended June 30, 2021, 2020 and 2019
F‑5
Notes to the consolidated financial statements
F‑1 to F‑29
About these consolidated financial statements
1
Use of accounting assumptions, estimates and judgements
2
New standards, amendments to standards and interpretations not yet adopted
3
Performance
Revenue
4
Results from operating activities
5
Cost of sales
5.1
Other income
5.2
Administration expenses and other costs
5.3
Finance income
6
Finance expense
7
Earnings per share
8
Resource assets and related liabilities
Property, plant and equipment
9
Right of use assets and leases
10
Provision for environmental rehabilitation
11
Investment in rehabilitation obligation funds
12
Working capital
Cash and cash equivalents
13
Cash generated by operations
14
Trade and other receivables
15
Trade and other payables
16
Inventories
17
Tax
Income tax
18
Income tax expense
18.1
Deferred tax
18.2
Employee matters
Employee benefits
19
Cash-settled tong-term incentive scheme
19.1
Equity-settled tong-term incentive scheme
19.2
Transactions with key management personnel
19.3
Capital and equity
Capital management
20
Equity
21
Disclosure items
Interest in subsidiaries
22
Operating segments
23
Payments made under protest
24
Other investments
25
Contingencies
26
Financial instruments
27
Related parties
28
Subsequent events
29
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
DRDGOLD Limited:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We
have audited the
accompanying consolidated statements of
financial position of DRDGOLD
Limited and subsidiaries
(the Company) as
of June
30, 2021 and 2020,
the related consolidated statements of
profit or loss and other
comprehensive income, changes in equity,
and cash flows for each
of the
years in
the three-year
period ended
June 30,
2021, and
the related
notes (collectively,
the consolidated
financial statements).
We
also have
audited the
Company’s
internal control
over financial
reporting as
of June
30, 2021,
based on
criteria established
in Internal
Control –
Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as
of June 30,
2021 and 2020,
and the results of
its operations and its
cash flows for
each of the years
in the three-year
period ended June
30, 2021, in
conformity
with International
Financial Reporting
Standards
as issued
by the
International Accounting
Standards
Board. Also
in our
opinion, the
Company maintained,
in all material
respects, effective
internal control over
financial reporting as
of June
30, 2021 based
on criteria established
in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The
Company’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 the Company’s consolidated
financial statements
and an
opinion on the
Company’s internal
control over financial
reporting based on
our audits. We
are a public
accounting firm registered
with the
Public Company Accounting Oversight
Board (United States)
(PCAOB) and are
required to be
independent with respect
to the Company
in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our
audits in
accordance with
the standards
of the
PCAOB. Those
standards require
that we
plan and
perform the
audits
to obtain
reasonable assurance about whether the consolidated
financial statements are free of material
misstatement, whether due to error or fraud,
and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits
of the
consolidated financial
statements included
performing procedures
to assess
the risks
of material
misstatement of
the consolidated
financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
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.
Definition and Limitations of Internal Control Over Financial Reporting
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 generally accepted accounting principles. 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 generally accepted accounting principles, 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.
Critical Audit Matters
The critical
audit matters
communicated below
are matters
arising from
the current
period audit
of the
consolidated financial
statements that
were
communicated or required
to be communicated
to the audit
committee and that:
(1) relate to
accounts or
disclosures that are
material to the
consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way
our opinion on the consolidated
financial statements, taken as
a whole, and we are
not, by communicating the critical
audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the provision for environmental rehabilitation
As discussed in
note 11
to the consolidated
financial statements, the
Company has recorded
a provision for
environmental rehabilitation of
R 570.8
million
as
of
June
30,
2021.
The
Company’s
estimates
of
undiscounted
environmental
rehabilitation
costs
used
in
calculating
the
provision
are
determined with the
assistance of an
independent expert and
are based on
the Company’s
environmental management plans
which are developed
in
accordance
with
current
regulatory
requirements,
the
Company’s
life-of-mine
(“LOM”)
plan
(discussed
in
note
9
to
the
consolidated
financial
statements) and the planned method of rehabilitation.
We
identified the evaluation
of the provision
for environmental rehabilitation
as a critical
audit matter.
Subjective auditor judgment
and specialized
F-2
skills and knowledge were required to evaluate the current
regulatory requirements, the Company’s LOM plan, specifically the estimated quantities of
economically recoverable gold, and the planned method of rehabilitation.
The following are the primary procedures we performed to address this critical audit matter:
●
We evaluated the design and tested the
implementation and operating effectiveness of
certain internal controls relating
to the Company’s process
to determine
the environmental
rehabilitation provision.
This included
controls related
to the
assessment of
current regulatory
requirements,
determination of the
Company’s LOM
plan, specifically related
to the estimated
quantities of economically
recoverable gold, and
the planned
method of rehabilitation;
●
We
involved
environmental
rehabilitation
professionals
with
specialised skills
and knowledge,
who
assisted in
evaluating
the
results of
the
Company’s undiscounted estimated environmental costs detailed in the independent environmental expert’s reports.
This was performed by:
-
evaluating the objectivity, knowledge, skills and ability of the Company’s
expert by comparing their professional qualifications, experience
and affiliations against industry norms and obtained and understanding of their scope of work; and
-
evaluating a
selection of sites
by performing site
inspections and challenging
the planned method
of rehabilitation that
was determined in
respect
of
each
selected
site.
This
was
performed
by
comparing
the
planned
method
of
rehabilitation
to
the
estimated
quantities
of
economically recoverable gold as indicated in the approved LOM plan, confirming that it is compliant with the environmental management
plans
as
approved
by
the
Department
of
Mineral
Resources
and
Energy,
where
applicable,
aligned
with
current
industry
practices
and
regulatory requirements, and
comparing selected inputs
to the Company’s
mineral reserves and
resources report that
was reviewed by
the
Company’s independent mineral resources expert.
●
We evaluated the objectivity, knowledge,
skills and
ability of
the Company’s independent
mineral resources
experts, that reviewed
management’s
mineral reserves and resources estimates, by comparing their professional qualification, experience and affiliation against industry norms;
●
We
evaluated the
mineral resources
experts’ reports
by vouching
a selection
of the
reported reclamation
sites to
environmental approvals
or
mining
rights and
evaluated the
methodology
and certain
key assumptions
used to
measure the
quantities of
economically recoverable
gold
against industry norms; and
●
We evaluated
the reasonableness of the total estimated quantities of economically recoverable gold as indicated
in the LOM plan by agreeing a
selection of
period to
period movements to
the current
period actual recovered
gold and
increments or adjustments
to the
data in
the expert’s
report.
Evaluation of deferred tax liabilities related to the Ergo and FWGR operations
As discussed in Note
18 to the consolidated
financial statements, the Company
has recorded a deferred
tax liability of R377.1
million as of June 30,
2021, a portion of which
related to the Ergo and
FWGR operations. The deferred tax
liabilities related to the Ergo and
FWGR operations are calculated
by applying a
forecast weighted average tax
rate to the
temporary differences. The
calculation of the
forecast weighted average
tax rate requires the
use of assumptions and
estimates, including the Company’s life-of-mine
(“LOM”) plan (as discussed
in note 9 to
the consolidated financial
statements)
that is applied to calculate the expected future profitability.
We identified the valuation
of deferred tax liabilities related to the Ergo and FWGR
operations as a critical audit matter.
Subjective auditor judgment
and specialised skills and knowledge were required to
evaluate the expected future profitability, that is based on the LOM
plan, which includes certain
key assumptions about the estimated quantities of economically recoverable gold and the forecasted rand gold price.
The following are the primary procedures we performed to address this critical audit matter:
●
We
evaluated
the
design
and
tested
operating
effectiveness
of
certain
internal
controls
relating
to
the
Company’s
process
to
develop
the
assumptions and estimates used in
calculating the forecast weighted average tax
rate. This included controls related to
certain key assumptions
about the
forecasted rand
gold price
and estimated
quantities of
economically recoverable
gold that
are applied
in determining
the expected
future profitability;
●
We
evaluated
the
objectivity,
knowledge,
skills
and
ability
of
the
Company’s
independent
mineral
resources
experts,
who
reviewed
management’s
mineral
reserves
and
resources
estimates,
by
comparing
their
professional
qualifications,
experience
and
affiliations
against
industry norms;
●
We
evaluated the
mineral resources
experts’ reports
by vouching
a selection
of the
reported reclamation
sites to
environmental approvals
or
mining
rights and
evaluated the
methodology
and certain
key assumptions
used to
measure the
quantities
of economically
recoverable gold
against industry norms;
●
We evaluated the
reasonableness of the total estimated quantities of economically recoverable gold as indicated in
the LOM plan by agreeing a
selection of
period to period
movements to the
current period
actual recovered gold
and increments or
adjustments to
the data in
the expert’s
report;
●
We evaluated the forecast rand gold price by comparing it to independent analyst reports;
●
We
evaluated the Company’s
ability to accurately
forecast its expected
future profitability by
comparing the historical
projections of the
rand
gold price and estimated quantities of economically recoverable gold to actual results; and
●
We performed a sensitivity analysis to assess the impact that changes in the forecasted rand gold price and estimated quantities of economically
recoverable gold, could have had on the expected future profitability and resultant calculated forecast weighted average tax rate.
Valuation
of the investment in Rand Refinery Proprietary Limited
As discussed
in Note
25.1 to
the consolidated
financial statements,
the
Company has
an unlisted
equity
investment in
Rand Refinery
Proprietary
Limited (RR) that is valued at R119.3 million as
of 30 June 2021. The fair value
of the RR investment includes the valuation
of the refining operations
F-3
(excluding Prestige Bullion) using a free cash flow
(“FCF”) model and the valuation of RR’s
investment in Prestige Bullion (Prestige) using a
finite-
life dividend discount (“DD”) model.
We identified the
valuation of the investment in RR as a critical audit
matter. Subjective auditor judgment and specialised skills and
knowledge were
required to evaluate certain key
inputs used in the FCF
and DD models, specifically the
forecasted average gold and
silver prices and discount rates,
including the weighted
average cost of capital,
cost of equity and
the marketability and
minority discount rates, applied
to calculate the
overall total
fair value for RR.
The following are the primary procedures we performed to address this critical audit matter:
●
We evaluated the design and tested the operating effectiveness of certain internal
controls related to the Company’s process to determine the fair
value of the investment in RR. This included controls related to the determination of key inputs including the
forecasted average gold and silver
prices and discount rates;
●
We involved valuation professionals with specialized skills and knowledge, who assisted in:
-
evaluating the forecasted
average gold and silver
prices used in the
FCF and DD models
by comparing them to
independent analysts’ reports;
-
evaluating the discount rates used by management in the FCF and DD valuation models by
comparing them against the discount rate ranges
that were independently developed using publicly available macroeconomic indicators and market data for comparable entities;
-
developing an independent range of fair values, using the independently developed discount
rates and the forecasted average gold and silver
prices, and compared our range of fair values to the Company’s calculated fair value for the investment in RR; and
-
performing a sensitivity analyses
to assess the impact
on the calculated fair
value of changes to
the certain key inputs
used in the FCF
and
DD models.
/s/ KPMG Inc.
We have served as the Company’s
auditor since 2003.
Johannesburg,
Republic of South Africa
October 28, 2021
CONSOLIDATED STATEMENT
OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
for the year ended June 30, 2021
F-4
Amounts in R million
Note
2021
2020
2019
Revenue
4
5,269.0
4,185.0
2,762.1
Cost of sales
5.1
(3,388.2)
(2,937.9)
(2,553.9)
Gross profit from operating activities
1,880.8
1,247.1
208.2
Other income
5.2
0.1
0.7
7.9
Administration expenses and other costs
5.3
(64.0)
(309.9)
(90.9)
Results from operating activities
1,816.9
937.9
125.2
Finance income
6
216.2
109.8
58.3
Finance expense
7
(69.5)
(68.8)
(78.4)
Profit before tax
1,963.6
978.9
105.1
Income tax
18.1
(523.7)
(343.9)
(26.6)
Profit for the year
1,439.9
635.0
78.5
Other comprehensive income
Items that will not be reclassified to profit or loss, net of tax
Net fair value adjustment on equity investments at fair value through other
comprehensive income
(34.4)
190.6
(5.9)
Fair value adjustment on equity investments at fair value through other
comprehensive income
25
(28.2)
191.8
(5.9)
Deferred tax thereon
18.2
(6.2)
(1.2)
-
Total other comprehensive income for the year
(34.4)
190.6
(5.9)
Total comprehensive income for the year
1,405.5
825.6
72.6
Earnings per share
Basic earnings per share (SA cents per share)
8
168.4
82.5
11.8
Diluted earnings per share (SA cents per share)
8
167.2
81.0
11.5
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
at June 30, 2021
F-5
Amounts in R million
Note
2021
2020
ASSETS
Non-current assets
3,675.3
3,485.4
Property, plant and equipment
9
2,809.7
2,621.1
Investments in rehabilitation obligation funds
12
652.2
626.0
Payments made under protest
24
40.5
35.0
Other investments
25
167.1
195.3
Deferred tax asset
18.2
5.8
8.0
Current assets
2,672.7
2,189.8
Inventories
17
340.0
323.4
Current tax receivable
8.6
4.9
Trade and other receivables
15
144.1
146.4
Cash and cash equivalents
13
2,180.0
1,715.1
TOTAL ASSETS
6,348.0
5,675.2
EQUITY AND LIABILITIES
Equity
4,820.4
4,040.2
Stated share capital
21.1
6,157.9
6,157.9
Retained earnings
(1,337.5)
(2,117.7)
Non-current liabilities
996.1
889.1
Provision for environmental rehabilitation
11
570.8
568.9
Deferred tax liability
18.2
377.1
273.1
Liability for post-retirement medical benefits (2020: Employee benefits)
10.3
10.1
Lease liabilities
10.2
37.9
37.0
Current liabilities
531.5
745.9
Trade and other payables
16
509.8
478.8
Liability for cash-settled long-term incentive scheme (2020: Employee benefits)
19.1
-
227.6
Current portion of lease liabilities
10.2
16.9
10.1
Current tax liability
4.8
29.4
TOTAL LIABILITIES
1,527.6
1,635.0
TOTAL EQUITY AND LIABILITIES
6,348.0
5,675.2
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended June 30, 2021
F-6
Stated
share
Other
Retained
Total
Amounts in R million
Note
capital
reserves
earnings
equity
Balance at June 30, 2018
4,177.7
-
(2,910.4)
1,267.3
Total comprehensive income
Profit for the year
78.5
78.5
Other comprehensive income
(5.9)
(5.9)
Total comprehensive income
-
-
72.6
72.6
Transactions with the owners of the parent
Contributions and distributions
Equity instruments issued as purchase consideration for the
acquisition of Far West Gold Recoveries ("
FWGR
")
895.7
453.6
1,349.3
Expenses incurred on issue of ordinary shares
(0.3)
(0.3)
Treasury shares acquired through subsidiary
21.1
(0.3)
(0.3)
Total contributions and distributions
895.1
453.6
-
1,348.7
Balance at June 30, 2019
5,072.8
453.6
(2,837.8)
2,688.6
Total comprehensive income
Profit for the year
635.0
635.0
Other comprehensive income
190.6
190.6
Total comprehensive income
-
-
825.6
825.6
Transactions with the owners of the parent
Contributions and distributions
Issue of ordinary shares
21.1
1,085.6
1,085.6
Expenses incurred on issue of ordinary shares
(0.5)
(0.5)
Reallocation of the equity instruments on exercise of the Sibanye-
Stillwater option
21.2
(453.6)
453.6
-
Dividend on ordinary shares
21.2
(565.1)
(565.1)
Equity-settled share-based payment
19.2
6.0
6.0
Total contributions and distributions
1,085.1
(453.6)
(105.5)
526.0
Balance at June 30, 2020
6,157.9
-
(2,117.7)
4,040.2
Total comprehensive income
Profit for the year
1,439.9
1,439.9
Other comprehensive income
(34.4)
(34.4)
Total comprehensive income
-
-
1,405.5
1,405.5
Transactions with the owners of the parent
Contributions and distributions
Dividend on ordinary shares
21.2
(641.3)
(641.3)
Equity-settled share-based payment
19.2
16.0
16.0
Total contributions and distributions
-
-
(625.3)
(625.3)
Balance at June 30, 2021
21.1
6,157.9
-
(1,337.5)
4,820.4
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended June 30, 2021
F-7
Amounts in R million
Note
2021
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
14
1,851.0
1,309.6
282.0
Finance income received
105.9
63.8
16.8
Dividends received
76.1
4.3
-
Finance expenses paid
(7.5)
(8.7)
(9.3)
Income tax paid
(452.1)
(240.1)
(1.2)
Net cash inflow from operating activities
1,573.4
1,128.9
288.3
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
(395.7)
(181.1)
(347.4)
Environmental rehabilitation payments to reduce decommissioning liabilities
11
(51.0)
(22.1)
(16.6)
Proceeds on disposal of property, plant and equipment
5.2
0.1
0.7
5.8
Funds received from environmental obligation funds
12
-
-
55.2
Net cash outflow from investing activities
(446.6)
(202.5)
(303.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of ordinary shares
21.1
-
1,085.6
-
Share issue expenses
-
(0.5)
(0.3)
Acquisition of treasury shares
21.1
-
-
(0.3)
Dividends paid on ordinary shares
(640.9)
(564.5)
-
Borrowings raised
-
-
192.0
Borrowings paid
-
-
(192.0)
Initial fees incurred on facility
(1.0)
-
(3.6)
Repayment of lease liabilities
10.2
(11.6)
(11.4)
(3.7)
Net cash (outflow)/inflow from financing activities
(653.5)
509.2
(7.9)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
473.3
1,435.6
(22.6)
Impact of fluctuations in exchange rate on cash held
(8.4)
-
-
Cash and cash equivalents at the beginning of the year
1,715.1
279.5
302.1
CASH AND CASH EQUIVALENTS AT
THE END OF THE YEAR
13
2,180.0
1,715.1
279.5
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended June 30, 2021
F-8
1
ABOUT THESE CONSOLIDATED
FINANCIAL STATEMENTS
Reporting entity
The DRDGOLD
Group is
primarily involved
in the
retreatment of
surface gold.
The consolidated
financial statements
comprise
DRDGOLD Limited (the “
Company
”) and its subsidiaries
who are all wholly
owned subsidiaries and
solely operate in South
Africa
(collectively
the “
Group
” and
individually “
Group Companies
”).
The Company
is domiciled
in South
Africa
with a
registration
number of
1895/000926/06. The
registered address
of the
Company is
Constantia Office
Park, Cnr
14th Avenue
and Hendrik
Potgieter Road, Cycad House, Building 17, Ground Floor,
Weltevreden Park, 1709.
The DRDGOLD Group
is
50.1
% held by
Sibanye Gold Limited,
which in turn
is a wholly
owned subsidiary of
Sibanye Stillwater
Limited
(“
Sibanye-Stillwater
”).
Basis of accounting
The
consolidated
financial
statements
have
been
prepared
in
accordance
with
International
Financial
Reporting
Standards
(“
IFRS
”)
and
its
interpretations
issued
by
the
International
Accounting
Standards
Board
(“
IASB
”).
The
consolidated
financial
statements were approved by the board for issuance on October 28, 2021.
Functional and presentation currency
The functional and presentation currency of
DRDGOLD and its subsidiaries is
South African rand (“
Rand
”). The amounts in
these
consolidated financial statements
are rounded to
the nearest million
unless stated otherwise.
Significant exchange rates
during
the year are set out in the table below:
South African rand / US dollar
2021
2020
2019
Spot rate at year end
14.27
17.32
14.07
Average prevailing rate for the financial year
15.40
15.66
14.18
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis, unless otherwise stated.
Basis of consolidation
Subsidiaries
Subsidiaries are
entities controlled
by the
Group. The
Group controls
an entity
when it
is exposed
to, or
has rights
to, variable
returns from its
involvement with the
entity and has
the ability to
affect those returns through
its power over
the entity. The financial
statements of subsidiaries
are included in
the consolidated financial
statements from the
date that control
commences until the
date that control ceases.
Loss of control
When the Group loses control
over a subsidiary,
it derecognises the assets and
liabilities of the subsidiary,
and any related NCI
and
other components
of equity.
Any
resulting gain
or
loss is
recognized
in
profit
or
loss.
Any interest
retained in
the forme
r
subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
Intra-group
balances,
transactions
and
any
unrealised
gains
and
losses
or
income
and
expenses
arising
from
intra-group
transactions, are eliminated in preparing the consolidated financial statements.
2
USE OF ACCOUNTING ASSUMPTIONS, ESTIMATES
AND JUDGEMENTS
The preparation of the consolidated
financial statements requires management to
make accounting assumptions, estimates and
judgements that affect the application of the Group's accounting policies and reported
amounts of assets and liabilities, income
and expenses.
Accounting
assumptions,
estimates
and
judgements
are
reviewed
on
an
ongoing
basis.
Revisions
to
reported
amounts
are
recognised in the
period in which
the revision is
made and in
any future periods
affected. Actual
results may differ
from these
estimates.
Information about
assumptions and
estimates in
applying accounting
policies that
have the
most significant
effect on the
amounts
recognised in the consolidated financial statements are included in the notes:
NOTE 9
PROPERTY,
PLANT AND EQUIPMENT
NOTE 11
PROVISION FOR ENVIRONMENTAL REHABILITATION
NOTE 18
INCOME TAX
NOTE 24
PAYMENTS
MADE UNDER PROTEST
NOTE 25
OTHER INVESTMENTS
Information about
significant judgements
in applying
accounting policies
that have
the most
significant effect
on the
amounts
recognised in the consolidated financial statements are included in the notes:
NOTE 24
PAYMENTS
MADE UNDER PROTEST
NOTE 25
OTHER INVESTMENTS
NOTE 26
CONTINGENCIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-9
3
NEW STANDARDS,
AMENDMENTS TO STANDARDS
AND INTERPRETATIONS
New standards, amendments to standards and interpretations effective for the year ended June 30, 2021
During
the financial
period, the
following relevant
new and
revised
accounting standards,
amendments to
standards and
new
interpretation were adopted by the Group:
Definition of Material (Effective July 1, 2020)
The amendment
clarifies the definition
of material to
make it easier
to understand
and provides guidance
on how the
definition
should be applied. The
changes in the definition now
ensures that the definition
is consistent across all
IFRS standards and the
Conceptual Framework.
●
old definition (IAS
1): Omissions or
misstatements of items
are material if
they could, individually
or collectively,
influence the
economic decisions that users make on the basis of the financial statements;
●
new definition (IAS
1): Information is
material if omitting,
misstating or obscuring
it could reasonably
be expected to
influence
the decisions that
the primary users of
general-purpose financial statements make
on the basis of
those financial statements,
which provide financial information about a specific reporting entity.
The
definition of
material
omissions or
misstatements from
IAS
8
Accounting Policies,
Changes in
Accounting Estimates
and
Errors
has been removed.
The amendments to IAS 1 and IAS 8 did not have a significant impact on the Group.
Amendments to References to Conceptual Framework in IFRS (Effective July 1, 2020)
The IASB decided to revise the Conceptual Framework because certain important issues were not covered and certain guidance
was unclear or out of date. The revised Conceptual Framework, issued by the IASB in March 2018, includes:
●
new concepts on measurement including factors to be considered when selecting the measurement basis;
●
new concepts on presentation
and disclosure, including when
to classify income and
expenses in other comprehensive
income;
●
new guidance on when assets and liabilities are removed from financial statements;
●
updated definitions of an asset and liability;
●
updated recognition criteria for including assets and liabilities in financial statements;
●
clarified concepts of prudence, stewardship, measurement uncertainty and substance over form; and
●
the
IASB
also
updated
references
to
the
Conceptual
Framework
in
IFRS
by
issuing
Amendments
to
References
to
the
Conceptual Framework in IFRS.
The amendments to the References to the Conceptual Framework did not have a significant impact on the Group.
New standards, amendments to standards and interpretations not yet effective
At the date
of authorisation
of these consolidated
financial statements, the
following relevant
standards, amendments to
standards
and interpretations that may be
applicable to the business of
the Group were in issue
but not yet effective and
may therefore have
an impact on
future consolidated financial
statements. These new
standards, amendments to
standards and interpretations
will
be adopted at their effective dates.
These new standards, amendments to standards and
interpretations are not expected to have a significant
impact on the Group
unless stated otherwise.
Annual Improvements to IFRS Standards 2018-2020 (Effective July 1, 2022)
As
part
of
its process
to
make
non-urgent
but
necessary
amendments
to
IFRS
Standards,
the
IASB
International
Accounting
Standards Board has issued the
Annual Improvements to IFRS Standards 2018–2020.
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) (Effective July 1, 2022)
The IASB has amended IAS
16
Property, Plant and Equipment
to provide guidance on
the accounting for such
sale proceeds and
the related production costs.
Under the amendments, proceeds from
selling items before the related
item of property,
plant and equipment (PPE) is
available
for use should
be recognised in
profit or loss,
together with the
costs of producing
those items. IAS
2
Inventories
should be applied
in identifying and measuring these production costs.
The amendments apply retrospectively,
but only to items of property,
plant and equipment made available for use on or after the
beginning of the
earliest period presented in
the financial statements
in which the amendments
are adopted.
Management has
begun performing evaluation of whether the amendment will have a significant impact on the
Group. More detail will be disclosed
in future financial statements.
Definition of Accounting Estimate
(Amendments to IAS 8) (Effective July 1, 2023)
The amendments introduce
a new definition for
accounting estimates: clarifying that
they are monetary
amounts in the financial
statements that are subject to measurement uncertainty.
The amendments also
clarify the relationship between
accounting policies and
accounting estimates by
specifying that a
company
develops an accounting estimate to achieve the objective set out by an accounting policy.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-10
3
NEW STANDARDS,
AMENDMENTS TO STANDARDS
AND INTERPRETATIONS
continued
New standards, amendments to standards and interpretations not yet effective
(continued)
Deferred Tax
related to Assets and
Liabilities Arising from a single
transaction – Amendments to
IAS 12
Income Taxes
(Effective July 1, 2023)
IAS
12
Income
taxes
clarifies
how
companies
should
account
for
deferred
tax
on
certain
transactions
–
e.g.
leases
and
decommissioning provisions. The amendments
narrow the scope of
the initial recognition exemption
so that it does
not apply to
transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognize a deferred
tax asset
and a
deferred tax
liability for
temporary differences
arising on
initial recognition
of a
lease and
a decommissioning
provision.
Classification of liabilities as current or non-current (Amendments to IAS 1) (Effective July 1, 2023)
To
promote consistency in application and clarify the requirements on determining if a liability is current or non-current, the IASB
has amended IAS 1 as follows:
Right to defer settlement must have substance
Under existing IAS 1 requirements, companies classify a liability as current when they do not have an
unconditional right
to defer
settlement of the liability for at least twelve months after the end of the reporting period.
As part of its amendments, the IASB
has removed the requirement for a
right to be unconditional and instead,
now requires that
a right to defer settlement must have substance and exist at the end of the reporting period.
Classification of debt may change
A company
classifies a
liability as
non-current if
it has
a right
to defer
settlement for
at least
twelve months
after the
reporting
period. The IASB
has now clarified that
a right to defer
exists only if
the company complies with
conditions specified in
the loan
agreement at the end of the reporting period, even if the lender does not test compliance until a later date.
Disclosure of Accounting Policy (Amendments to IAS 1 and IFRS Practice Statement 2) (Effective July 1, 2023)
The
Board
has
recently
issued
amendments
to
IAS
1
Presentation
of
Financial
Statements
and
an
update
to
IFRS
Practice
Statement 2
Making Materiality Judgements
to help companies provide useful accounting policy disclosures.
The key amendments to IAS 1 include:
●
requiring companies to disclose their material accounting policies rather than their significant accounting policies;
●
clarifying that accounting policies related to immaterial
transactions, other events or conditions are themselves immaterial and
as such need not be disclosed; and
●
clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material
to a company’s financial statements.
The amendments are applied prospectively.
Management has commenced an evaluation
of the impact of
the amendment will have on
the Group. More detail will
be disclosed
in future financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-11
4
REVENUE
ACCOUNTING POLICIES
Revenue comprises
the sale
of gold
bullion and
silver bullion
(produced as
a by-product).
Revenue is
measured based
on the
consideration specified in a
contract with the
customer, which is based on the
London Bullion Market fixing
price on the date
when
the Group transfers control over the goods to the customer.
The Group recognises revenue at a point in time when Rand Refinery, acting as an agent for the sale of all gold produced by the
Group, delivers the Gold to the buyer and the sales price is fixed, as evidenced by the certificate of sale. It is at this
point that the
revenue can
be measured
reliably and
the recovery
of the
consideration is
probable. Rand
Refinery is
contractually obliged
to
make payment to
the Group within
two business days
after the sale
of the gold
and silver and
therefore no significant
financing
component exists.
Amounts in R million
2021
2020
2019
Gold revenue
5,263.8
4,179.3
2,758.8
Silver revenue
5.2
5.7
3.3
Total
revenue
5,269.0
4,185.0
2,762.1
A disaggregation of revenue by operating segment is presented in note 23 OPERATING SEGMENTS.
MARKET RISK
Commodity price sensitivity
The Group's profitability
and the cash
flows are significantly affected
by changes in
the market price of
gold which is sold
in US
Dollars. The Group
did not enter into
forward sales of gold
production, derivatives or other
hedging arrangements to establish
a
commodity price in advance for the sale of future gold production during the year.
A change of
20
% in the average US Dollar gold price received during the financial year would
have increased/(decreased) equity
and profit/(loss)
by the
amounts shown
below.
This analysis
assumes that
all other
variables remain
constant and
specifically
excludes the impact on income tax.
Amounts in R million
2021
2020
2019
20
% increase in the US Dollar gold price
1,053.8
837.0
552.4
20
% decrease in the US Dollar gold price
(1,053.8)
(837.0)
(552.4)
Exchange rate sensitivity
The Group's profitability and the cash flows
are significantly affected by changes in the Rand
to the US Dollar exchange rate. The
Group did not enter into forward sales of US Dollars, derivatives or other hedging arrangements to establish an exchange rate in
advance for the sale of US Dollars to be received in the future.
A
change
of
20
%
in
the
average
Rand
to
US
Dollar
exchange
rate
received
during
the
financial
year
would
have
increased/(decreased) equity and profit/(loss)
by the amounts shown
below. This analysis assumes that
all other variables
remain
constant and specifically excludes the impact on income tax.
Amounts in R million
2021
2020
2019
20
% increase in the Rand to US Dollar exchange rate
1,053.8
837.0
552.4
20
% decrease in the Rand to US Dollar exchange rate
(1,053.8)
(837.0)
(552.4)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-12
5
RESULTS FROM
OPERATING
ACTIVITIES
5.1
COST OF SALES
Amounts in R million
Note
2021
2020
2019
Cost of sales
(3,388.2)
(2,937.9)
(2,553.9)
Operating costs (a)
(3,122.5)
(2,692.1)
(2,471.1)
Movement in gold in process and finished inventories - Gold Bullion
(25.6)
3.1
32.6
Depreciation
9
(252.5)
(270.8)
(169.1)
Change in estimate of environmental rehabilitation
11
12.4
21.9
60.0
Retrenchment costs (b)
-
-
(6.3)
The most significant components of operating costs include:
Consumable stores
(880.2)
(801.0)
(866.5)
Labour including short term incentives
(598.4)
(573.0)
(476.7)
Electricity
(488.2)
(420.9)
(399.4)
Specialist service providers
(510.7)
(447.5)
(437.1)
Machine hire
(127.4)
(95.2)
(77.7)
Security expenses
(122.8)
(87.8)
(59.9)
Water
(57.1)
(47.0)
(44.1)
Pre-production costs capitalised
-
-
93.7
Voluntary staff retrenchments
-
-
(6.3)
RELATED PARTY
TRANSACTIONS
FWGR entered into an agreement with Sibanye-Stillwater effective July 31, 2018 for the pumping and supply of water and
electricity to the FWGR operations for which FWGR is invoiced based on metered usage of water and electricity.
FWGR also entered into a smelting agreement with Sibanye-Stillwater effective July 31, 2018 to smelt and recover gold from gold
loaded carbon produced at FWGR, and deliver the gold to Rand Refinery. As consideration for this service, Sibanye-Stillwater
receives a fee based on the smelting costs plus 10% of the smelting costs.
Rand Refinery performs the final refinement and marketing of all gold and silver produced by the Group. As consideration for this
service, Rand Refinery receives a variable refining fee plus fixed marketing and administration fees.
All transactions and outstanding balances with related parties are to be settled in cash within 30 days of the invoice date. None
of the balances are secured. No expense has been recognised in the current year as a credit loss allowance in respect of amounts
charged to related parties.
Amounts in R million
2021
2020
2019
Services rendered by related parties and included in operating costs:
Supply of water and electricity
1
68.1
50.0
16.9
Gold smelting and related charges
1
21.1
19.8
12.9
Other charges
1
0.7
1.6
-
Charges to Sibanye-Stillwater
2
-
(0.2)
(6.5)
Gold refining and related charges
3
6.8
4.9
3.6
96.7
76.1
26.9
1
Paid to Sibanye-Stillwater by FWGR
2
2019 charges relate to material processed on behalf
of Sibanye-Stillwater in terms of a toll treatment
agreement and recovered the related
costs from Sibanye-Stillwater. 2020 charges relate to miscellaneous
items
3
Paid to Rand Refinery
5.2
OTHER INCOME
ACCOUNTING POLICIES
Other income is
recognised where it
is probable that
the economic benefits
associated with a
transaction will flow
to the Group
and it can be reliably measured.
Other income is generally income earned from transactions outside the course of the Group’s ordinary activities and may include
gains on disposal of property, plant and equipment and gains on financial instruments at fair value through profit or loss
.
Amounts in R million
2021
2020
2019
Gain on disposal of property, plant and equipment
0.1
0.7
5.8
Gain on financial asset at fair value through profit or loss
-
-
2.1
0.1
0.7
7.9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-13
5
RESULTS FROM
OPERATING
ACTIVITIES
continued
5.3
ADMINISTRATION
EXPENSES AND OTHER COSTS
Amounts in R million
Note
2021
2020
2019
Included in administration expenses and other costs are the following:
Share based payment benefit/(expenses)
28.3
(224.1)
(21.4)
Cash settled Long-Term
Incentive ("
CLTI
") scheme
19.1
44.3
(218.1)
(21.4)
Equity settled Long-Term
Incentive ("
ELTI
") scheme
19.2
(16.0)
(6.0)
-
6
FINANCE INCOME
ACCOUNTING POLICY
Finance income includes interest received, growth in cash and cash equivalents in environmental rehabilitation trust funds, growth
in the reimbursive
right for environmental rehabilitation
guarantees, dividends received and
the unwinding of
the Payments made
under protest
Amounts in R million
Note
2021
2020
2019
Interest on financial assets measured at amortised cost
13
108.7
63.1
16.9
Growth in cash and cash equivalents in environmental rehabilitation trust
funds
12
22.5
33.3
30.5
Growth in reimbursive right for environmental rehabilitation guarantees
12
3.7
5.2
7.9
Dividends received
25
76.1
4.3
-
Unwinding of Payments made under protest
24
4.8
3.9
3.0
Other finance income
0.4
-
-
216.2
109.8
58.3
7
FINANCE EXPENSE
ACCOUNTING POLICY
Finance expenses
comprise interest
payable on
financial instruments
measured at
amortised cost
calculated using
the effective
interest method, unwinding of the provision for environmental rehabilitation, interest on lease liabilities, the discount recognised on
Payments made under protest and foreign exchange losses.
Amounts in R million
Note
2021
2020
2019
Interest on financial liabilities measured at amortised cost
(2.3)
(2.0)
(10.2)
Interest on financial liabilities measured at amortised cost capitalised
-
-
9.4
Unwinding of provision for environmental rehabilitation
11
(44.7)
(52.0)
(66.3)
Discount recognised on Payments made under protest
24
(7.4)
(7.1)
(6.5)
Interest on lease liabilities
10.2
(4.5)
(5.1)
(2.0)
Unrealised foreign exchange loss
(8.4)
-
-
Other finance expenses
(2.2)
(2.6)
(2.8)
(69.5)
(68.8)
(78.4)
8
EARNINGS PER SHARE
Amounts in R million
2021
2020
2019
The calculations of basic and diluted earnings per ordinary share
are based on the following:
Profit for the year
1,439.9
635.0
78.5
Reconciliation of weighted average number of ordinary shares to
diluted weighted average number of ordinary shares
Note
2021
2020
2019
Weighted average number of ordinary shares in issue
855,113,791
769,941,874
664,553,283
Effect of Sibanye-Stillwater Option
21.1
-
9,464,684
15,387,695
Effect of equity-settled share-based payment
19.2
5,935,215
4,283,001
-
Diluted weighted average number of ordinary shares
861,049,006
783,689,559
679,940,978
SA cents per share
2021
2020
2019
Basic earnings per share
168.4
82.5
11.8
Diluted earnings per share
167.2
81.0
11.5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-14
9
PROPERTY,
PLANT AND EQUIPMENT
SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES
Mineral reserves and resources estimates
The Group is required to determine and report
mineral reserves and resources in accordance with the
South African Code for the
Reporting
of
Exploration
Results,
Mineral
Resources
and
Mineral
Reserves
(SAMREC
Code).
In
order
to
calculate
mineral
reserves and
resources, 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. Estimating the quantity
and/or grade of mineral reserves and resources
requires
the size, shape and
depth of reclamation sites
to be determined by
analysing geological data such
as the logging and
assaying
of
drill
samples.
This
process may
require complex
and
difficult
geological
judgements
and calculations
to
interpret
the data.
Because the assumptions used to estimate
mineral reserves and resources change from period
to period and because additional
geological
data is
generated
during
the course
of
operations, estimates
of mineral
reserves and
resources may
change from
period to
period. Mineral reserves
and resources estimates
prepared by management
are reviewed by
an independent mineral
resources expert.
Changes
in
reported
mineral
reserves
and
resources
may
affect
the
Group’s
life-of-mine
plan,
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
charged to
profit or
loss may
change where
such charges
are determined
by the
units-of-production method,
or
where the useful lives of assets change;
• decommissioning, site restoration and environmental provisions may change where changes in
estimated mineral reserves and
resources affect expectations about the timing or cost of these activities; and
• the carrying value of deferred tax assets and liabilities may change due to changes in estimates of the likely recovery of the tax
benefits and charges.
Depreciation
The calculation of
the units-of-production rate
of depreciation could
be affected if
actual production in
the future varies
significantly
from
current
forecast
production.
This
would
generally
arise
when
there
are
significant
changes
in
any
of
the
factors
or
assumptions used in estimating mineral reserves and resources. These factors could include:
• changes in mineral reserves and resources;
• the grade of mineral reserves and resources may vary from time to time;
• differences between actual commodity prices and commodity price assumptions;
• unforeseen operational issues at mine sites including planned extraction efficiencies; and
• changes in capital, operating, mining processing and reclamation costs, discount rates and foreign exchange rates.
ACCOUNTING POLICIES
Recognition and measurement
Property,
plant and equipment comprise
mine plant facilities and
equipment, mine property
and development (including mineral
rights) and
exploration assets.
These assets
(excluding exploration
assets) are
initially measured
at cost,
whereafter they
are
measured at cost
less accumulated depreciation
and accumulated impairment
losses. Exploration assets
are initially measured
at cost, whereafter they are measured at cost less accumulated impairment losses.
Cost includes expenditure
that is directly attributable
to the acquisition
or construction of the
asset, borrowing costs capitalised,
as well
as the
costs of
dismantling and
removing an
asset and
restoring the
site on
which it
is located.
Subsequent costs
are
included in
the asset’s
carrying amount
or recognised
as a
separate asset,
as appropriate,
only when
it is
probable that
future
economic benefits associated with the item
will flow to the Group and
the cost of the item can be
measured reliably.
Exploration
and evaluation
costs are capitalised
as exploration assets
on a project-by-project
basis, pending
determination of the
technical
feasibility and commercial viability of the project.
Exploration
assets
consists
of
costs
of
acquiring
rights,
activities
associated
with
converting
a
mineral
resource
to
a
mineral
reserve - the
process thereof includes
drilling, sampling and other
processes necessary to evaluate
the technical feasibility
and
commercial viability of a mineral
resource to prove whether a
mineral reserve exists. Exploration assets
also include geological,
geochemical and geophysical studies associated with prospective projects and tangible assets which comprise of property, plant
and equipment used
for exploratory activities. Costs
are capitalised to
the extent that
they are a directly
attributable exploration
expenditure and classified
as a separate class
of assets on a
project by project basis.
Once a mineral
reserve is determined or
the
project
ready
for
development,
the
asset
attributable
to
the
mineral
reserve
or
project
is
tested
for
impairment
and
then
reclassified to the appropriate class of assets. Depreciation commences when the assets are available for use.
Depreciation
Depreciation of
mine plant
facilities and
equipment, as
well as
mining property
and development
(including mineral
rights) are
calculated using the units of production method which
is based on the life-of-mine of each site.
The life-of-mine is primarily based
on
proved
and
probable
mineral
reserves.
It
reflects
the
estimated
quantities
of
economically
recoverable
gold
that
can
be
recovered from
reclamation sites
based on
the estimated
gold price.
Changes in
the life-of-mine
will impact
depreciation on
a
prospective
basis.
The
life-of-mine
is
prepared
using
a
methodology
that
takes
account
of
current
information
to
assess
the
economically recoverable gold from specific reclamation sites and includes the consideration of historical experience.
The
depreciation
method,
estimated
useful
lives
and
residual
values
are
reassessed
annually
and
adjusted
if
appropriate.
Changes to the useful lives may affect prospective depreciation rates. The current estimated
useful lives are based on the life-of-
mine of each
site, currently between
three
(2020:
four
; 2019:
three
) and 13
years(2020:
13
; 2019:
11
) years for
Ergo mining assets
and between
three
(2020:
four
; 2019:
five
) and 18 years (2020:
20
; 2019:
15
) years for FWGR mining assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-15
ACCOUNTING POLICIES continued
Impairment
The carrying
amounts of
property,
plant and
equipment are
reviewed at
each reporting
date to
determine whether
there is
any
indication
of
impairment,
or
whenever
events
or
changes
in
circumstances
indicate
that
the
carrying
amount
may
not
be
recoverable. If any
such indication exists,
the asset’s recoverable
amount is estimated.
For the
purposes of assessing
impairment,
assets are grouped at the
lowest levels for which there
are separately identifiable cash flows
(CGUs). The key assets of
a surface
retreatment operation which constitutes a
CGU are a reclamation site, a
metallurgical plant and a tailings
storage facility.
These
key
assets
operate
interdependently
to
produce
gold.
The
Ergo
and
FWGR
operations
each
have
separately
managed
and
monitored reclamation sites, metallurgical plants and tailings storage facilities and are therefore separate CGUs.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The recoverable
amount was
determined by
estimating the
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. An impairment
loss is recognised
in profit or
loss if the
carrying amount of
an asset or
CGU exceeds its
recoverable amount.
Amounts in R million
Note
Mine plant
facilities and
equipment
Mine
property and
development
Exploration
assets
Total
June 30, 2021
Cost
2,604.3
2,154.0
110.5
4,868.8
Balance at the beginning of the year
2,203.5
2,147.0
266.3
4,616.8
Additions - property, plant and equipment owned
237.7
113.3
44.7
395.7
Additions - right-of-use assets
10.1
16.7
-
-
16.7
Lease modifications
10.1
-
2.3
-
2.3
Lease derecognitions
10.1
(1.0)
-
-
(1.0)
Disposals and scrapping
(54.7)
(133.4)
-
(188.1)
Change in estimate of decommissioning asset
11
14.9
14.2
(2.7)
26.4
Transfers between classes of property,
plant and
equipment
187.2
10.6
(197.8)
-
Accumulated depreciation and impairment
(1,074.0)
(975.4)
(9.7)
(2,059.1)
Balance at the beginning of the year
(1,017.5)
(968.5)
(9.7)
(1,995.7)
Depreciation
5.1
(112.2)
(140.3)
-
(252.5)
Lease derecognitions
1.0
-
-
1.0
Disposals and scrapping
54.7
133.4
-
188.1
Carrying value at end of the year
1,530.3
1,178.6
100.8
2,809.7
Comprising:
Property, plant and equipment owned
1,509.7
1,150.1
100.8
2,760.6
Right-of-use assets
10.1
20.6
28.5
-
49.1
Carrying value at end of the year
1,530.3
1,178.6
100.8
2,809.7
June 30, 2020
Cost
2,203.5
2,147.0
266.3
4,616.8
Balance at the beginning of the year
2,156.2
2,106.8
256.7
4,519.7
Impact of adopting IFRS 16 on July 1, 2019
7.5
23.4
-
30.9
Additions - property, plant and equipment owned
121.2
46.5
15.0
182.7
Additions - right-of-use assets
3.8
14.2
-
18.0
Lease modifications
-
7.5
-
7.5
Lease derecognitions
(26.7)
(0.1)
-
(26.8)
Disposals and scrapping
(1.6)
-
-
(1.6)
Change in estimate of decommissioning asset
11
(56.7)
(51.5)
(5.4)
(113.6)
Transfers between classes of property,
plant and
equipment
(0.2)
0.2
-
-
Accumulated depreciation and impairment
(1,017.5)
(968.5)
(9.7)
(1,995.7)
Balance at the beginning of the year
(909.9)
(824.8)
(9.7)
(1,744.4)
Depreciation
5.1
(127.1)
(143.7)
-
(270.8)
Lease derecognitions
17.9
-
-
17.9
Disposals and scrapping
1.6
-
-
1.6
Carrying value at end of the year
1,186.0
1,178.5
256.6
2,621.1
Comprising:
Property, plant and equipment owned
1,177.8
1,141.8
256.6
2,576.2
Right-of-use assets
10.1
8.2
36.7
-
44.9
Carrying value at end of the year
1,186.0
1,178.5
256.6
2,621.1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-16
9
PROPERTY,
PLANT AND EQUIPMENT
continued
CONTRACTUAL COMMITMENTS
Contractual commitments not
provided for in
the consolidated financial
statements at June
30, 2021 amounted
to R
65.5
million
(2020: R
130.6
million).
Capital expenditure related to
material growth projects are
financed on a project-by-project
basis which may include
bank facilities
and existing cash
resources. Sustaining capital
expenditure is financed
from cash generated
from operations and
existing cash
resources.
10
RIGHT OF USE ASSETS AND LEASES
ACCOUNTING JUDGEMENTS
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains a lease if the
contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. The contract
must
also
be
enforceable.
To
assess
whether
a
contract
conveys
the
right
to
control
the
use
of
an
identified
asset,
requires
judgement particularly on contracts with service contractors, which may contain embedded leases.
The Group assesses whether:
•
the contract involves the use of an identified asset;
•
the Group has the right to obtain substantially
all the economic benefits from use of the asset
throughout the period of use; and
•
the Group has the right to direct the use of the asset.
At
inception
or on
reassessment
of a
contract
that contains
a
lease component,
the
Group allocates
the consideration
in
the
contract to each lease component on the
basis of their relevant stand-alone prices. However,
for the lease of land and buildings
in which
it is
a lessee,
the Group
has elected
not to
separate non-lease
components and
account for
the lease
and non-lease
component as a single lease component.
Some property leases contain
options to renew under
the contract. Judgement is
applied in whether the
renewable option periods
must be included in the lease term i.e. it is reasonably certain that the options to renew will be exercised. In applying judgement,
the
Group
also
considers
whether
the
lease
term
is
commensurate
with
estimated
future
mine
plans
requirements
and
environmental rehabilitation obligations associated with the property post reclamation.
ACCOUNTING POLICIES
Right of use asset
The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability and is adjusted by any
lease payments
made at
or before
the commencement
date, plus
any initial
direct costs
incurred
and an
estimate of
costs to
dismantle and
remove the
underlying asset
or to
restore the
underlying asset
or the
site on
which it
is located,
less any
lease
incentives received. The Group recognises a right of use asset and lease liability at the lease commencement date.
The right of
use asset is
subsequently depreciated using
the straightline method
from the commencement
date to the
earlier of
the end of the useful life of the right of use asset or the end of
the lease term. The right of use asset carrying value is allocated to
the CGU it belongs to
and the CGU is reviewed at
each reporting date to determine
whether there is any indication
of impairment.
The carrying value is reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
Lease liability
The lease liability
is initially measured
at the present
value of the
outstanding lease payments
at commencement date
over the
lease
term,
discounted
using
the
interest
rate
implicit
in
the
lease
or
if
that
rate
is
undeterminable,
the
Group’s
incremental
borrowing rate. The lease term includes the non-cancellable period
for which the lessee has the right to use an underlying
asset
including optional periods when the Group is reasonably certain to exercise an option to extend a lease.
Lease payments comprise fixed payments, variable lease payments that depend on an index or rate, initially
measured using the
index
or rate as at the commencement date, and the exercise price under a purchase option
that the Group is reasonably certain
to exercise.
The lease liability is measured using the effective interest rate method. The Group re-measures the lease liability when the lease
contract is modified and
this does not give
rise to modification accounting,
when the lease term
has been changed or
when the
lease payments have
changed as a
result of a change
in an index
or rate or a
change in the
assessment of a purchase
option.
Upon remeasurement, a corresponding adjustment is
made to the carrying
amount of the right of
use asset or is recorded
in profit
or loss if the carrying amount of the right of use asset has been reduced to zero.
Right of use assets
are presented in “property, plant and
equipment” and lease liabilities
are separately disclosed
in the statement
of financial position.
Short term leases and leases of low value assets
The Group has elected not to recognise right
of use assets and lease liabilities for short-term
leases of machinery and equipment
that have a lease term of 12 months
or less and leases of low value assets
which include IT equipment, security equipment and
administration equipment.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-17
10.1
RIGHT OF USE ASSETS
Included in property, plant and equipment are the following leased assets:
Amounts in R million
Note
Mine plant
facilities and
equipment
Mine property
and
development
Total
June 30, 2021
Cost
26.8
47.3
74.1
Opening balance
11.1
45.0
56.1
Additions
16.7
-
16.7
Lease modifications
-
2.3
2.3
Lease derecognitions
(1.0)
-
(1.0)
Accumulated depreciation
(6.2)
(18.8)
(25.0)
Opening balance
(2.9)
(8.3)
(11.2)
Depreciation
(4.3)
(10.5)
(14.8)
Lease derecognitions
1.0
-
1.0
Carrying value
20.6
28.5
49.1
June 30, 2020
Cost
11.1
45.0
56.1
Impact of adopting IFRS 16 on July 1, 2019
Right-of-use assets recognised on July 1, 2019
7.5
23.4
30.9
Transfers and other movements
1
26.5
-
26.5
Additions
3.8
14.2
18.0
Lease modifications
-
7.5
7.5
Lease derecognitions
(26.7)
(0.1)
(26.8)
Accumulated depreciation
(2.9)
(8.3)
(11.2)
Impact of adopting IFRS 16 on July 1, 2019
Transfers and other movements
1
(15.9)
-
(15.9)
Depreciation
5.1
(4.9)
(8.3)
(13.2)
Lease derecognitions
17.9
-
17.9
Carrying value
8.2
36.7
44.9
1
Relates to contracts previously classified as leases
under IAS 17 and presented as property, plant and equipment which
the Group has
reassessed as right-of-use assets upon adoption
of IFRS 16 as of July 1, 2019
10.2
LEASE LIABILITIES
Amounts in R million
Note
2021
2020
Reconciliation of the lease liabilities balance:
Balance at the beginning of the year
47.1
11.0
Impact of adopting IFRS 16 on July 1, 2019
9
-
30.9
New leases
9
16.7
18.0
Lease modifications
2.3
7.5
Leases derecognised
-
(8.9)
Interest charge on lease liabilities
7
4.5
5.1
Repayment of lease liabilities
(11.6)
(11.4)
Interest repaid
(4.2)
(5.1)
Balance at the end of the year
54.8
47.1
Current portion of lease liabilities
(16.9)
(10.1)
Non-current lease liabilities
37.9
37.0
Maturity analysis of undiscounted contractual cash flows:
Less than a year
(20.5)
(13.0)
One to five years
(42.0)
(37.0)
More than 5 years
(1.3)
(9.0)
Total
undiscounted lease liabilities at the end of the year
(63.8)
(59.0)
Lease payments not recognised as a liability but expensed during the year:
Short-term leases
(1.4)
(2.4)
Leases of low value assets
(7.7)
(5.0)
Cash flows included in cash generated from operating activities
(9.1)
(7.4)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-18
11
PROVISION FOR ENVIRONMENTAL
REHABILITATION
SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES
Estimates of future environmental
rehabilitation costs are determined
with the assistance of
an independent expert and
are based
on the
Group’s environmental
management plans
which are developed
in accordance
with regulatory
requirements, the
life-of-
mine plan
(as discussed
in note 9)
which influences
the estimated
timing of
environmental rehabilitation cash
outflows and
the
planned method of rehabilitation which in turn is influenced by developments in trends and technology.
An average discount rate ranging between
8.9
% and
9.0
% (2020: between
8.1
% and
9.5
%), average inflation rate of
5.2
% (2020:
5.1
%) and the discount
periods as per the
expected life-of-mine were used in
the calculation of the
estimated net present value
of the rehabilitation liability.
ACCOUNTING POLICIES
The net present value of the
estimated rehabilitation cost as at reporting
date is provided for in
full. These estimates are reviewed
annually and are
discounted using a
pre-tax risk-free rate
that is adjusted to
reflect the current
market assessments of
the time
value of money and the risks specific to the obligation.
Annual changes
in the
provision consist
of financing
expenses relating
to the
change in
the present
value of
the provision
and
inflationary increases in the provision, as well as changes in estimates.
The present value
of dismantling and
removing the asset
created (decommissioning liabilities)
are capitalised to
property,
plant
and equipment against an increase in the rehabilitation provision. If a decrease in the liability exceeds the carrying
amount of the
asset, the excess is recognised in profit or loss. If the asset value is increased and there is
an indication that the revised carrying
value is not
recoverable, an impairment
test is performed
in accordance
with the accounting
policy dealing with
impairments of
property,
plant
and
equipment.
Over
time,
the
liability
is
increased
to
reflect
an
interest
element,
and
the
capitalised
cost
is
depreciated over the life of the related asset. Cash costs incurred to
rehabilitate these disturbances are charged to the provision
and are presented as investing activities in the statement of cash flows.
The present value
of environmental rehabilitation
costs relating to
the production of
inventories and sites
without related assets
(restoration liabilities) as
well as changes
therein are expensed
as incurred and
presented as operating
costs. Cash costs
incurred
to
rehabilitate
these
disturbances
are
presented
as
operating
activities
in
the
statement
of
cash
flows.
The
cost
of
ongoing
rehabilitation is recognised in profit or loss as incurred.
Amounts in R million
Note
2021
2020
Opening balance
568.9
682.6
Unwinding of provision
7
44.7
52.0
Change in estimate of environmental rehabilitation recognised in profit or loss (a)
5.1
(12.4)
(21.9)
Change in estimate of environmental rehabilitation recognised to decommissioning asset (b)
9
26.4
(113.6)
Environmental rehabilitation payments (c)
(56.8)
(30.2)
To
reduce decommissioning liabilities
(51.0)
(22.1)
To
reduce restoration liabilities
14
(5.8)
(8.1)
Closing balance
570.8
568.9
Environmental rehabilitation payments to reduce the liability
(56.8)
(30.2)
Ongoing rehabilitation expenditure
1
23
(48.3)
(24.3)
Total
cash spent on environmental rehabilitation
(105.1)
(54.5)
1
The Group also performs ongoing environmental rehabilitation
arising from its current activities concurrently with production.
These costs do
not represent a reduction of the above liability and
are expensed as operating costs
(a)
Change in estimate of environmental rehabilitation recognised in profit or loss
This is as a result of changes in the estimated timing of the vegetation of reclamation sites.
(b) Change in estimate of environmental rehabilitation recognised to decommissioning asset
Increase is as a
result of an
increase in contractor rates
for the establishment of
vegetation based on
ongoing test work
performed
as well as inflationary increases on other contractor rates.
(c) Environmental rehabilitation payments
69ha of the Brakpan/Withok TSF,
20ha of the Daggafontein TSF,
6ha of the Crown Complex TSF,
and 19ha of the Driefontein 4
TSF was vegetated during the year. 1ha of the Dam 5
tailings dam was concurrently vegetated.
GROSS COST TO REHABILITATE
The Group estimates that, based
on current environmental and regulatory
requirements, the total undiscounted rehabilitation
cost
is approximately R
742.2
million (2020: R
752.5
million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-19
12
INVESTMENTS IN REHABILITATION
OBLIGATION
FUNDS
ACCOUNTING POLICIES
Cash and cash equivalents in environmental rehabilitation trusts
Cash
and
cash
equivalents
included
in
environmental
rehabilitation
trusts
comprise
low-risk,
interest-bearing
cash
and
cash
equivalents and are non-derivative financial assets categorised as financial assets measured at amortised cost.
Cash and cash
equivalents are initially
measured at fair
value. Subsequent to
initial recognition, cash
and cash equivalents
are
measured at amortised cost, which is equivalent to their fair value.
The
cash
and
cash
equivalents
in
environmental
rehabilitation
trusts
are
for
the
sole
use
of
material
future
environmental
rehabilitation payments and are therefore included in non-current assets.
Reimbursive right for environmental rehabilitation guarantees
Funds held in the cell captive that secure the environmental rehabilitation guarantees issued are recognised as a right to receive
a reimbursement and are
measured at the
lower of the
amount of the
consolidated environmental rehabilitation liability
recognised
and the consolidated fair value of the fund assets.
Changes in the carrying value
of the fund assets, other
than those resulting from contributions and
payments, are recognised in
finance income.
The funds held in the
cell captive are for the
sole use of material future environmental
rehabilitation payments and are
therefore
included in non-current assets
Funding of environmental rehabilitation activities
(refer note 11)
Environmental
rehabilitation
payments
to
reduce
the
environmental
rehabilitation
obligations
and
ongoing
rehabilitation
expenditure are mostly funded by cash generated from operations.
Guardrisk Insurance Company Limited ("
Guardrisk
") has guarantees in issue amounting
to R
430.1
million (2020: R
427.3
million)
to the Department of Mineral Resources and Energy ("
DMRE
") on behalf of DRDGOLD related to the environmental
obligations.
The funds in the cell captive serve as collateral for these guarantees.
Amounts in R million
Note
2021
2020
Cash and cash equivalents in environmental rehabilitation trust funds
564.7
542.2
Opening balance
542.2
508.9
Growth
6
22.5
33.3
Reimbursive right for environmental rehabilitation guarantees
87.5
83.8
Opening balance
83.8
78.6
Growth
6
3.7
5.2
652.2
626.0
CREDIT RISK
The Group
is exposed
to credit
risk on
the total
carrying value
of the
investments held
in the
environmental rehabilitation
trust
funds.
The Group manages its exposure
to credit risk by diversifying these
investments across a number of major
financial institutions,
as well as investing funds in low-risk, interest-bearing cash and cash equivalents.
MARKET RISK
Interest rate risk
A change of 100 basis points (bp) in interest rates at the reporting date would have increased/(decreased) equity and profit/(loss)
by the amounts shown below. This analysis assumes that all other variables, in particular the balance of the funds, remain
constant. The analysis excludes income tax.
Amounts in R million
2021
2020
100
bp increase
5.6
5.4
100bp (decrease)
(5.6)
(5.4)
FAIR VALUE
OF FINANCIAL INSTRUMENTS
The fair
value of
the cash
and cash
equivalents in
the environmental
rehabilitation trust
funds approximate
their carrying
value
due to their short-term maturities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-20
13
CASH AND CASH EQUIVALENTS
ACCOUNTING POLICIES
Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to cash without significant risk of
changes in
value and
comprise cash
on hand,
demand deposits,
and highly
liquid investments which
are readily
convertible to
known amounts of cash.
Cash and cash equivalents are non-derivative financial assets categorised as financial assets measured at amortised
cost. Cash
and
cash
equivalents
are
initially
measured
at
fair
value.
Subsequent
to
initial
recognition,
cash
and
cash
equivalents
are
measured at amortised cost, which is equivalent to their fair value.
Amounts in R million
Note
2021
2020
Cash on hand
100.5
63.5
Access deposits and income funds
1
2,069.2
1,632.3
Restricted cash
2
10.3
19.3
2,180.0
1,715.1
Interest earned on cash and cash equivalents
6
108.7
63.1
1
These consist of access deposit notes and conservatively
managed income funds that are diversified
across the major financial institutions in
South Africa.
At reporting date all of these instruments had
same day or next day liquidity and effective
annualised yields of between
4
% and
5.6
%
2
This consists of cash held on call as collateral for guarantees
issued by the Standard Bank of South
Africa Limited on behalf of the Group for
environmental rehabilitation amounting to R
5.2
million and various utilities amounting to R
5.1
million.
CREDIT RISK
The Group is exposed to credit risk
on the total carrying value of its
cash and cash equivalents. The Group manages
its exposure
to credit risk
by investing cash
and cash equivalents
across several major
financial institutions, considering
the credit ratings
of
the respective financial institutions, funds and underlying instruments.
Impairment
on
cash
and
cash
equivalents,
if
any,
are
measured
on
a
12-month
expected
loss
basis
and
reflects
the
short
maturities of the
exposures. The Group considers
that its cash
and cash equivalents
have low credit
risk based on
the external
credit ratings of the counterparties.
MARKET RISK
Interest rate risk
A change of
100
basis points (bp) in the interest rates would have
increased/(decreased) equity and profit/(loss) by the amounts
shown below. This analysis is performed on the average balance of cash and cash equivalents for the year and assumes that
all
other variables remain constant. The analysis excludes income tax
.
Amounts in R million
2021
2020
100
bp increase
19.5
10.0
100bp (decrease)
(19.5)
(10.0)
Foreign
denominated cash
is held
in a
foreign currency
bank
account accruing
negligible interest
and is
usually converted
to
South African Rand on the day of receipt. Foreign cash is therefore not exposed to significant interest rate risk.
Foreign currency risk
US
Dollars
received
on
settlement
of
the
trade
receivables
are
exposed
to
fluctuations
in
the
US
Dollar/South
African
Rand
exchange rate until it is converted to South African Rands.
US Dollars not converted to South African Rands at reporting date are as follows
:
Figures in USD million
2021
2020
Foreign denominated cash at 30 June
3.4
-
A
10
% strengthening of the Rand against the US Dollar at 30 June would have increased/(decreased) equity and profit/(loss) by
Amounts in R million
2021
2020
Strengthening of the Rand against the US Dollar
(4.9)
-
Weakening of the Rand against the US Dollar
4.9
-
FAIR VALUE
OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents approximates their carrying value due to their short-term maturities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-21
14
CASH GENERATED
FROM OPERATIONS
Amounts in R million
Note
2021
2020
2019
Profit for the year
1,439.9
635.0
78.5
Adjusted for
Income tax
18.1
523.7
343.9
26.6
Depreciation
9
252.5
270.8
169.1
Movement in gold in process and finished inventories - Gold Bullion
5.1
25.6
(3.1)
(32.6)
Change in estimate of environmental rehabilitation
11
(12.4)
(21.9)
(60.0)
Environmental rehabilitation payments
11
(5.8)
(8.1)
(10.9)
Share-based payment (benefit)/expense
5.3
(28.3)
224.1
21.4
Gain on disposal of property, plant and equipment
5.2
(0.1)
(0.7)
(5.8)
Finance income
6
(216.2)
(109.8)
(58.3)
Finance expense
7
69.5
68.8
78.4
Other non-cash items
(2.5)
2.6
1.8
Operating cash flows before other changes
2,045.9
1,401.6
208.2
Changes in
(194.9)
(92.0)
73.8
Trade and other receivables
6.9
(79.0)
22.5
Consumable stores and stockpiles
(44.7)
(26.4)
(24.8)
Payments made under protest
24
(8.1)
(10.6)
(11.7)
Trade and other payables and employee benefits
(149.0)
1
24.0
1
87.8
1
Cash generated from operations
1,851.0
1,309.6
282.0
1
Includes settlement of cash-settled long-term incentives
of R
183.3
million (2020: R
41.5
million, 2019: R
15.5
million)
15
TRADE AND OTHER RECEIVABLES
ACCOUNTING POLICIES
Recognition and measurement
Trade
and other
receivables, excluding
Value
Added Tax
and prepayments,
are non-derivative
financial assets
categorised as
financial assets at amortised cost.
These assets are initially measured at fair value plus directly attributable transaction costs. Subsequent to initial recognition, they
are measured at
amortised cost using
the effective interest
method less any
expected credit losses
using the Group’s
business
model for managing its financial assets.
The Group derecognises
a financial asset
when the contractual
rights to the cash
flows from the
asset expire, or it
transfers the
rights to receive the contractual cash
flows in a transaction in which substantially
all of the risks and rewards of
ownership of the
financial asset are transferred,
or it neither transfers
nor retains substantially all
of the risks and
rewards of ownership and
does
not retain control over the
transferred asset. Any interest in
such derecognised financial assets that
is created or retained by
the
Group is recognised as a separate asset or liability.
Impairment
The Group recognises loss
allowances for trade and
other receivables at an
amount equal to expected
credit losses (“ECLs”). The
Group uses the simplified ECL approach. When determining whether the credit risk of a financial asset has increased since initial
recognition and when estimating
ECLs, the Group
considers reasonable and supportable
information that is
relevant and available
without undue
cost or
effort. This
includes both
quantitative and
qualitative information
and analysis,
based on
informed credit
assessments and including forward-looking information. The maximum period considered when estimating ECLs is the maximum
contractual period over which the Group is exposed to credit risk.
ECLs are a probability
weighted estimate of credit
losses. Credit losses are
measured as the present
value of all cash
shortfalls
(i.e. the
difference between
the cash
flows due
to the
entity in
accordance with
the contract
and the
cash flows
that the
Group
expects to receive). The Group assesses whether the financial asset is credit impaired at each reporting
date. A financial asset is
credit impaired when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset
have occurred, including but not limited to financial difficulty or default of payment. The Group will write off a financial asset when
there is no
reasonable expectation of
recovering it
after considering whether
all means to
recovery the asset
have been exhausted,
or the counterparty has been liquidated and the Group has assessed that no recovery is possible.
Any impairment losses are recognised in the statement of profit or loss.
Trade
receivables relate
to gold
sold on
the bullion
market by
Rand Refinery
in its
capacity as
an agent.
Settlement is
usually
received two working days from gold sold date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-22
15
TRADE AND OTHER RECEIVABLES
continued
Amounts in R million
2021
2020
Trade receivables
56.5
23.1
Value Added Tax
50.2
83.5
Other receivables
1
21.2
17.3
Prepayments
17.4
25.1
Allowance for impairment
(1.2)
(2.6)
144.1
146.4
1
Other receivables consist of a number of individually
insignificant amounts receivable
CREDIT RISK
The Group
is exposed
to credit
risk on
the total
carrying value
of its
trade receivables
and other
receivables excluding
Value
Added Tax
and prepayments.
The Group manages its exposure to
credit risk on trade receivables by maintaining a
short term cycle to settlement of
2
working
days. The Group manages its
exposure to credit risk on other
receivables by establishing a maximum payment
period of
30
days,
and
ensuring
that
counterparties
are
of
good
credit
standing
and
transacting
on
a
secured
or
cash
basis
where
considered
necessary. The majority of
other receivables comprises
of balances with
counterparties who have
been transacting with
the Group
for
over
5
years
and
in
some
of
these
cases,
the
counterparties
are
also
suppliers
of
the
Group.
Receivables
are
regularly
monitored and assessed for recoverability.
The balances of counterparties who have been assessed as being credit impaired at reporting date are as follows:
2021
2020
Amounts in R million
Non-credit
impaired
Credit
impaired
Non-credit
impaired
Credit
impaired
Trade receivables
56.5
-
23.1
-
Other receivables
20.0
1.2
14.7
2.6
76.5
1.2
37.8
2.6
Loss allowance
-
(1.2)
-
(2.6)
Movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:
Amounts in R million
2021
2020
Balance at the beginning of the year
(2.6)
(4.9)
Credit loss allowance/impairments recognised included in operating costs
(0.2)
(0.2)
Credit loss allowance/impairments reversed included in operating costs
1.3
0.4
Credit loss allowance written off against related receivable
0.3
2.1
Balance at the end of the year
(1.2)
(2.6)
MARKET RISK
Interest rate risk
Trade and other receivables do not earn interest and are therefore not subject to interest rate risk.
Foreign currency risk
Gold is
sold at
spot rates
and is
denominated in
US Dollars.
Gold sales
are therefore
exposed to
fluctuations in
the US
Dollar/South
African Rand exchange rate. All foreign currency transactions are entered into during the year ended June 30, 2021 were
at spot
rates and no hedges are entered into. Rand Refinery, acting as an agent for the Group, sells the USD to be received from bullion
sales on
the same
date as the
respective bullion
sale since
November 2020.
As a
result, trade receivables
are not
exposed to
fluctuations in the US Dollar/South African Rand exchange rate from this date.
Figures in USD million
2021
2020
Foreign denomination of trade receivables at June 30
-
1.3
A
20
% strengthening of the Rand against the US Dollar at 30 June would have increased/(decreased) equity and profit/(loss) by
the amounts shown below. This analysis assumes that all other variables remain constant.
Amounts in R million
2021
2020
Strengthening of the Rand against the US Dollar
-
(2.3)
Weakening of the Rand against the US Dollar
-
2.3
FAIR VALUE
OF FINANCIAL INSTRUMENTS
The fair value of trade and other receivables approximate their carrying value due to their short-term maturities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-23
16
TRADE AND OTHER PAYABLES
ACCOUNTING POLICIES
Trade and other payables, excluding Value Added Tax,
payroll accruals, accrued leave pay and provision for performance
based
incentives, are non-derivative financial liabilities categorised as financial liabilities measured at amortised cost.
These liabilities
are initially
measured at
fair value
plus directly
attributable transaction
costs. Subsequent
to initial
recognition,
they are
measured at
amortised cost
using the
effective interest
method. The
Group derecognises
a financial
liability when
its
contractual rights are discharged, or cancelled or expire.
Short-term employee benefits are
expensed as the related
service is provided. A
liability is recognised for
the amount expected
to be paid if the Group has
a present legal or constructive obligation to
pay this amount as a result
of past service provided by the
employee and the obligation can be estimated reliably.
Amounts in R million
Note
2021
2020
Trade payables and accruals
352.9
348.0
Value Added Tax
4.5
-
Accrued leave pay
53.2
46.9
Provision for short term performance based incentives
74.2
50.5
Payroll accruals
25.0
33.4
509.8
478.8
Interest relating to trade payables and accruals included in profit or loss
(1.8)
(1.9)
RELATED PARTY
BALANCES
Trade payables and accruals include the following amounts payable to related parties:
Sibanye-Stillwater
12.0
14.0
Rand Refinery
0.6
0.2
LIQUIDITY RISK
Trade payables and accruals are all expected to be settled within 12 months from reporting date.
FAIR VALUE
OF FINANCIAL INSTRUMENTS
The fair value of trade payables and accruals approximate their carrying value due to their short-term maturities.
17
INVENTORIES
ACCOUNTING POLICIES
Gold
in process
is stated
at the
lower of
cost
and net
realisable 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. Gold bullion is
stated at the lower
of cost and net
realisable value. Selling
and general administration costs are excluded from inventory valuation.
Consumable stores
are stated
at cost
less allowances
for obsolescence.
Cost of
consumable stores
and stockpile
material is
based on
the weighted
average cost
principle and
includes expenditure
incurred in
acquiring inventories
and bringing
them to
their existing location and condition.
Net realisable value
is the estimated
selling price in
the ordinary course
of business, less
the estimated cost
of completion and
selling expenses.
Amounts in R million
2021
2020
Consumable stores
177.6
165.6
Ore stockpile
52.9
9.0
1
Gold in process (a)
59.6
86.6
1
Finished inventories - Gold Bullion
49.9
62.2
Total inventories
340.0
323.4
1
During 2021, the Group disaggregated “Gold
in process” into “Gold in process” and “Ore
stockpile” respectively to present material items
separately
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-24
18
INCOME TAX
SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES
Management periodically evaluates
positions taken where
tax regulations are
subject to interpretation.
This includes the
treatment
of both Ergo and FWGR as single mining operations respectively, pursuant to the relevant ring-fencing legislation.
The deferred tax liability is calculated
by applying a forecast weighted
average tax rate that is
based on a prescribed formula.
The
calculation of the forecast weighted average tax rate requires the use of assumptions and estimates and are inherently uncertain
and could change
materially over time.
These assumptions and
estimates include expected
future profitability and
timing of the
reversal of
the temporary
differences. Due
to the
forecast weighted
average tax
rate being
based on
a prescribed
formula that
increases the effective
tax rate with an
increase in forecast
future profitability,
and vice versa,
the tax rate can
vary significantly
year on year and can move contrary to current period financial performance.
A
100
basis points increase
in the effective
tax rate will
result in an
increase in the
net deferred tax
liability at June
30, 2021 of
approximately R
14.2
million (2020: R
10.3
million; 2019: R
8.6
million).
The assessment of the
probability that future taxable profits
will be available against
which the tax losses and
unredeemed capital
expenditure
can
be
utilised
requires
the
use
of
assumptions
and
estimates
and
are
inherently
uncertain
and
could
change
materially over time.
Capital expenditure
is assessed
by the
South African
Revenue Service
(“SARS”) when
it is
redeemed against
taxable mining
income rather than when
it is incurred. A
different interpretation by
SARS regarding the deductibility
of these capital allowances
may therefore become evident subsequent to the year of assessment when the capital expenditure is incurred.
ACCOUNTING POLICIES
Income tax
expense comprises
current and deferred
tax. Each
company is taxed
as a
separate entity
and tax
is not
set-off between
the companies.
Current tax
Current tax comprises the expected
tax payable or receivable on
the taxable income or loss
for the year and any
adjustment on
tax payable
or receivable
in respect
of the
previous year.
Amounts are
recognised in
profit or
loss except
to the
extent that
it
relates to items recognised directly in equity or
OCI. The current tax charge is calculated on
the basis of the tax laws enacted or
substantively enacted at the reporting date.
Deferred tax
Deferred tax
is recognised
in respect
of temporary
differences between
the carrying
amounts and
the tax
bases of
assets and
liabilities. Deferred
tax is
not recognised
on the
initial recognition
of assets
or liabilities
in a
transaction that
is not
a business
combination and that affects neither accounting nor taxable profit.
Deferred tax
assets relating
to unutilised
tax losses
and unutilised
capital allowances
are recognised
to the
extent that
it is
probable
that future taxable profits will
be available against which
the unutilised tax losses
and unutilised capital allowances
can be utilised.
The recoverability of these assets is reviewed at each reporting date and adjusted if recovery is no longer probable.
Deferred tax related to gold mining income is measured at a forecast weighted
average tax rate that is expected to be applied to
temporary differences when they
reverse, using tax rates enacted or
substantially enacted at the reporting
date.
The calculation
of the forecast weighted average tax rate
requires the use of assumptions and estimates, including
the Group’s life-of-mine plan
(as discussed in note 9 to the consolidated financial statements) that is applied to calculate the expected future profitability.
Tax
on gold mining income is determined based on a
formula: Y = 34 - 170/X 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 gold mining income derived, expressed as
a percentage. Non-mining income, which consists primarily
of interest accrued, is taxed at a
standard rate of
28
% for all periods
presented.
All mining capital expenditure is deducted in the year
it is incurred to the extent that it does
not result in an assessed loss. Capital
expenditure not deducted
from mining
income is
carried forward as
unutilised capital
allowances to be
deducted from future
mining
income.
Amendment in the corporate income tax rate
On February 24, 2021 the Minister
of Finance announced in his budget speech that
the corporate income tax (“
CIT
”) rate will be
lowered from
28
% to
27
% for companies
with years of assessment
commencing on or after
1 April 2022. It
was further announced
that the lowering
of the CIT
rate will be
implemented alongside additional
amendments to broaden
the CIT base
by limiting interest
deductions and assessed losses. These additional amendments have not been announced to date.
The lowering of
the CIT rate
is therefore inextricably
linked to the
additional amendments to the
CIT laws that
are not known
at
the date of the budget speech or at the date of
publishing of these consolidated financial statements. As a result, the lowering
of
the CIT rate is not regarded as
having been substantively enacted to date due
to a significant degree of uncertainty that exists
if
the proposed lowering of
the CIT rate from
28
% to
27
% as announced will
be promulgated by the
South African parliament in
a
substantially unchanged manner.
The mining operations
of the Group
accounts for income
tax using the
gold mining formula
as opposed to
the CIT rate.
Only Group
companies that
do not
conduct mining
operations account
for income
tax by
applying the
CIT.
These Group
companies do
not
generate significant
taxable income.
As a
result, the
change in
the CIT
rate is
not expected
to have
a material
impact on
the
consolidated
financial
statements
of
the
Group.
A
final
assessment
will
be
completed
on
the
promulgation
of
the
additional
amendments to the CIT laws.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-25
18
INCOME TAX
continued
18.1
INCOME TAX EXPENSE
Amounts in R million
2021
2020
2019
Current tax
(423.7)
(263.2)
1.6
Mining tax
(423.7)
(263.2)
-
Non-Mining, company and capital gains tax
-
-
1.6
Deferred tax
(100.0)
(80.7)
(28.2)
Deferred tax charge - Mining tax
(104.0)
(59.1)
(14.8)
Deferred tax charge - Non-mining, company and capital gains tax
(19.1)
(2.1)
1.6
Deferred tax rate adjustment
-
(20.7)
(15.0)
Recognition of previously unrecognised tax losses
7.8
-
-
(Derecognition)/recognition of previously unrecognised tax losses of a capital
nature
(1.2)
1.2
-
Recognition of previously unrecognised deductible temporary differences
16.5
-
-
(523.7)
(343.9)
(26.6)
Tax reconciliation
Major items causing the Group's income tax expense to differ from the statutory rate
were:
Tax
on net profit before tax at the South African corporate tax rate of
28
%
(549.9)
(274.1)
(30.2)
Rate adjustment to reflect the actual realised company tax rates applying the
gold mining formula
3.7
(0.9)
7.4
Deferred tax rate adjustment (a)
-
(20.7)
(15.0)
Depreciation of property, plant and equipment exempt from deferred tax on
initial recognition (b)
(21.2)
(21.4)
1
(4.9)
1
Non-deductible expenditure (c)
(6.2)
(7.9)
1
(7.0)
1
Exempt income and other non-taxable income (d)
22.8
2.4
4.4
Recognition of previously unrecognised deductible temporary differences
16.5
-
-
(Derecognition)/recognition of previously unrecognised tax losses of a capital
nature
(1.2)
1.2
-
Utilisation of tax losses for which deferred tax assets were previously
unrecognised
7.8
-
-
Current year tax losses for which no deferred tax was recognised
(0.1)
(23.5)
(2.7)
Other items
3.3
0.4
16.8
Tax
incentives
0.8
0.6
1.7
Over provided in prior periods
-
-
2.9
Income tax
(523.7)
(343.9)
(26.6)
1
During 2021, the Group disaggregated “Non-deductible
expenditure” into “Non-deductible expenditure”
and “Depreciation of property, plant
and equipment exempt from deferred tax on initial
recognition” respectively to present material items
separately
(a) Deferred tax rate adjustment
Ergo’s forecast weighted average deferred tax rate remained unchanged at
25.0
% (2020: increased from
22.0
% to
25.0
% due to
the increase
in forecast
taxable income
of Ergo;
2019: increased
from
20.3
% to
22.0
% due
to an
increase in
forecast taxable
income of Ergo).
FWGR’s forecast weighted average deferred tax rate remained unchanged at
30.0
% (2020:
30.0
%; 2019:
30.0
%).
(b) Depreciation of property, plant and equipment exempt from deferred tax on initial recognition
Depreciation of R
68.7
million (2020: R
73.2
million; 2019: R
16.6
million) on the
fair value of
FWGR’s property, plant and equipment
that was exempt from deferred tax on initial recognition in terms of IAS 12
Income Taxes
.
(c) Non-deductible expenditure
The most significant non-deductible expenditure incurred by the Group during the year includes:
●
R
7.4
million discount recognised on Payments made under protest (2020: R
7.1
million; 2019: R
6.5
million);
●
R
17.0
million
expenditure
not
incurred
in
generation
of
taxable
income
or
capital
in
nature
(2020:
R
2.7
million;
2019:
R
6.0
million);
and
●
Nil net
operating cost
related to
Ergo Business
Development Academy
Not for
Profit Company
that is
not deductible
as it
is
exempt from income tax (2020: R
14.6
million; 2019: R
11.3
million).
(d) Exempt income and other non-taxable income
The most significant exempt income earned by the Group during the year includes:
●
R
76.1
million dividends received (2020: R
4.3
million; 2019: nil);
●
R
4.8
million unwinding recognised on Payments made under protest (2020: R
4.0
million; 2019: R
3.0
million); and
●
R
1.0
million net operating
income related to
Ergo Business Development
Academy Not for Profit
Company that is not
taxable
as it
is exempt
from income
tax (2020
and 2019
Ergo Business
Development Academy
Not for
Profit Company
incurred net
operating cost that is not deductible as it is exempt from income tax – refer to (c) non-deductible expenditure).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-26
18
INCOME TAX
continued
18.2
DEFERRED TAX
Amounts in R million
2021
2020
Included in the statement of financial position as follows:
Deferred tax assets
5.8
8.0
Deferred tax liabilities
(377.1)
(273.1)
Net deferred tax liabilities
(371.3)
(265.1)
Reconciliation of the deferred tax balance:
Balance at the beginning of the year
(265.1)
(183.2)
Recognised in profit or loss
(100.0)
(80.7)
Recognised in other comprehensive income
(6.2)
(1.2)
Balance at the end of the year
(371.3)
(265.1)
The detailed components of the net deferred tax liabilities which result from the differences between the amounts of assets and
liabilities recognised for financial reporting and tax purposes are:
Amounts in R million
2021
2020
Deferred tax liabilities
Property, plant and equipment (excluding unredeemed capital allowances)
(494.4)
(422.4)
Environmental rehabilitation obligation funds
(60.2)
(51.4)
Other investments
(7.4)
(1.2)
Gross deferred tax liabilities
(562.0)
(475.0)
Deferred tax assets
Environmental rehabilitation obligation
124.5
126.5
Other provisions
46.7
72.6
Other temporary differences
1
14.3
8.5
Estimated tax losses
4.1
-
Estimated tax losses - Capital nature
-
1.2
Estimated unredeemed capital allowances
1.1
1.1
Gross deferred tax assets
190.7
209.9
Net deferred tax liabilities
(371.3)
(265.1)
1
Includes the temporary differences on the lease liability
Deferred tax assets have not been recognised in respect of the following:
Amounts in R million
2021
2020
Provisions
-
20.3
Estimated tax losses
16.7
22.0
Estimated tax losses - Capital nature
325.2
324.0
Unredeemed capital expenditure
253.3
254.7
Deferred tax
assets for
tax losses,
unredeemed capital
expenditure and
capital losses
have not
been recognised
where future
taxable profits against which these can be utilised are not anticipated. These do not have an expiry date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-27
19
EMPLOYEE BENEFITS
ACCOUNTING POLICIES
Cash settled share-based payments (“outgoing long-term incentive”)
Cash settled
share-based payments
are measured
at fair
value and
remeasured at
each reporting
date to
reflect the
potential
outflow of
cash resources
to settle
the liability,
with a
corresponding adjustment
in profit
or loss.
Vesting
assumptions for
non-
market conditions are reviewed at each reporting date to ensure they reflect current expectations.
Equity settled share-based payments (“new long-term incentive”)
The grant date fair
value of equity settled
share-based payment arrangements is
recognised as an expense,
with a corresponding
increase in equity,
over the vesting period of
the awards. The expense is
adjusted to reflect the number
of awards for which the
related service
and non-market
performance conditions
are expected
to be
met, such
that the
amount ultimately
recognised is
based on the number of awards that meet the related service and non-market performance conditions at vesting date.
19.1
CASH SETTLED LONG-TERM INCENTIVE SCHEME (“outgoing
LTI scheme” or “CLTI
scheme”)
Terms
of the November 2015 grant made under the DRDGOLD Group's outgoing LTI scheme are:
•
The scheme has a finite term of
5 years
and thus no top-up awards are made when the shares vest;
•
The phantom shares are issued at an exercise price of nil and will vest in 3 tranches:
20
%,
30
% and
50
% on the 3
rd,
4
th
and 5
th
anniversaries respectively, subject to individual service and performance conditions being met; and
•
The phantom shares will be settled at the 7 day volume weighted average price ("VWAP") of the DRDGOLD share.
The last
tranche of
the November
2015 grant
vested and
was fully
settled on
November 5,
2020. The
outgoing LTI
scheme is
replaced by a new equity settled long-term incentive scheme (refer note 19.2).
Amounts in R million
Note
2021
2020
Movements in the total liability for long-term incentive scheme is as follows:
Opening balance
227.6
51.0
Share-based payment (benefit)/expense - CLTI scheme
5.3
(44.3)
218.1
Vested and paid
(183.3)
(41.5)
Liability for CLTI scheme at the end of the year
-
227.6
The total liability for long-term incentive scheme is expected to be settled as follows:
-
227.6
Within 12 months after reporting date
-
227.6
After 12 months after reporting date
-
-
Reconciliation of outstanding phantom shares
2021
2020
Weighted
Weighted
average
average
Shares
price
Shares
price
Number
R per share
Number
R per share
Opening balance
9,845,638
16,157,058
Vested and paid
(9,845,638)
18.62
(5,674,252)
7.31
Forfeited
-
-
(637,168)
7.08
Closing balance
-
9,845,638
Fair value
The fair value of
the liability for
the long-term incentive scheme
is mostly influenced
by the DRDGOLD
Limited share price. Other
inputs influencing the fair value are the forward dividend yield and estimates of staff retention and performance conditions. The
inputs most significantly influencing the measurement of the fair values are as follows
:
2021
2020
Grant date
7-day VWAP of the DRDGOLD Limited share
-
25.14
2.26
Annualised forward dividend yield
-
1.0%
4.3%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-28
19
EMPLOYEE BENEFITS
continued
19.2
EQUITY SETTLED LONG-TERM INCENTIVE SCHEME
(“new LTI scheme”
or “ELTI scheme”)
Amounts in R million
2021
2020
2019
Share-based payment expense - ELTI scheme
16.0
6.0
-
On December 2,
2019, the shareholders
approved a new
equity settled long-term
incentive scheme to
replace the cash
settled
long-term
incentive
scheme
established
in
November
2015.
Under
the
new
LTI
scheme,
qualifying
employees
are
awarded
conditional shares on
an annual
basis, comprising
performance shares
(
80
% of
the total
conditional shares
awarded) and
retention
shares (
20
% of the
total conditional shares
awarded). Conditional shares
will vest
3 years
after grant date
and will be
settled in
the form of DRDGOLD shares at a zero-exercise price.
The key conditions of the grants made under the ELTI scheme are:
Retention shares:
100
% of the retention shares will vest if the employee remains in the active
employ of the Company at vesting date, is not under
notice period and individual performance criteria are met.
Performance shares:
Total
shareholder’s return
(TSR) measured
against a
hurdle rate
of
15
%
referencing DRDGOLD’s
Weighted
Average
Cost of
Capital “WACC”:
•
50
% of the performance shares are linked to this condition; and
•
all of these performance shares will vest if DRDGOLD’s TSR exceeds the hurdle rate over the vesting period
TSR measured against a peer group of 3 peers (Sibanye-Stillwater, Harmony Limited and Pan-African Resources Limited):
•
50
% of the performance shares are linked to this condition; and
•
The number of
performance shares which vest
is based on
DRDGOLD’s actual TSR
performance in relation to
percentiles of
peer group’s performance as follows:
Percentile of peers
% of performance shares vesting
< 25th percentile
0%
25th to < 50th percentile
25%
50th to < 75th percentile
75%
Reconciliation of the number of conditional shares
2021
2020
Opening balance
5,860,760
-
Granted
December 2, 2019
-
5,860,760
October 22, 2020
1,979,860
-
Closing balance
7,840,620
5,860,760
Vesting on
7,840,620
5,860,760
December 2, 2021
2,930,380
2,930,380
December 2, 2022
2,930,380
2,930,380
October 22, 2023
1,979,860
-
Fair value
The weighted average fair value of the performance and retention shares at grant date were determined using the Monte Carlo
simulation pricing model applying the following key inputs:
Grant date
October 22, 2020
December 2, 2019
Vesting date
October 22, 2023
December 2, 2022
December 2, 2021
Weighted average fair value of 80% performance shares
1
10.49
4.12
4.26
Weighted average fair value of 20% retention shares
18.67
5.49
5.69
Expected term (years)
3
3
2
Grant date share price of a DRDGOLD share
19.43
6.15
6.15
Expected dividend yield
1.33%
3.81%
3.86%
Expected volatility
2
63.07%
53.80%
53.80%
Expected risk free rate
3.82%
6.80%
6.68%
1
The performance conditions are included in the
measurement of the grant date fair value as they
are classified as market-based performance
2
Expected volatility has been based on an evaluation
of the historical volatility of DRDGOLD’s share price,
commensurate with the expected
term of the options
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-29
19.3
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Interests in contracts
None
of
the
directors,
officers
or
major
shareholders
of
DRDGOLD or,
to
the
knowledge
of
DRDGOLD’s
management,
their
families, had any interest, direct or indirect, in any transaction entered into during the year ended June 30, 2021 or
the preceding
financial years, or in any proposed
transaction which has affected or will
materially affect DRDGOLD or its subsidiaries other
than
disclosed in these financial statements. None of the directors or officers of DRDGOLD or any associate of such director or officer
is currently or has been at any time during the past financial year materially indebted to DRDGOLD.
Key management personnel remuneration
Amounts in R million
Note
2021
2020
2019
- Board fees paid
7.6
6.2
5.8
- Salaries paid
75.5
67.3
61.7
- Short term incentives relating to this cycle
73.8
63.6
31.5
- Long term incentives paid during the cycle
19.1
183.3
41.5
15.5
- Retrenchments
-
-
1.6
340.2
178.6
116.1
20
CAPITAL MANAGEMENT
The
primary
objective
of
the
Group's
capital
management
policy
is
to
ensure
that
adequate
capital
is
available
to
meet
the
requirements
of
the
Group
from
time
to
time,
including
capital
expenditure.
The
Group
considers
the
appropriate
capital
management strategy for specific growth projects as and when required. Lease liabilities are not considered to be debt.
Liquidity management
At June
30, 2021
and June
30, 2020
the Group’s
facilities included
an undrawn
Revolving Credit
Facility (“
RCF
”) which
was
initially secured
to finance
the development
of Phase
1 of
FWGR as
well as
the general
working capital
requirements of
the
Group. In December 2018, R
125
million of the RCF was committed to issue a guarantee to Ekurhuleni Local Municipality (refer
note 24).
In September 2020, the initial R
300
million RCF was amended to a R
200
million RCF and extended for an additional term of 2
years with a final repayment date of
September 14, 2022
.
The initial
and amended RCF
permits a consolidated
debt ratio (net
debt to adjusted
EBITDA (refer note
23) of no
more than
2:1
and a
consolidated interest
coverage ratio
(net interest
to adjusted
EBITDA) of
no less
than
4:1
calculated on
a twelve-
month rolling basis respectively.
Management monitors the covenant
ratio levels to ensure compliance
with the covenants, as
well as maintain sufficient facilities to ensure satisfactory liquidity
for the Group. The covenant ratios were
not breached as at or
during the year ended June 30, 2021 or June 30, 2020.
The amendment
included the
reduction of
the initial
interest rate
margin of
3.25
% to
2.75
%. A
pledge and
cession of
DRDGOLD’s
shares in
and shareholder
claims against
Ergo Mining
Proprietary Limited
and Far
West Gold
Recoveries Proprietary
limited
remains
in
place
as
security
for
the
RCF.
The
amended
RCF
does
not
include
any
commitment
towards
the
guarantee
to
Ekurhuleni Local Municipality.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-30
21
EQUITY
ACCOUNTING POLICIES
Stated share capital
Ordinary shares and the cumulative preference shares are
classified as equity. Incremental costs directly attributable to the issue
of ordinary shares are recognised as a deduction from equity, net of any tax effect.
Repurchase and reissue of share capital (treasury shares)
When shares
recognised as
equity are
repurchased, the
amount of
the consideration
paid, which
includes directly
attributable
costs is
recognised as
a deduction
from equity.
Repurchased shares
are classified
as treasury
shares and
are presented
as a
deduction from stated share capital.
Dividends
Dividends are recognised
as a liability
on the date on
which they are declared
which is the date
when the shareholders’
right to
the dividends vests.
21.1
STATED
SHARE CAPITAL
All ordinary shares rank equally regarding the Company’s residual assets. Holders of ordinary shares are entitled to dividends as
declared from time to
time and are entitled to
one vote per share
at general meetings of the
Company. All
rights attached to the
Company’s shares held by the Group are suspended until those shares are reissued.
In terms of an ordinary resolution passed at
the previous annual general meeting, the remaining unissued ordinary shares
in the
company are under the control of the directors until the next general meeting.
Amounts in R million
2021
2020
2019
Authorised share capital
1,500,000,000
, (2020 and 2019:
1,500,000,000
) ordinary shares of
no
par value
5,000,000
(2020 and 2019:
5,000,000
) cumulative preference shares of
10
cents each
0.5
0.5
0.5
Issued share capital
864,588,711
(2020:
864,588,711
, 2019:
696,429,767
) ordinary shares of no par value (a)
6,208.4
6,208.4
5,123.3
9,474,920
(2020:
9,474,920
, 2019:
9,361,071
) treasury shares held within the Group (b)
(51.0)
(51.0)
(51.0)
5,000,000
(2020 and 2019:
5,000,000
) cumulative preference shares of 10 cents each
0.5
0.5
0.5
6,157.9
6,157.9
5,072.8
RELATED PARTY
RELATIONSHIPS AND TRANSACTIONS
(a)
Ordinary shares issued
Sibanye-Stillwater and its
subsidiaries and associates
became related parties
to the Group
on July 31,
2018 when the
acquisition
of FWGR became unconditional. DRDGOLD issued
265
million new ordinary shares (
38.05
% of its outstanding shares) and an
option to subscribe
for new ordinary shares
up to a total
of
50.1
% of the total
issued ordinary shares
of DRDGOLD (“
Option
”)
as purchase consideration for these assets.
On January
8, 2020
Sibanye-Stillwater exercised
the Option
and on
January 22,
2020 it
subscribed for
168,158,944
Shares
(“
Subscription
Shares
”) at
an
aggregate
subscription
price
of
R
1,085.6
million.
The
Subscription
Shares
were
allotted
and
issued at a price of R
6.46
per Share, being a
10
% discount to the 30-day volume weighted average
traded price of a Share on
the day immediately prior to the date of exercise of the Option.
(b)
Treasury shares
Shares
in
DRDGOLD Limited
are
held
in treasury
by
Ergo Mining
Operations Proprietary
Limited
("
EMO
").
No
shares were
acquired in the market
during the year ended June
30, 2021 or the year
ended June 30, 2020
(June 30, 2019
113,849
shares
were acquired at an average price of R
2.68
).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-31
21
EQUITY
continued
21.2
DIVIDENDS
Amounts in R million
2021
2020
2019
Dividends paid during the year net of treasury shares:
Final dividend declared relating to prior year:
35
SA cents per share (2020:
20
SA cents
per share; 2019: nil SA cents per share)
299.3
137.5
-
First interim dividend:
40
SA cents per share (2020:
25
SA cents per share; 2019: nil SA
cents per share)
342.0
213.8
-
Second interim dividend nil SA cents per share (2020:
25
SA cents per share; 2019: nil
SA cents per share)
-
213.8
-
Total
641.3
565.1
-
After June 30, 2021, a dividend of
40
cents per qualifying share amounting to R
342.0
million was approved by the directors as
a final dividend for the year ended June 30, 2021.
The dividend has not been provided as at June 30, 2021
and does not have
any tax impact on the Group.
22
INTEREST IN SUBSIDIARIES
ACCOUNTING POLICIES
Significant subsidiaries
of the Group
are those subsidiaries
with the most
significant contribution to
the Group's profit
or loss or
assets.
Ergo Mining
Proprietary Limited
and Far
West
Gold Recoveries
Proprietary Limited
are the
only significant
subsidiaries of
the
Group. They are both wholly owned subsidiaries and are incorporated in South Africa,
are primarily involved in the retreatment of
surface gold and all their operations are based in South Africa.
23
OPERATING SEGMENTS
ACCOUNTING POLICIES
Operating segments
are reported
in a
manner consistent
with internal
reports that
the Group’s
chief operating
decision maker
(CODM)
reviews
regularly
in
allocating
resources
and
assessing
performance
of
operating
segments.
The
CODM
has
been
identified as the
Group’s Executive Committee.
The Group has
one material revenue
stream, the sale
of gold. To identify operating
segments, management reviewed
various factors, including
operational structure and
mining infrastructure. It
was determined that
an
operating
segment
consists of
a single
or multiple
metallurgical plants
and reclamation
sites
that, together
with its
tailings
storage facility, is capable of operating independently.
When assessing profitability, the
CODM considers,
inter alia
, the revenue and cash operating costs of each segment. The
net of
these amounts
is the
segment operating
profit or
loss. Therefore,
segment operating
profit has
been disclosed
in the
segment
report as the primary
measure of profit or
loss. The CODM also
considers other costs that, in
addition to the segment
operating
profit or loss, result in the segment working profit or loss (before and after property, plant and equipment additions).
Ergo
is a surface gold retreatment operation
which treats old slime dams
and sand dumps to the south
of Johannesburg’s central
business district
as well
as the East
and Central
Rand goldfields. The
operation comprises
three plants.
The Ergo
and Knights
plants continue to operate as metallurgical plants. The City Deep plant
continues to operate as a pump/milling station feeding the
metallurgical plants.
FWGR
is a surface gold retreatment operation and treats old slime dams in the West Rand goldfields. Phase 1, which entails the
reconfiguration of
the Driefontein
2 plant
and relevant
infrastructure to
process tailings
from the
Driefontein 5
slimes dam
and
deposit residues on the Driefontein 4 Tailings
Storage Facility, was commissioned on 1 April 2019.
Corporate
office
and
other
reconciling
items
(collectively
referred
to
as
"Other
reconciling
items"
)
are
taken
into
consideration in
the strategic
decision-making process
of the
chief operating
decision maker
and are
therefore included
in the
disclosure here, even though they do not earn revenue. This includes
taking into consideration the Group’s adjusted EBITDA for
the purpose of the covenants imposed by the Company’s borrowings that was initially entered into to finance the development of
Phase 1 of FWGR and working capital requirements of the Group (refer note 20).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-32
23
OPERATING SEGMENTS
continued
Other
2021
reconciling
Amounts in R million
Ergo
FWGR
items
Total
Financial performance
Revenue (External)
3,943.0
1,326.0
-
5,269.0
Cash operating costs
(2,666.5)
(406.2)
-
(3,072.7)
Movement in gold in process and finished inventories - Gold Bullion
(31.9)
6.3
-
(25.6)
Segment operating profit
1,244.6
926.1
-
2,170.7
Administration expenses and other costs
15.0
1.8
(80.8)
(64.0)
Interest income
1
1.3
0.1
107.7
109.1
Dividends received
7.1
-
69.0
76.1
Interest expense
2
(4.2)
(0.3)
(12.9)
(17.4)
Current tax
(196.1)
(227.6)
-
(423.7)
Working profit before additions to property, plant and equipment
1,067.7
700.1
83.0
1,850.8
Additions to property, plant and equipment
(250.9)
(143.3)
(1.5)
(395.7)
Working profit after additions to property, plant and equipment
816.8
556.8
81.5
1,455.1
1
Interest income excludes the unwinding of the Payments
made under protest
2
Interest expense excludes the discount recognised on
the initial recognition of the Payments made under
protest and unwinding of provision for
environmental rehabilitation
Reconciliation of cost of sales to cash operating costs
Cost of sales
(2,871.0)
(517.2)
-
(3,388.2)
- Depreciation
135.6
115.6
1.3
252.5
- Change in estimate of environmental rehabilitation recognised in
profit or loss
(7.2)
-
(5.2)
(12.4)
- Movement in gold in process and finished inventories - gold Bullion
31.9
(6.3)
-
25.6
- Ongoing rehabilitation expenditure
46.6
1.7
-
48.3
- Care and maintenance
-
-
3.9
3.9
- Other operating income/(costs)
(2.4)
-
-
(2.4)
Cash operating costs
(2,666.5)
(406.2)
-
(3,072.7)
Reconciliation of profit for the year to working profit before additions to property, plant and equipment
Profit for the year
751.7
528.8
159.4
1,439.9
- Deferred tax
66.6
37.4
(4.0)
100.0
- Net other operating costs/(income)
45.4
24.2
(68.1)
1.5
- Ongoing rehabilitation expenditure
46.6
1.7
-
48.3
- Discount recognised on Payments made under protest including
subsequent unwinding
2.6
-
-
2.6
- Unwinding of provision for environmental rehabilitation
34.2
9.5
1.0
44.7
- Growth in investment in environmental obligation funds
(7.7)
(17.1)
(1.4)
(26.2)
- Other income
(0.1)
-
-
(0.1)
- Change in estimate of environmental rehabilitation recognised in
profit or loss
(7.2)
-
(5.2)
(12.4)
- Depreciation
135.6
115.6
1.3
252.5
Working profit before additions to property, plant and equipment
1,067.7
700.1
83.0
1,850.8
Statement of cash flows
Cash inflows from operating activities
842.2
649.7
81.5
1,573.4
Cash outflows from investing activities
(290.8)
(149.2)
(6.6)
(446.6)
Cash (outflows)/inflows from financing activities
(549.9)
(501.4)
397.8
(653.5)
Reconciliation of adjusted EBITDA
Profit for the year
1,439.9
Income tax
523.7
Profit before tax
1,963.6
Finance expense
69.5
Finance income
(216.2)
Results from operating activities
1,816.9
Depreciation
252.5
Share-based payment benefit
(28.3)
Change in estimate of environmental rehabilitation recognised in profit
or loss
(12.4)
Gain on disposal of property, plant and equipment
(0.1)
IFRS 16 lease payments
' 1
(15.8)
Transaction costs
3.1
Adjusted EBITDA
2
2,015.9
1
The amended RCF includes IFRS 16 lease payments
in the calculation of the adjusted EBITDA
2
Adjusted EBITDA (that was considered from the year ended
30 June 2019 following the initial RCF agreement)
may not be comparable to
similarly titled measures of other companies. Adjusted
EBITDA is not a measure of performance
under IFRS and should be considered in
addition to, and not as a substitute for, other measures of financial
performance and liquidity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-33
23
OPERATING SEGMENTS
continued
Other
2020
reconciling
Amounts in R million
Ergo
FWGR
items
Total
Financial performance
Revenue (External)
3,064.3
1,120.7
-
4,185.0
Cash operating costs
(2,274.0)
(352.0)
-
(2,626.0)
Movement in gold in process and finished inventories - Gold Bullion
1.8
1.3
-
3.1
Segment operating profit
792.1
770.0
-
1,562.1
Administration expenses and other costs
(131.6)
(20.7)
(157.6)
(309.9)
Interest income
1
13.9
2.9
46.3
3
63.1
3
Dividends received
-
-
4.3
3
4.3
3
Interest expense
2
(5.2)
-
(4.5)
(9.7)
Current tax
(145.8)
(117.4)
-
(263.2)
Working profit/(loss) before additions to property, plant and equipment
523.4
634.8
(111.5)
1,046.7
Additions to property, plant and equipment
(114.4)
(68.0)
(0.3)
(182.7)
Working profit/(loss) after additions to property, plant and equipment
409.0
566.8
(111.8)
864.0
1
Interest income excludes the unwinding of the Payments
made under protest
2
Interest expense excludes the discount recognised on
the initial recognition of the Payments made under
protest and unwinding of provision
for environmental rehabilitation
3
During 2021, the Group disaggregated “Interest
income” into “Interest income” and “Dividends
received” respectively to present material
dividends received
Reconciliation of cost of sales to cash operating costs
Cost of sales
(2,453.4)
(473.3)
(11.2)
(2,937.9)
- Depreciation
150.4
119.6
0.8
270.8
- Change in estimate of environmental rehabilitation recognised in
profit or loss
(19.1)
(2.1)
(0.7)
(21.9)
- Movement in gold in process and finished inventories - gold Bullion
(1.8)
(1.3)
-
(3.1)
- Ongoing rehabilitation expenditure
22.3
2.0
-
24.3
- Care and maintenance
-
-
11.1
(11.1)
- Other operating income/(costs)
27.6
3.1
-
30.7
Cash operating costs
(2,274.0)
(352.0)
-
-
(2,626.0)
Reconciliation of profit/(loss) for the year to working profit/(loss) before additions to property, plant and equipment
Profit/(loss) for the year
297.1
424.9
(87.0)
635.0
- Deferred tax
(6.6)
86.5
0.8
80.7
- Net other operating costs/(income)
51.5
14.8
(24.5)
41.8
- Ongoing rehabilitation expenditure
22.3
2.0
-
24.3
- Discount recognised on Payments made under protest including
subsequent unwinding
3.2
-
-
3.2
- Unwinding of provision for environmental rehabilitation
36.5
14.3
1.2
52.0
- Growth in investment in environmental obligation funds
(11.2)
(25.2)
(2.1)
(38.5)
- Other income
(0.7)
-
-
(0.7)
- Change in estimate of environmental rehabilitation recognised in
profit or loss
(19.1)
(2.1)
(0.7)
(21.9)
- Depreciation
150.4
119.6
0.8
270.8
Working profit/(loss) before additions to property, plant and equipment
523.4
634.8
(111.5)
1,046.7
Statement of cash flows
Cash inflows from operating activities
546.1
563.1
19.7
1,128.9
Cash outflows from investing activities
(135.7)
(60.1)
(6.7)
(202.5)
Cash (outflows)/inflows from financing activities
(405.5)
(500.8)
1,415.5
509.2
Reconciliation of adjusted EBITDA
Profit for the year
635.0
Income tax
343.9
Profit before tax
978.9
Finance expense
68.8
Finance income
(109.8)
Results from operating activities
937.9
Depreciation
270.8
Share-based payment expense
224.1
Change in estimate of environmental rehabilitation recognised in
profit or loss
(21.9)
Gain on disposal of property, plant and equipment
(0.7)
Transaction costs
1.4
Adjusted EBITDA
1
1,411.6
1
Adjusted EBITDA (that was considered from the year ended
30 June 2019 following the initial RCF agreement)
may not be comparable to
similarly titled measures of other companies. Adjusted
EBITDA is not a measure of performance
under IFRS and should be considered in
addition to, and not as a substitute for, other measures of financial
performance and liquidity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-34
23
OPERATING SEGMENTS
continued
Other
2019
reconciling
Amounts in R million
Ergo
FWGR
items
Total
Financial performance
Revenue (External)
2,577.5
184.6
-
2,762.1
Cash operating costs
(2,311.1)
(111.8)
-
(2,422.9)
Movement in gold in process and finished inventories - Gold Bullion
16.4
16.2
-
32.6
Segment operating profit
282.8
89.0
-
371.8
Retrenchment costs
(1.6)
(4.7)
-
(6.3)
Administration expenses and other costs
(12.0)
(2.3)
(76.6)
(90.9)
Interest income
1
6.5
-
10.4
16.9
1
Interest expense
2
(2.4)
-
(3.2)
(5.6)
2
Current tax
1.6
-
-
1.6
Working profit/(loss) before additions to property, plant and equipment
274.9
82.0
(69.4)
287.5
Additions to property, plant and equipment
(22.8)
(330.7)
(0.2)
(353.7)
Working profit/(loss) after additions to property, plant and equipment
252.1
(248.7)
(69.6)
(66.2)
1
Interest income excludes the unwinding of the Payments
made under protest
2
Interest expense excludes the discount recognised on
the initial recognition of the Payments made under
protest
Reconciliation of cost of sales to cash operating costs
Cost of sales
(2,414.7)
(131.3)
(7.9)
(2,553.9)
- Depreciation
142.8
25.7
0.6
169.1
- Change in estimate of environmental rehabilitation recognised in
profit or loss
(58.6)
-
(1.4)
(60.0)
- Movement in gold in process and finished inventories - gold Bullion
(16.4)
(16.2)
-
(32.6)
- Ongoing rehabilitation expenditure
16.6
1.7
-
18.3
- Care and maintenance
-
-
8.8
8.8
- Other operating income/(costs)
19.2
8.3
(0.1)
27.4
Cash operating costs
(2,311.1)
(111.8)
-
(2,422.9)
Reconciliation of profit/(loss) for the year to working profit/(loss) before additions to property, plant and equipment
Profit/(loss) for the year
82.3
28.7
(32.5)
78.5
- Deferred tax
16.2
13.4
(1.4)
28.2
- Net other operating costs/(income)
40.2
15.4
(25.7)
29.9
- Ongoing rehabilitation expenditure
16.6
1.7
-
18.3
- Discount recognised on Payments made under protest including
subsequent unwinding
3.5
-
-
3.5
- Unwinding of provision for environmental rehabilitation
45.4
19.6
1.3
66.3
- Other income
(2.2)
-
(5.7)
(7.9)
- Growth in environmental rehabilitation obligation funds
(11.3)
(22.5)
(4.6)
(38.4)
- Change in estimate of provision for environmental rehabilitation
recognised in profit or loss
(58.6)
-
(1.4)
(60.0)
- Depreciation
142.8
25.7
0.6
169.1
Working profit/(loss) before additions to property, plant and equipment
274.9
82.0
(69.4)
287.5
Statement of cash flows
Cash inflows/(outflows) from operating activities
221.7
89.3
(22.7)
288.3
Cash (outflows)/inflows from investing activities
(39.4)
(324.4)
60.8
(303.0)
Cash (outflows)/inflows from financing activities
(291.7)
236.7
47.1
(7.9)
Reconciliation of adjusted EBITDA
Profit for the year
78.5
Income tax
26.6
Profit before tax
105.1
Finance expense
78.4
Finance income
(58.3)
Results from operating activities
125.2
Depreciation
169.1
Share-based payment expense
21.4
Change in estimate of environmental rehabilitation recognised in profit
(60.0)
Gain on financial instruments at fair value through profit or loss
(2.1)
Gain on disposal of property, plant and equipment
(5.8)
Retrenchment costs
6.3
Adjusted EBITDA
1
254.1
1
1
Adjusted EBITDA (that was considered from the year ended
30 June 2019 following the initial RCF agreement)
may not be comparable to
similarly titled measures of other companies. Adjusted
EBITDA is not a measure of performance
under IFRS and should be considered in
addition to, and not as a substitute for, other measures of financial
performance and liquidity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-35
24
PAYMENTS
MADE UNDER PROTEST
SIGNIFICANT ACCOUNTING JUDGEMENTS
Payments made under protest
The determination
of whether the
payments made under
protest give
rise to an
asset or
a contingent asset
or neither,
required
the use of significant judgement.
The definition of an asset
in the conceptual framework was
applied as well as the
considerations
in the outcome
of the IFRS Interpretations
Committee (“
IFRIC
”) agenda decision
– Deposits relating to
taxes other than income
tax (IAS 37 Provisions, Contingent Liabilities
and Contingent Assets) (“
IFRIC Agenda Decision
”) published in January 2019.
The
IFRIC Agenda Decision has a similar fact pattern to that of the payments made under protest. With the consideration of the facts
and circumstances
surrounding the
payments made
under protest
in applying
the definition
of an
asset and
the IFRIC
Agenda
Decision, management considered the following:
•
payments
were
made
under
protest
and
without
prejudice
or
admission
of
liability.
Such
payments
were
not
made
as
a
settlement of debt or recognition of expenditure;
•
the
Group
therefore
retains
a
right
to
recover
the
payments
from
the
City
of
Ekurhuleni
Metropolitan
Municipality
(“
Municipality
”) if the Group is successful in the Main Application;
•
if the Group
is not successful
in the Main
Application, the
payments will
be used
to settle
the resultant
liability to the
Municipality;
and
•
these two possible outcomes
(i.e. success in
the Main Application or
not) therefore, will
lead to economic
benefits to the Group.
Therefore, the
right to
recover the
payments made
under protest
is not
a contingent
asset because
it meets
the definition
and
recognition
criteria
of
an
asset.
No
specific
guidance
exists
in
developing
an
accounting
policy
for
such
asset.
Therefore,
management applied judgement in developing an accounting policy that
would lead to information that is relevant to the users of
these financial statements and information that can be relied upon.
Contingent liabilities
The assessment
of whether
an obligating
event results
in a
liability or
a contingent
liability requires
the exercise
of significant
judgement of the outcome of future events that are not wholly within the control of the Group.
Litigation and other judicial
proceedings inherently entail complex
legal issues that are subject
to uncertainties and complexities
and are subject to interpretation.
SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES
The discounted amount of the
payments made under protest is
determined using assumptions about the
future that are inherently
uncertain and can change materially over time and includes the discount rate and discount period.
These assumptions about the future include estimating the timing of concluding on
the Main Application, i.e. the discount period,
the ultimate settlement terms, the discount rate applied and the assessment of recoverability.
ACCOUNTING POLICIES
Payments made under protest
Recognition and measurement
The
payment
made
under
protest
asset
that
arises
from
the
Municipality
Electricity
Tariff
Dispute
is
initially
measured
at
a
discounted amount, and any
difference between the face
value of payments made under
protest and the discounted
amount on
initial recognition is recognised in profit or loss
as a finance expense. Subsequent to initial recognition,
the payments made under
protest is measured using the effective interest method to unwind the discounted amount to the original face value less any write
downs for recovery. Unwinding of the carrying value and changes in the discount period are recognised in profit or loss.
Assessment of recoverability
The
discounted
amount of
the payments
under
protest is
assessed
at each
reporting date
to
determine whether
there is
any
objective
evidence
that
the
full
amount
is
no
longer
expected
to
be
recovered.
The
Group
considers
the
reasonable
and
supportable
information
related
to
the
creditworthiness
of
the
Municipality
and
events
surrounding
the
outcome
of
the
Main
Application.
Any write down is recognised in profit or loss.
Contingent liabilities
A contingent liability
is a possible obligation
arising from past events
and whose existence will
be confirmed only
by occurrence
or non-occurrence of one
or more uncertain future
events not wholly within
the control of the
Group. A contingent liability
may also
be a present obligation arising from past events
but is not recognised on the basis that
an outflow of economic resources to settle
the obligation
is not
viewed as
probable, or
the amount
of the
obligation cannot
be reliably
measured. When
the Group
has a
present obligation, an outflow of economic resources
is assessed as probable and the Group
can reliably measure the obligation,
a provision is recognised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-36
24
PAYMENTS
MADE UNDER PROTEST
continued
Amounts in R million
Note
2021
2020
Balance at the beginning of the year
35.0
27.6
Payments made under protest
8.1
10.6
Discount on initial payment made under protest
7
(7.4)
(7.1)
Unwinding
6
4.8
3.9
Balance at the end of the year
40.5
35.0
Ekurhuleni Metropolitan Municipality ("Municipality") Electricity Tariff Dispute
There are primarily 3
(three) legal proceedings for
which relief has been sought
in the appropriate legal
fora and all of
which fall
within the jurisdiction of the High Court of South Africa, Gauteng Local Division, Johannesburg. These comprise of an
application
brought by Ergo and actions brought under two summonses by the Municipality.
In order
to operate
the Ergo
Plant and
conduct its
business operations,
Ergo requires
a reliable
and steady
feed of
electricity
which it draws from the Ergo Central Substation.
Over the past several
years the Municipality has
charged Ergo for such
electricity, at the Megaflex tariff at
which ESKOM Holdings
SOC Limited (“
ESKOM
”) charges its large power users plus an additional surcharge, as it still does; and Ergo paid therefor.
Pursuant to
its own investigations,
and after having
sought legal
advice on the
matter,
Ergo determined
that only
ESKOM may
legitimately charge it
for the electricity so
drawn and consumed at
the Ergo Plant, specifically
from the Ergo Central
Substation.
Despite
this, ESKOM
refused to
either accept
payment from
Ergo in
respect of
such electricity
consumption or
to conclude
a
consumer agreement with it.
In December 2014, Ergo instituted legal proceedings
by way of an application (“
Main Application
”) against the Municipality and
ESKOM as well as the National Energy Regulator of
South Africa (“
NERSA
”), the Minister of Energy, the Minister of Co-operative
Governance &
Traditional
Affairs and
the South
African Local
Government Association,
the latter
4 (four)
respondents against
whom Ergo does not seek any relief.
Ergo seeks the undermentioned relief:
●
declaring that the Municipality does not supply electricity to it at the Ergo Plant;
●
declaring that
the Municipality
is in
breach of
its temporary
Distribution License
(issued by
NERSA) by
purporting to
supply
electricity to Ergo at the Ergo Plant;
●
declaring that neither the Municipality
nor ESKOM may lawfully insist
that only the Municipality may
supply electricity to Ergo
at the Ergo Plant;
●
declaring that ESKOM presently supplies electricity to Ergo at the Ergo Plant; and
●
directing ESKOM to
conclude a consumer
agreement with Ergo
for the supply
of electricity at
the Ergo Plant
at its Megaflex
tariff.
The Municipality has since issued two summonses (“
Summonses
”) for the recovery of arrears it alleges it
is owed amounting to
R
74.0
million and R
31.6
million, respectively.
In the interest of the proper administration of justice, the Main Application was postponed by agreement between the parties and
a case manager
was appointed to determine
a collaborative process to
facilitate the effective
and efficient court
scheduling and
coordination of both the Main Application and the Summonses.
In
order
to
secure
uninterrupted
supply
of
electricity,
Ergo
has
made
payment
and
continues
to
pay
for
consumption
at
the
amended and
lower “J-Tariff”,
albeit under
protest and
without prejudice
and/or admission
of liability.
Whilst still
deemed to
be
disproportionate, the J-Tarif is significantly lower than the previously imposed “D-Tariff”. The Group recognised an asset for these
payments that are made “under protest”.
Ergo
has
also
brought
an
application
for
the
consolidation
of
both
the
Main
Application
and
the
actions
brought
under
the
Summonses, which is still ongoing.
The Group supported by the
external legal team is
confident that there is a
high probability that Ergo will
be successful in the
Main
Application and defending
the Summonses. Therefore,
there is no
present obligation as
a result of
a past event
to pay the
amounts
claimed by the Municipality
.
The balance at the end of the year was based on the following assumptions:
●
discount rate:
11.68
% (2020:
11.68
%) representing the Municipality maximum cost of borrowing on bank loans as disclosed in
their June 30, 2020 annual report; and
●
discount period:
June 30, 2024
(2020:
June 30, 2022
) representing management’s
best estimate of
the date of
conclusion of
the Main Application and is supported by external legal counsel.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-37
25
OTHER INVESTMENTS
ACCOUNTING JUDGEMENTS
The Group has one (1) director representative on
the Rand Refinery board. Therefore, judgement had to be applied
to ascertain
whether significant influence exists, and
if the investment should be
accounted for as an associate
under IAS 28 Investments in
Associates
and
Joint
Ventures.
The
director
representation
is
not
considered
significant
influence,
as
it
does
not
constitute
meaningful representation.
It represents
11.11
% of the entire board and
is proportional to the
11.3
% shareholding that the Group
has.
SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES
The fair value of the listed equity instrument is determined
based on quoted prices on an active market. Equity instruments
which
are not listed on an
active market are measured using
other applicable valuation techniques depending
on the extent to which
the
technique maximises
the use
of relevant
observable inputs
and minimizes
the use
of unobservable
inputs. Where
discounted
cash flows are used, the estimated cash flows are based on management’s best estimate based on readily available information
at measurement
date. The
discounted cash
flows contain
assumptions about
the future
that are
inherently uncertain
and can
change materially over time.
ACCOUNTING POLICIES
On initial recognition of
an equity investment that is
not held for trading, the
Group may make an irrevocable
election to present
subsequent changes in
the investment’s
fair value in
other comprehensive income.
This election is
made on an
investment-by-
investment basis.
These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition
they
are measured
at
fair value
and changes
therein are
recognised
in
OCI, and
are
never reclassified
to profit
or
loss, with
dividends recognised in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.
The Group’s
listed and
unlisted investments
in equity
securities are
classified as
equity instruments
at fair
value through
other
comprehensive income (OCI).
Amounts in R million
Shares
% held
1
2021
2020
Listed investments (Fair value hierarchy Level 1):
West Wits Mining Limited ("
WWM
")
47,812,500
3.5%
43.5
12.0
Total
listed investments
43.5
12.0
Unlisted investments (Fair value hierarchy Level 3):
Rand Refinery Proprietary Limited ("
Rand Refinery
")
44,438
11.3%
119.3
178.4
Rand Mutual Assurance Company Limited B Share Business Fund ("
RMA
")
2
12,659
2
1.3%
2
4.1
4.7
Guardrisk Insurance Company Limited (Cell Captive A170)
3
20
3
100.0%
0.1
0.1
Chamber of Mines Building Company Proprietary Limited
42,292
4.5%
0.1
0.1
Total
unlisted investments
123.6
183.3
Balance at the end of the year
167.1
195.3
Fair value adjustment on equity instruments at fair value through OCI
(28.2)
191.8
Dividends received on equity instruments at fair value through OCI
(76.1)
(4.3)
Rand Refinery
(72.3)
-
RMA
(3.8)
(4.3)
1
The number and percentage shares held remained
unchanged for the prior year with the exception
of WWM that issued new shares thereby
diluting DRDGOLD's effective shareholding from
5.1
% to
3.5
%
2
The "B Share Business Fund" shares relate to all
the businesses of the RMA Group that do not relate
to the Compensation for Occupational
Injuries and Diseases Act
3
The shares held entitles the holder to
100
% of the residual net equity of Cell Captive
A 170 after settlement of the reimbursive right
MARKET RISK
Other market price risk
Equity price risk arises from changes in quoted market prices
of listed investments as well as changes in the fair
value of unlisted
investments due to changes in the underlying net asset values.
FAIR VALUE
OF FINANCIAL INSTRUMENTS
Listed investments
The
fair
values
of
listed
investments
are
determined
by
reference
to
published
price
quotations
from
recognised
securities
exchanges and constitute level 1 instruments in the fair value hierarchy.
Unlisted investments
The fair
values of
unlisted investments
are determined
through valuation
techniques that
include inputs
that are
not based
on
observable market data and constitute level 3 instruments in the fair value hierarchy.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-38
25
OTHER INVESTMENTS
continued
25.1
RAND REFINERY
Amounts in R million
2021
2020
Balance at the beginning of the year
178.4
-
Fair value adjustment on equity investments at fair value through other comprehensive income
(59.1)
178.4
Balance at the end of the year
119.3
178.4
In accordance
with IFRS
13
Fair Value
Measurement
, the
income approach
has been
established to
be the
most appropriate
basis
to estimate
the fair
value of
the investment
in Rand
Refinery.
This method
relies on
the future
budgeted cash
flows as
estimated by Rand Refinery. Management used a model developed by an external expert to perform the valuation.
Rand
Refinery’s
refining
operations
(excluding
Prestige
Bullion)
were
valued
using
the
Free
Cash
Flow
model,
whereby
an
enterprise
value using
a
Gordon Growth
formula for
the terminal
value was
estimated.
The forecasted
dividend income
to be
received
from Prestige
Bullion was
valued using
a
finite-life dividend
discount model
as Rand
Refinery’s
shareholding will
be
reduced to nil in 2032 per agreement with the South African Mint (partner in Prestige Bullion). These valuations revealed that the
fair value of the investment in Rand Refinery
consist mainly of Rand Refinery’s cash on
hand and the forecasted dividend income
to be received from Prestige Bullion.
The
enterprise
value
of
Rand
Refinery’s
refining
operations
decreased
mainly
due
to
a
decrease
in
forecast
gold
prices,
a
decrease in budgeted
production volumes, and
an increase in
budgeted operating costs.
The value of
the forecasted dividends
for Prestige Bullion
decreased mainly due
to a
decrease in the
demand in Krugerrands
and an increase
in the discount
rate applied
to the forecasted dividends of Prestige Bullion. The discount rate increased due to an increase in the risk premium to account for
increased volatility in demand for Krugerrands in the medium- to long-term.
The fair value measurement uses significant unobservable
inputs and relates to a fair value
hierarchy level 3 financial instrument.
Marketability and minority
discounts (both unobservable
inputs) of
16.5
% and
17.0
% (2020:
16.5
% and
17.0
%), respectively, were
applied. The
latest budgeted
cash flow
forecasts provided
by Rand
Refinery as
at June
30, 2021
was used,
and therefore
classified
as an unobservable input into the models. Key observable/unobservable inputs into the model include:
Amounts in R million
Observable/unobservable input
Unit
2021
2020
Rand Refinery operations
Forecast average gold price
Observable input
R/kg
847,317
852,098
Forecast average silver price
Observable input
R/kg
11,751
9,453
Average South African CPI
Observable input
%
4.4
4.8
South African long-term government bond rate
Observable input
%
9.5
9.5
Terminal
growth rate
Unobservable input
%
4.4
5.0
Weighted average cost of capital
Unobservable input
%
15.1
15.1
Investment in Prestige Bullion
Discount period
Unobservable input
years
12
13
Cost of equity
Unobservable input
%
16.5
13.2
Sensitivity analysis
The fair value
measurement is most
sensitive to the
Rand denominated gold
price and volumes.
The higher the
gold price and
volumes, the higher the fair value of
the Rand Refinery investment. The fair value measurement
is also sensitive to the discount
rate and
minority and
marketability discounts
applied. The
below table
indicates the
extent of
sensitivity of
the Rand
Refinery
equity value to the inputs:
Input
Change in OCI, net of tax
Amounts in R million
% Increase
% Decrease
% Increase
% Decrease
Rand Refinery operations
Rand US Dollar exchange rate
Observable inputs
1
(1)
3.8
(3.8)
Commodity prices (Gold and silver)
Observable inputs
1
(1)
3.0
(3.0)
Volumes
Unobservable inputs
1
(1)
2.6
(2.6)
Weighted average cost of capital
Unobservable inputs
1
(1)
(0.3)
0.3
Minority discount
Unobservable inputs
1
(1)
(1.2)
1.2
Marketability discount
Unobservable inputs
1
(1)
(1.2)
1.2
Investment in Prestige Bullion
Cost of equity
Unobservable inputs
1
(1)
(1.5)
1.5
Prestige Bullion dividend forecast
Unobservable inputs
1
(1)
0.4
(0.4)
Impact of the COVID-19 pandemic
The COVID-19 pandemic had an impact on the gold market and the operations of Rand Refinery as a result of the South African
national lockdown and the assumptions as disclosed were adjusted with relevant information at the reporting date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-39
26
CONTINGENCIES
SIGNIFICANT ACCOUNTING JUDGEMENTS
The assessment
of whether
an obligating
event results
in a
liability or
a contingent
liability requires
the exercise
of significant
judgement
of
the
outcome
of
future
events
that
are
not
wholly
within
the
control
of
the
Group.
Litigation
and
other
judicial
proceedings
inherently
entail
complex
legal
issues
that
are
subject
to
uncertainties
and
complexities
and
are
subject
to
interpretation.
ACCOUNTING POLICIES
Contingent liabilities
A contingent liability is a possible obligation arising from
past events and whose existence will be confirmed only
by occurrence
or non-occurrence
of one
or more uncertain
future events not
wholly within
the control of
the Group.
A contingent liability
may
also be a present obligation arising from past events but is not recognised on
the basis that an outflow of economic resources to
settle the obligation is not
viewed as probable, or the amount
of the obligation cannot be
reliably measured. When the Group
has
a
present
obligation,
an
outflow
of
economic
resources
is
assessed
as
probable
and
the
Group
can
reliably
measure
the
obligation, a provision is recognised.
Contingent assets
Contingent assets are
possible assets whose
existence will be
confirmed by the
occurrence or
non-occurrence of uncertain
future
events that are not wholly within the control of the entity. Contingent assets are not recognised, but they are disclosed when it is
more
likely
than not
that an
inflow
of benefits
will occur.
However,
when the
inflow
of
benefits
is virtually
certain
an asset
is
recognised in the statement of financial position, because that asset is no longer considered to be contingent.
26.1
CONTINGENT LIABILITY FOR OCCUPATIONAL
LUNG DISEASES
On May 3, 2018, former mineworkers and dependents of deceased mineworkers (“Applicants”) and Anglo American South
Africa Limited, AngloGold Ashanti Limited, Sibanye Gold Limited trading as Sibanye-Stillwater, Harmony Gold Mining Company
Limited, Gold Fields Limited, African Rainbow Minerals Limited and certain of their affiliates (“Settling Companies”) settled the
class certification application in which the Applicants in each sought to certify class actions against gold mining houses cited
therein on behalf of mineworkers who had worked for any of the particular respondents and who suffer from any occupational
lung disease, including silicosis or tuberculosis.
The DRDGOLD Respondents, comprising DRDGOLD Limited and East Rand Proprietary Mines Limited, are not a party to the
settlement between the Applicants and Settling Companies. The settlement agreement is not binding on the DRDGOLD
Respondents. The dispute, insofar as the class certification application and appeal thereof is concerned, still stands and has
not terminated in light of the settlement agreement.
DRDGOLD maintains the view that it is too early to consider settlement of the matter, mainly for the following reasons:
• the Applicants have as yet not issued and served a summons (claim) in the matter;
• there is no indication of the number of potential claimants that may join the class action against the DRDGOLD Respondents;
• many principles upon which legal responsibility is founded, are required to be substantially developed by the trial court (and
possibly subsequent courts of appeal) to establish liability on the bases alleged by the Applicants.
In light of the above there is inadequate information to determine if a sufficient legal and factual basis exists to establish liability,
and to quantify such potential liability.
26.2
CONTINGENT LIABILITY FOR ENVIRONMENTAL
REHABILITATION
Mine residue deposits may 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 minimise the Group’s exposure and environmental
contamination.
The flooding of the western and central basins has the potential to cause pollution due to Acid Mine Drainage (“AMD”)
contaminating the ground water. The government has appointed Trans-Caledon Tunnel Authority (“TCTA”) to construct a partial
treatment plant to prevent the ground water being contaminated. TCTA completed the construction of the neutralisation plant
for the Central Basin and commenced treatment during July 2014. As part of the heads of agreement signed in December 2012
between EMO, Ergo, ERPM and TCTA, sludge emanating from this plant since August 2014 has been co-disposed onto the
Brakpan/Withok Tailings Storage facility. Partially treated water has been discharged by TCTA into the Elsburg Spruit.
This agreement includes the granting of access to the underground water basin through one of ERPM’s shafts and the rental of
a site onto which it constructed its neutralisation plant. In exchange, Ergo and its associate companies including ERPM have a
setoff against any future directives to make any contribution toward costs or capital of up to R250 million. Through this
agreement, Ergo also secured the right to purchase up to 30 Ml of partially treated AMD from TCTA at cost, to reduce Ergo’s
reliance on potable water for mining and processing purposes.
While the heads of agreement should not be seen as an unqualified endorsement of the state’s AMD solution, and do not affect
our right to either challenge future directives or to implement our own initiatives should it become necessary, it is an encouraging
development.
In view of the limitation of current information for the accurate estimation of a potential liability, no reliable estimate can be made
for the possible obligation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-40
26
CONTINGENCIES
continued
26.3
CONTINGENCIES
REGARDING
EKURHULENI
METROPOLITAN
MUNICIPALITY
ELECTRICITY
TARIFF
DISPUTE
Refer note 24 PAYMENTS
MADE UNDER PROTEST for a full description of the matter.
Contingent liability
The Municipality has issued two summonses for
the recovery of arrears it alleges
it is owed amounting to R
74.0
million and R
31.6
million, respectively.
The group supported by the
external legal team is confident
that there is a
high probability that Ergo will
be
successful in defending the Summonses. Therefore, there is no present obligation as a result of
a past event to pay the amounts
claimed by the Municipality.
Contingent asset
Ergo
instituted
a
counterclaim against
the
Municipality
for
the recovery
of
the
surcharges which
were
erroneously paid
to
the
Municipality in the
bona fide belief
that they were
due and payable
prior to the
Main Application of
approximately R
43
million (these
surcharges were expensed for accounting purposes).
27
FINANCIAL INSTRUMENTS
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
Financial
assets
are
not
reclassified
subsequent
to
their
initial
recognition
unless
the
Group
changes
its
business
model
for
managing financial assets, in
which case all affected
financial assets are reclassified
on the first day
of the first reporting
period
following the change in business model.
A financial asset shall be measured at amortised cost if both the following conditions are met:
●
the financial asset is held within a
business model whose objective is to hold
financial assets in order to collect
contractual cash
flows; and
●
the contractual terms of
the financial asset give
rise on specified dates to
cash flows that are solely
payments of principal and
interest on the principal amount outstanding.
An investment is
measured at fair
value through other
comprehensive income if
it meets both
of the following
conditions and is
not designated as at fair value through profit or loss:
●
It is held with a business model whose objective achieved by both collecting
contractual cash flows and selling financial assets;
and
●
Its contractual terms give rise on specified dates to
cash flows that are solely payments of principal and interest
on the principal
amount outstanding.
FINANCIAL RISK MANAGEMENT FRAMEWORK
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 20. This
note must be
read with the
quantitative disclosures included throughout these consolidated financial statements.
The board of
directors (“
Board
”) has
overall responsibility for
the establishment and
oversight of the
Group’s risk
management
framework. During the current year
the Board established the
Risk Committee (“
RC
”) (previously a subcommittee
of the Audit and
Risk
Committee),
which
is
responsible
for
developing
and
monitoring
the
Group’s
risk
management
policies.
The
committee
reports regularly to the Board on its activities.
The Group’s risk management policies
are established to identify
and analyse 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 RC oversees
how management monitors
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 RC
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 RC.
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 trade and other receivables.
The Group’s financial instruments do not represent
a concentration of credit risk
due to the exposure to
credit risk being managed
as disclosed in the following notes:
NOTE 12
INVESTMENTS IN REHABILITATION
OBLIGATION FUNDS
NOTE 13
CASH AND CASH EQUIVALENTS
NOTE 15
TRADE AND OTHER RECEIVABLES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-41
27
FINANCIAL INSTRUMENTS continued
FINANCIAL RISK MANAGEMENT FRAMEWORK
continued
MARKET RISK
Market risk is the risk that changes in market prices, such as commodity prices, foreign exchange rates, interest rates and equity
prices will affect the consolidated profit or loss or the
value of its financial instruments. The objective of market risk management
is to manage and control market risk exposures within acceptable parameters, while optimising returns.
Commodity price risk
Additional disclosures are included in the following note:
NOTE 4
REVENUE
Other market risk
Additional disclosures are included in the following note:
NOTE 25
OTHER INVESTMENTS
Interest rate risk
Fluctuations in
interest rates
impact on
the value
of short-term
cash investments
and financing
activities, giving
rise to
interest
rate risk. 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
minimising risks. Lower
interest rates result
in lower returns
on investments and
deposits and also
may
have the effect
of making it
less expensive to
borrow funds. Conversely,
higher interest rates
result in higher
interest payments
on loans and overdrafts.
Additional disclosures are included in the following notes:
NOTE 12
INVESTMENTS IN REHABILITATION
OBLIGATION FUNDS
NOTE 13
CASH AND CASH EQUIVALENTS
Foreign currency risk
The Group
enters into
transactions denominated
in foreign
currencies, such
as gold
sales denominated
in US
dollar, in the
ordinary
course of business. This exposes the Group to fluctuations in foreign currency exchange rates.
Additional disclosures are included in the following notes:
NOTE 4
REVENUE
NOTE 15
TRADE AND OTHER RECEIVABLES
NOTE 13
CASH AND CASH EQUIVALENTS
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.
Additional disclosures are included in the following note:
NOTE 10.2
LEASES
NOTE 16
TRADE AND OTHER PAYABLES
NOTE 20
CAPITAL MANAGEMENT
28
RELATED PARTIES
Disclosures are included in the following notes:
NOTE 5.1
COST OF SALES
NOTE 16
TRADE AND OTHER PAYABLES
NOTE 19.3
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
NOTE 21
EQUITY
NOTE 22
INTEREST IN SUBSIDIARIES
29
SUBSEQUENT EVENTS
There were no significant
subsequent events between the
year-end reporting date of
June 30, 2021 and
the date of issue
of these
financial statements other than described below and included in the preceding notes to the consolidated financial statements.
Declaration of dividend
On August
25 2021, the
Board declared a
final dividend
for the year
ended June
30, 2021 of
40
SA cents
per qualifying share
amounting to R
342.0
million, which was paid on September 27, 2021.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
for the year ended June 30, 2021
F-42
29
SUBSEQUENT EVENTS continued
Conditional shares granted
On 20 October
2021,
3,508,232
conditional shares were
granted to qualifying
employees under the
current equity settled
long-
term incentive scheme.
These are expected
to vest on
20 October 2024.
The number of
conditional shares granted
includes those
granted to directors and prescribed officers as follows:
Number of conditional
shares awarded
Executive directors
D J Pretorius
549,986
A J Davel
292,796
Prescribed officers
W J Schoeman
292,796
E Beukes
39,375
88
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/ A.J. Davel
A.J. Davel
Chief Financial
Officer
Date: October
28, 2021