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EXCHANGE ACT OF 1934
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1934
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ACT OF 1934
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EXCHANGE ACT 1934
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1934. Yes
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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 past 90 days. Yes
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Large accelerated filer
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Prior to April 6, 2006, our shareholding in Emperor Mines Limited was 39.52% and consequently our investment in Emperor Mines Limited was accounted for by the equity method in our consolidated financial statements. On April 6, 2006 our shareholding in Emperor increased to 88.27% at which time it became a subsidiary of the Company and its results of operations were consolidated with the Group from that date. Rule 3-09 of Regulation S-X requires us to include in this Annual Report separate consolidated financial statements of Emperor Mines Limited as at April 6, 2006 and for the period from July 1, 2005 to April 6, 2006 (together, the "Emperor Financial Statements"). The Emperor Financial Statements are currently unavailable and have been omitted from this report. Upon the Emperor Financial Statements becoming available we will file an amendment to this Annual Report to include such financial statements. For financial information regarding Emperor Mines Limited during the period prior to it becoming a subsidiary, see Note 15 - Investments in Associates in our consolidated financial statements included elsewhere in this Annual Report and the consolidated financial statements of Emperor Mines Limited for the years ended June 30, 2005, 2004 and 2003 included elsewhere in this Annual Report.
Prior to December 1, 2005, our shareholding in Crown Gold Recoveries (Pty) Limited was 40% and consequently our investment in Crown Gold Recoveries (Pty) Limited was accounted for by the equity method in our consolidated financial statements. On December 1, 2005 our shareholding in Crown increased to 85% at which time it became a subsidiary of the Company and its results of operations were consolidated with the Group from that date. Rule 3-09 of Regulation S-X requires us to include in this Annual Report separate consolidated financial statements of Crown Gold Recoveries (Pty) Limited as at December 1, 2005 and for the period from July 1, 2005 to December 1, 2005 (together, the "Crown Financial Statements"). The Crown Financial Statements are currently unavailable and have been omitted from this report. Upon the Crown Financial Statements becoming available we will file an amendment to this Annual Report to include such financial statements. For financial information regarding Crown Gold Recoveries (Pty) Limited during the period prior to it becoming a subsidiary, see Note 15 - Investments in Associates in our consolidated financial statements included elsewhere in this Annual Report and the consolidated financial statements of Crown Gold Recoveries (Pty) Limited for the years ended June 30, 2005, 2004 and 2003 included elsewhere in this Annual Report.
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United States Dollars and in accordance with generally accepted accounting principles in the United States, or US GAAP. All references
to “Dollars” or “$” herein are to United States Dollars, references to “Rand” or “R” are to South African Rands, references to “A$” are to
Australian Dollars, references to “F$” are to Fiji Dollars, and references to “Kina” or “K” are to Papua New Guinean Kinas.
$1.00, A$1.370 per $1.00 and K2.853 per $1.00, which reflect the noon buying rate in New York City at June 30, 2006. For statement of
operations amounts, the average conversion rate for Rand during the 2006 fiscal year of R6.428 per $1.00, A$1.337 per $1.00 and K2.932
per $1.00 is used. The rates used for currency translations for transactions occurring during the 2005 and 2004 fiscal years are the
respective year end exchange rates for balance sheet amounts and the average exchange rate for that year for statements of operations
amounts. By including convenience currency translations in this Annual Report, we are not representing that the Rand, Australian Dollar,
Kina or Fiji Dollar amounts actually represent amounts shown in Dollars or that these amounts could be co nverted at the rates indicated
into Dollars.
that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management.
Some of these forward-looking statements include phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,”
“may,” “should,” or “will continue,” or similar expressions or the negatives thereof or other variations on these expressions, or similar
terminology, or discussions of strategy, plans or intentions. These statements also include descriptions in connection with, among other things:
or achievements that may be expressed or implied by such forward-looking statements, including, among others:
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.
circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.
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Archaean........................................... A period of the geological time scale between 2.5 and 4.6 billion years ago, the earliest part of the
Auriferous......................................... Containing gold.
Bonanza ........................................... Unexpected high-grade occurrences.
Care and maintenance ...................... Cease active mining activity at a shaft, but continue to incur costs to ensure that the Ore Reserves
ounce are calculated by dividing cash costs by ounces of gold produced. Cash costs per ounce
have been calculated on a consistent basis for all periods presented. This is a non-US GAAP
financial measure and should not be considered a substitute measure of costs and expenses
reported by us in accordance with US GAAP.
Cut-and-fill ....................................... A mining method in which a slice of rock is removed after blasting and replaced with a slice of
Doré .................................................. Unrefined gold and silver bullion bars consisting of approximately 90% precious metals which
Grade................................................. The amount of gold contained within auriferous material generally expressed in ounces per ton or
Horizon ............................................. A plane indicating a particular position in a stratigraphic sequence. This may be a theoretical
Intrusive ............................................ Rock which while molten, penetrated into or between other rocks, but solidified before reaching
Metallurgical plant ........................... A processing plant (mill) erected to treat ore and extract the contained gold.
Mine call factor................................. This is the gold content recovered expressed as a percentage of the gold content called.
Mill.................................................... Material passed through the metallurgical plant for processing.
Mt...................................................... Million tons.
Opening up ....................................... The potential that previously abandoned shafts have to be reopened and mined
Ore .................................................... A mixture of valuable and worthless minerals from which the extraction of at least one mineral is
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.
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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.
Reef................................................... A gold-bearing sedimentary horizon, normally a conglomerate band that may contain economic
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
lowers and raises a cage in the shaft, transporting equipment, personnel, materials, ore and waste.
A shaft generally has more than one compartment.
stope and is drawn after the stope is completely mined.
Stope ................................................. Underground production working area on the Ore Horizon.
Sub-level stoping.............................. A method of mining in which the ore is blasted, on multiple levels in one stope, and drawn off as
transported or milled.
Total costs per ounce are calculated by dividing total costs by ounces of gold produced. Total
cots per ounce have been calculated on a consistent basis for all periods presented. This is a
non-US GAAP financial measure and should not be considered a substitute measure of costs and
expenses reported by us in accordance with US GAAP.
Up-dip mining .................................. A mining method in which the drilled and blasted ore gravitates into slushers or gullies leaving
Yield ................................................. The amount of recovered gold from production generally expressed in ounces or grams per ton of
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
accordance with US GAAP. These consolidated financial statements have been audited by KPMG Inc. as of June 30, 2006 and 2005 and
for the years ended June 30, 2006, 2005 and 2004. The selected consolidated financial data as of June 30, 2003 and 2002 and for the years
ended June 30, 2003 and 2002 are derived from audited consolidated financial statements not appearing in this Annual Report which have
been prepared in accordance with US GAAP. 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.
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impact they may have on our business, financial condition and operating results.
Risks related to our business and operations
Dollar slightly in fiscal 2006 (based on the average exchange rate at June 30, 2006 and 2005), it has substantially appreciated against
the Dollar since December 2001. The appreciation of the Rand against the Dollar since December 2001 has had an adverse effect on
revenue received by us in Rands. These circumstances most adversely affected the North West Operations during fiscal 2005. Due to
the marginal nature of our mines in South Africa, any sustained decline in the market price of gold below the cost of production, could
result in the closure of our other South African mines which would result in significant costs and expenditure, for example, incurring
retrenchment costs earlier than expected, that would negatively and adversely affect our business, operating results and financial
condition.
market on the date of trade. If the Dollar gold price should fall and the regional functional currencies should strengthen against the Dollar,
resulting in revenue below our cost of production and remain at such levels for any sustained period, we may experience losses and may
be forced to curtail or suspend some or all of our operations. In addition, we might not be able to recover any losses we may incur during
that period or maintain adequate gold reserves for future exploitation.
(based on average exchange rates at June 30 of each year). As at June 30, 2006, even though the Rand depreciated against the Dollar
during the fiscal year, it has appreciated by 45.9% since reaching R13.44 = $1.00 in December 2001 (based on closing rates). In fiscal
2006, 2005 and 2004, the Kina appreciated against the Dollar by 3.1%, 3.9% and 13.7% respectively (based on average exchange rates at
June 30 of each year). The Fiji Dollar also depreciated against the Dollar by 2.4% in fiscal 2006, however appreciated against the Dollar
in fiscal 2005 and 2004 by 5.0% and 11.4%, respectively (based on average exchange rates at June 30 of each year).
operation), respectively, was from South African mines providing significant exposure to the strengthening of the Rand and a decrease in
profitability. If the Rand continues to appreciate in such a manner, our South African Operations could continue to experience a reduction
in cash flow and profitability.
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of the Rand and higher input costs as we generally do not hedge. These mines are also regarded as older, higher cost and lower-grade gold
producers. In addition to our ability to identify Ore Reserves that can be mined economically and to maintain sufficient controls on
production and other costs, the exchange rate fluctuations will have a material influence on the future viability of these mines. Our profits
and cash flows of the Australasian Operations have been negatively impacted by the decrease in production at all of these operations
during fiscal 2006. Production at the Australasian Operations decreased in fiscal 2006 mainly as a result of remediation work on the West
Wall of the open pit at Porgera, production problems at Tolukuma and a six-week shut down of ope rations at Vatukoula. Our profits and
cash flows of the Australasian Operations are dependant on resolving these production problems and on returning Tolukuma and
Vatukoula to profitability. On December 5, 2006, after an extensive three-month review of Vatukoula, we determined that continued
mining operations at Vatukoula were no longer economically viable and that the mine would therefore cease production. Pending
completion of a strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed on a care
and maintenance program.
and we cannot guarantee that any such financing would be on acceptable terms, or would be permitted under the terms of our existing
financing arrangements. In the absence of such financing, our ability to respond to changing business and economic conditions, make
future acquisitions, react to adverse operating results, meet out debt service obligations and fund required capital expenditures or
increased working capital requirements may be adversely affected.
with the acquisition of Crown Gold Recoveries (Pty) Limited, or Crown, East Rand Proprietary Mines Limited, or ERPM and
Emperor Mines Limited, or Emperor. In fiscal 2005 however, our Ore Reserves decreased primarily as a result of placing the North
West Operations into provisional liquidation and losing access to its ore reserves. Additionally, the strength of the rand caused a
decline in the Rand gold price in fiscal 2005. Mining higher grade reserves in our South African mines is likely to be more difficult in
the future and could result in increased production costs and reduced profitability. A failure to discover or acquire new reserves in
sufficient quantities to maintain or grow the current level of our reserves will negatively affect our future cash flow, results of
operations and financial condition. We can make no assurances that any new or ongoing exploration programs will result in new
mineral producing operations that will sustain or increase our Ore Reserves.
mining operations involves a number of risks including:
from the one that we engage;
operations in a new operating environment.
Any difficulties or time delays in achieving successful integration of new acquisitions could have a material adverse effect on our
business, operating results and financial condition.
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mining companies. Successfully acquiring mining assets may be hindered by the following:
our strategy;
of the target assets. These analyses are based on a variety of factors including historical operating results, estimates of and
assumptions about future reserves, cash and other operating costs, metal prices and projected economic returns and
evaluations of existing or potential liabilities associated with the property and its operations. Other than historical operating
results, all of these parameters could differ significantly from the estimates and assumptions used in the evaluation process,
which could result in an incorrect evaluation of the quality of the assets to be acquired;
position, particularly if the Rand strengthens against the Dollar;
acquired is not realized;
higher production costs and lower returns. We may not be able to reduce the production costs or increase the returns on these
mines in the short to medium term, due to:
acquisition.
decreases significantly we run the risk of reduced revenues.
continue to manage these entities in a manner that is favorable to us. With a minority interest stake in this entity, our ability to raise
funding is dependent on access to capital from its shareholders, other joint venture partners or third party financiers. Decisions which
reduce gold production, revenues or profitability, over which we have no control, may serve to reduce our cash flows and decrease our
profitability.
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Act of 2002. During the course of our ongoing evaluation, we have identified areas within our internal controls over the financial
reporting process that need improvement. As we design the appropriate remediation steps to address any deficiencies already identified,
we may identify other conditions that may result in significant deficiencies or material weaknesses in the future. This could impact our
ability to comply with Section 404 in a timely manner and in turn our independent auditors may not be able to attest to the effectiveness
of our internal controls over financial reporting. As a result, we could experience a negative reaction in the financial markets and incur
additional costs in improving the condition of our internal controls.
GAAP financial reports could have an adverse effect on our share price. Within the areas where our operations and accounting functions
are located in South Africa, Australia, but more particularly Papua New Guinea and Fiji, remedying these material weaknesses is
challenging in light of the limited availability of internal accounting employee candidates who have sufficient knowledge and experience
regarding the application of US GAAP and the United States Securities and Exchange Commission, or SEC, requirements and of
potential external advisers with US GAAP expertise to supplement our internal resources.
Plan (see Item 15: “Controls and Procedures”) which we implemented during fiscal 2005. If we encounter any difficulties in sustaining
the application of our US GAAP Action Plan going forward, we could fail to meet our US GAAP reporting obligations. If we are unable
to sustain our US GAAP Action Plan, investors could lose confidence in our reported financial information, which could have a negative
effect on the trading price of our shares.
Significant increases in our production costs caused by one or more of these factors could have an adverse effect on our
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annual expected inflationary increase and result in the restructuring of these operations at substantial cost. The majority of our South
African labor force is unionized and their wage increase demands are usually above the then prevailing rates of inflation. In 2005, we
entered into a two year wage agreement with the National Union of Mine Workers, or NUM, that provided wage increases of 6% as of
July 1, 2005 and 6.5% as of July 1, 2006. Similar two year wage agreements were entered into at Crown and ERPM, which provided
increases on October 1, 2005 of 6.5% and 11%, respectively. In addition, we have received notification of price increases, far in excess of
the current rate of inflation, to be imposed by our South African steel suppliers and parastatal entities which su pply us with electricity and
water. These, combined with the increase in labor costs, could result in our costs of production increasing above the gold price received.
Discussions with suppliers to moderate price increases have so far been unsuccessful.
transportation to the mine site is by heavy lift helicopters. Approximately $104 per ounce, or 17%, of production costs relate to
transportation, including the cost of JET A1 fuel for the helicopters. In the event that the increase in crude oil prices continues, this will
have a significant impact on production costs at Tolukuma and will increase the cost of mining at our other operations.
profitability of the Company. On December 5, 2006, after an extensive three-month review of Vatukoula, we determined that
continued mining operations at Vatukoula were no longer economically viable and that the mine would therefore cease production.
Pending completion of a strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed
on a care and maintenance program.
rehabilitation and reclamation. Our mining and related activities impact the environment, including land, habitat, streams and
environment near the mining sites. Delays in obtaining, or failures to obtain government permits and approvals may adversely impact
our operations. In addition, the regulatory environment in which we operate could change in ways that could substantially increase costs
to achieve compliance, therefore having a material adverse effect on our profitability.
and closure costs of $46.8 million on our balance sheet as at June 30, 2006. However, the ultimate amount of rehabilitation costs may in
the future exceed the current estimates due to influences beyond our control, such as changing legislation or unidentified rehabilitation
costs. The closure of mining operations, without sufficient financial provision for the funding of rehabilitation liabilities, or unacceptable
damage to the environment, including pollution or environmental degradation, may expose us and our directors to litigation and
potentially significant liabilities.
consequence of the extensive damage caused by the earthquake, the No. 5 Shaft of the North West Operations was closed. There was
continuing seismic activity in the area and on March 16, 2005, the Company closed the No. 2 Shaft because of concerns for the safety of
employees. Seismic activity has had, and may continue to have, a harmful effect on our business, operating results and financial
condition.
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Papua New Guinea Department of the Environment and Conservation under the Papua New Guinea Environmental Act 2000 and
Regulations 2000. The Papua New Guinea Government has approved disposal into certain natural rivers as the most appropriate method
for treated tailings and soft incompetent waste rock because the mines are located in extremely rugged mountainous terrain, subject to
seismic activity, high rainfall and landslides, so construction of a tailings impoundment would be very difficult and the risk of an
engineering failure high.
associated with the tailings deposited is detoxified and cyanide levels are monitored daily. However, should we be unable to control the
levels of lead, mercury, arsenic or cyanide, it could pose potential adverse health risks to the surrounding communities and may result in
us violating our environmental water discharge permit and may expose us to civil and criminal liability. While our Papua New Guinea
Operations currently comply with the applicable license conditions established by the Papua New Guinea Government, the eventual,
cumulative environmental impacts could be greater than the estimates in, or contemplated by, the environmental plans and environmental
management monitoring programs approved by the Papua New Guinea Government. In such event the Papua New Guinea Government
could require us to remedy such consequences and the costs of such remediation could be material. We have also encountered opposition
from local people and landowners regarding our discharge of tailings. This opposition could cause delays or stoppages which could
reduce our production capacity and have an adverse effect on our business, operating results and financial condition.
material adverse affect on profitability, as additional costs may need to be incurred to facilitate other waste discharge methods.
underground water sources.
eventually cause the discharge of polluted water to the surface and to local water sources.
may
properties or production facilities, monetary losses, delays and unanticipated fluctuations in production, environmental damage and
potential legal liabilities. As a result, these events may have a material adverse effect on our business, operating results and financial
condition.
Our South African assets are made up predominantly of mature assets, which we acquired after they had reached the end of the
mining techniques. The ageing infrastructure and installations typical of these operations require constant maintenance and continuing
capital expenditure. This materially increases our operational costs. The mature state of these assets, coupled with the technology applied
in many of our installations was not regularly updated and accordingly has become obsolete compared to the technology used in more
modern mines. As a result the risk of technology failure is high, and the maintenance of these installations, costly.
Due to the nature of the business, particularly in South Africa where our marginal mines predominantly are comprised of aged
are unable to fully mitigate.
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Regrettably seven people died in work-related incidents during fiscal year 2006. These fatalities were largely attributable to
risk of seismic induced fatalities occurring which we may not be able to prevent. Preventing occupational diseases such as tuberculosis
and noise-induced hearing loss is a priority and is addressed through close adherence to legislated requirements. Mine and safety
regulations of the countries in which we conduct our operations impose various duties on us at our mines and grant 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 or reduce our production
capacity. This could have a material adverse effect on our business, operating results and financial condit ion.
have insured property, including loss of profits due to business interruption in the amount of $1.2 billion (R9.0 billion). Claims for each
and every event are limited by the insurers to $68.8 million (R500.0 million). This policy is limited by initial deductible amounts covering
the loss of surface and underground assets, and losses due to seismic events, machinery breakdown, flooding, fire and accidents. Business
interruption is only covered from the time the loss actually occurs. The deductible amounts vary between categories with the maximum
deductible of $5.5 million (R40.0 million). A specific limitation of $13.8 million (R100.0 million) applies for loss suffered or claims as a
result of landslides at Tolukuma, as well as a $13.8 million (R100.0 million) limitati on for any seismic event smaller than 4.5 on the
Richter scale. General liability insurance cover is in the amount of $90.8 million (R660.0 million).
coverage, our costs may increase which could decrease our profitability.
attracting additional highly qualified personnel include our ability to provide these individuals with competitive compensation
arrangements, equity participation and other benefits. If we are not successful in retaining or attracting highly qualified individuals in key
management positions, our business may be harmed. We do not maintain “key man” life insurance policies on any members of our
executive team. The loss of any of our key personnel could prevent us from executing our business plans, which may result in decreased
production, increased costs and decreased profitability.
Risks related to the gold mining industry
banks of their gold holdings;
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provisional liquidation on March 22, 2005. With effect from December 1, 2005, previously 40% owned mines, ERPM and Crown, are
now fully consolidated operations which consequently increased our Ore Reserves. Our future growth and profitability will depend, in
part, on our ability to identify and acquire additional mineral rights, and on the costs and results of our continued exploration and
development programs. Gold mining companies may undertake exploration activities to discover gold mineralization, which in turn
may give rise to new gold bearing ore bodies. Exploration is highly speculative in nature and requires substantial expenditure for
drilling, sampling and analysis of ore bodies in order to quantify the extent of the gold reserve. Many exploration p rograms, including
some of ours, do not result in the discovery of mineralization and any mineralization discovered may not be of sufficient quantity or
quality to be mined profitably. If we discover a viable deposit, it usually takes several years from the initial phases of exploration until
production is possible. During this time, the economic feasibility of production may change. Moreover, we rely on the evaluations of
professional geologists, geophysicists, and engineers for estimates in determining whether to commence or continue mining. These
estimates generally rely on scientific and economic assumptions, which in some instances may not be correct, and could result in the
expenditure of substantial amounts of money on a deposit before it can be determined with any degree of accuracy whether or not the
deposit contains economically recoverable mineralization. Uncertainties as to the metallurgical recovery of any gold discovered may not
warrant mining on the basis of av ailable technology. As a result of these uncertainties, we may not successfully acquire additional mineral
rights, or identify new Proven and Probable Ore Reserves in sufficient quantities to justify commercial operations in any of our properties.
Our mineral exploration rights may also not contain commercially exploitable reserves of gold. The costs incurred on unsuccessful
exploration activities are, as a result, not likely to be recovered and we could incur a write-down on our investment in that interest or the
irrecoverable loss of funds spent.
There is uncertainty with our Ore Reserve estimates.
reflect actual reserves or future production.
our results of operations and financial condition to decline. Moreover, if the price of gold declines, or stabilizes at a price that is lower
than recent levels, or if our production costs, and in particular our labor costs, increase or recovery rates decrease, it may become
uneconomical to recover Ore Reserves containing relatively lower grades of mineralization. Under these circumstances, we would be
required to re-evaluate our Ore Reserves. Short-term operating factors relating to the Ore Reserves, such as the need for sequential
development of ore bodies and the processing of new or different grades, may increase our production costs and decrease our profitability
during any given period. These factors have and could result in reductions in our Ore Reserve estimates, which could in turn adversely
impact upon the total value of our mining asset base and our business, operating results and financial condition.
or personal injury to, employees, the loss of mining equipment, damage to or destruction of mineral properties or production facilities,
monetary losses, delays in production, environmental damage, loss of the license to mine and potential legal claims. The risks and
events associated with the business of gold mining include, but are not limited to:
other hazardous material into the air and water;
sections or an entire underground mine;
walls and tailings dams; and
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deep level gold mine varies based on the rock formation and geological structures in the mine. The occurrence of any of these hazards
could delay production, increase production costs and may result in legal claims.
damage to roads. In addition, excessive land movement caused by excessive rain may destabilize existing building and plant
infrastructure and restrict access into the mines.
our business for an extended period of time and this is of particular concern in Fiji due to the island’s exposure to such disasters in the
past. Tropical cyclone Ami hit Fiji on January 13, 2003, killing at least 15 people and leaving thousands more devastated.
Risks related to doing business in South Africa, Papua New Guinea and Fiji
education, health care, housing and other services, including water and electricity. Government policies aimed at alleviating and
redressing the disadvantages suffered by the majority of citizens under previous governments may increase our costs and reduce our
profitability. In recent years, South Africa has experienced high levels of crime. These problems have impeded fixed inward investment
into South Africa and have prompted emigration of skilled workers. As a result, we may have difficulties attracting and retaining qualified
employees.
late 1980s and early 1990s, inflation in South Africa reached record highs of 20.6%. This increase in inflation resulted in considerable
year on year increases in operational costs. In recent years, the inflation rate has decreased however, as of June 2006, the Consumer Price
Inflation Index, or CPIX, stood at 4.8%, up from 3.5% since June 2005. Analysts expect inflation to decrease slightly over the next few
months but remain within the target band of 3-6%, partly due to the rapid growth in the private sector. A return to high levels of inflation
in South Africa, without a concurrent devaluation of the Rand or increase in the price of gold, could result in an increase in our costs
which could reduce our profitability.
interruptions in the electrical power supply as a result of election-related vandalism in Papua New Guinea. The next general election will
take place in 2007 and if volatile could adversely affect production. There is also a risk that social unrest and government intervention
could be exacerbated during the mine closure process. Mine infrastructure, including power, water and fuel, may be at risk of sabotage.
Porgera Joint Venture. This expectation arose from an undertaking we gave at the time of acquiring our interest in Porgera, to sell a 5%
stake to MRE on commercial terms, which was subsequently cancelled as MRE failed to meet certain conditions precedent after
renegotiated, extended deadlines. This issue may become the subject of some political campaigning and canvassing in the 2007 election.
there is a risk that the Porgera mine may not be able to operate for a period of time. Future government actions, or actions of other quasi-
government or landowner groups, cannot be predicted but may impact on the operations and regulation of mines including the Porgera
Joint Venture. Any suspension of operations at the Porgera Joint Venture would decrease our attributable production and profitability.
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experienced periodic political volatility in recent years. The country experienced a coup d’etat in March 2000 but the country’s
political environment has stabilized since 2000 following the first free and fair general election held in late 2001. The most recent
general election took place in May 2006 and the same government was re-elected. On December 5, 2006, the Commander of the
dismissed the elected Prime Minister and Government. Changes to the country’s constitution or government regulations in the future
and continued political instability could affect our operations in Fiji.
Immunodeficiency Virus, or HIV, is the virus that causes AIDS and South Africa has one of the highest HIV infection rates in the world.
It is estimated that approximately 30% - 40% of the mining industry workforce in South Africa are HIV positive. The exact extent to
which our mining workforce both within and outside South Africa is infected with HIV/AIDS is unknown at this stage. Papua New
Guinea has also been identified as a high risk country for the HIV/AIDS pandemic and this could have a direct impact on our workforce
and productivity in that country. The exact impact of increased mortality rates due to AIDS-related deaths on the cost of doing business is
as yet undefined. The only available treatments for HIV/AIDS are anti-retroviral drugs, which slow down the advancement of the di sease
but do not present a complete cure for the disease. The cost and availability of anti-retroviral drugs could inhibit the introduction of
treatment programs at our mines in South Africa and Papua New Guinea to reduce the impact of HIV/AIDS on our mining workforce and
our businesses. The existence of the disease poses a risk to us in terms of the potential reduction in productivity and increase in medical
costs.
impact of mining operations on the environment. A variety of permits and authorities are required to mine lawfully, and government
enforces its regulations through the various government departments.
are to be converted to “new order rights,” essentially the right to mine. The MPRD Act allows the existing holders of mineral rights a
period of five years to apply for the conversion of used old order rights, and one year for the conversion of unused old order rights. Once
these periods have lapsed, the holders may have to compete to acquire the right to mine minerals previously held under old order rights.
During fiscal 2007, we will submit the respective applications in order to comply with the requirements of the Mining Charter as
described below. To the extent that we are unable to convert some of our old order rights, we may have a claim for compensation based
on expropriation. It is not possible to forecast with any degree of certainty whether a claim will be enforceable against the State, and the
extent to which we may be compensated. Factors that are taken into account are market value, as well as the history of acquisition of these
rights.
submitted by an applicant does not substantiate the need to retain the area covered by the old order rights. The duration of the new
order rights will no longer be perpetual but rather, in the case of new order mining rights, for a maximum of 30 years with renewals of
up to 30 years each and, in the case of prospecting rights, up to five years with one renewal of up to three years. In addition, the new
order rights will only be transferable subject to the approval of the Minister of Minerals and Energy. Mining or prospecting must
commence within one year or 120 days, respectively, of the mining right or prospecting right becoming effective, and must be
conducted continuously and actively thereafter. The new rights can be suspended or cancelled by the Minister of Minerals and Energy in
the event of a breach of or, in the case of mining rights, of non-optimal mining in accordance with the mining work program.
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the previous statutory regime are diminished, the operations of the MPRD Act may result in significant adjustments to our property
ownership structure, which in turn could have a material adverse effect on the underlying value of our operations.
required to sustain a mining operation over the life of the mine. This results in an additional tax benefit not afforded to other commercial
companies. In addition, the South African Government has indicated that it is looking at a revenue based royalty for mining companies, as
outlined in the draft Mineral and Petroleum Royalty Bill, 2003, or Royalty Bill, which was released in March 2003 for comment. The
Royalty Bill proposed a three percent royalty on gross revenue for gold mining companies. In conjunction with the South African Mining
Development Association we have made submissions to the government outlining our concerns about a revenue based royalty and
recommended a profit based royalty be introduced instead. In his budget speech in February 2004, the South African F inance Minister
acknowledged that the draft Royalty Bill may need some refinement, but also stated that government’s preference is for a revenue based
royalty, with introduction of the royalty as of 2009. After extensive consultations, the Royalty Bill was revised to reflect a significant
reduction of royalty rates compared to the proposals in the first draft but still proposes a revenue based royalty payment system. In
October 2006, the second draft of the Royalty Bill was approved and is open for comment until January 31, 2007. The introduction of the
proposed revenue based royalty would have an adverse effect on the business, operating results and financial condition of our South
African Operations.
May 1, 2004.
May 1, 2004. This is to be achieved by, among other methods, the sale of assets to historically disadvantaged persons on a willing
seller/willing buyer basis at fair market value. When considering applications for the conversion of existing rights, the State will take a
“scorecard” approach, evaluating the commitments of each company to the different facets of promoting the objectives of the Mining
Charter. Failure on our part to comply with the requirements of the Mining Charter and the “scorecard” could subject us to negative
consequences. We may incur expenses in giving additional effect to the Mining Charter and the “scorecard”, including costs which we
may incur in facilitating the financing of initiatives towards ownership by historically disadvantaged persons. There is also no
guarantee that any steps we might take to comply with the Mining Charter would ensure that we could successfully acquire new order
mining rights in place of our existing rights. In addition, the terms of such new order rights may not be as favorable to us as the terms
applicable to our existing rights. We run the risk of losing our mining rights if we do not comply with the requirements stipulated in
the Mining Charter. This cou ld have an adverse affect on our business, operating results and financial condition.
Land claims
in South Africa as a result of past racially discriminatory laws or practices is granted certain remedies, including the restoration of the
land. The initial deadline for such claims was December 31, 1998. We have not been notified of any land claims, but it is possible that
administrative delays in the processing of claims could have delayed such notification. Any claims of which we are notified in the future
could have a material adverse effect on our right to the properties to which the claims relate and prevent us using that land and exploiting
any mineral reserves located there. This could have an adverse affect on our business, operating results and financial condition.
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approximately 70% are members of trade unions or employee associations. We have entered into various agreements regulating wages
and working conditions at our South African mines. For Blyvoor, we concluded agreements which are effective until June 2007 and for
ERPM and Crown, the current agreements are effective until October 2007. Unreasonable wage demands could increase production costs
to levels where our South African Operations are no longer profitable. This could lead to accelerated mine closures and labor disruptions.
We may also experience labor unrest at our operations. In particular, during October and November 2002, ERPM experienced some labor
unrest during which several striking contract workers were wounded and two workers were killed by employees of a private security
company. A repeat of such activities could have an adverse effect on our business, operating results and financial condition.
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.
administration of exchange control regulations. In particular, South African companies:
Risks related to ownership of our ordinary shares or ADSs
historical basis, the trading volumes and liquidity of shares listed on the JSE have been low in comparison with the Nasdaq Capital
Market. For the 12 months ended June 30, 2006, only 13% of the ordinary shares publicly traded were traded on the JSE. The limited
liquidity of the ordinary shares traded on the JSE could limit your ability to sell a substantial number of ordinary shares on the JSE in
a timely manner, especially by means of a large block trade.
may decide to sell them at any time. Sales of our ordinary shares or ADSs, if substantial, or the perception that these sales may occur
and be substantial, could exert downward pressure on the prevailing market prices for our ordinary shares or ADSs, causing their
market prices to decline. Trading activity of hedge funds and the ability to borrow script in the market place will increase trading
volumes and may place our share price under pressure.
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association and by South African law. These rights differ in material respects from the rights of shareholders in companies
incorporated elsewhere, such as in the United States. In particular, South African law significantly limits the circumstances under
which shareholders of South African companies may institute litigation on behalf of a company.
standards set forth by the exchanges’ governing bodies may change over time and may be subject to interpretation. As a result we may
not execute the application of these standards properly and will congruently experience an increase in the cost of our compliance
efforts. For example, management’s required assessment of our internal controls over the financial reporting process stipulated by
Section 404 of the Sarbanes-Oxley Act of 2002 commands the need for resources from management in addition to our external
auditors who are required to attest to our assessment. Maintaining high standards of corporate governance and public disclosure is
highly prioritized in our organization and with our continued efforts to comply with these laws currently effective and any futur e
legislative introductions or changes, we will continue to incur the related costs.
executive officers are either wholly or substantially located outside the United States. As a result, it may not be possible for you to
effect service of legal process, within the United States or elsewhere outside South Africa, upon most of our directors or officers,
including matters arising under United States federal securities laws or applicable United States state securities laws.
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:
African law with reference to the jurisdiction of foreign courts;
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;
amended), of South Africa.
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 Africa n courts. A plaintiff who is
not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa.
Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for
the purpose of use in South African courts. It is not possible therefore for an investor to seek to impose criminal liability on us in a
South African court arising from a violation of United States federal securities laws.
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4A. HISTORY AND DEVELOPMENT OF THE COMPANY
Introduction
DRDGOLD SA, the balance of which is held by our Black Economic Empowerment, or BEE, partner Khumo Gold SPV (Pty) Limited,
or Khumo Gold. DRDGOLD SA wholly owns and operates Blyvooruitzicht Gold Mining Company Limited, or Blyvoor, East Rand
Proprietary Mines Limited, or ERPM, and Crown Gold Recoveries (Pty) Limited, or Crown. In Australasia, we have a 78.72% interest in
Emperor Mines Limited, or Emperor, which owns and operates the Tolukuma gold mine in Papua New Guinea, or PNG, and the
Vatukoula gold mine in Fiji. Emperor also has a 20% interest in the unincorporated Porgera Joint Venture in PNG, managed by Barrick
Gold Corporation, or Barrick. We also have exploration projects in South Africa, Papua New Guinea and Australia, though our principal
focus is on o ur operations in South Africa, PNG and Fiji.
produced 22,958 ounces of gold. In South Africa, we have focused our operations on the West Witwatersrand basin which has been a
gold production region for over 100 years.
conglomerates in addition to certain surface sources. Crown (acquired on September 14, 1998, in exchange for 5,925,139 of our ordinary
shares), also located within the Witwatersrand Basin, exploits various surface sources, including sand and slime tailings deposited as part
of previous mining operations. ERPM which consists of an underground section and the Cason Dump surface retreatment operation was
initially acquired on October 10, 2002, by Crown. During fiscal 2006, we restructured our South African operations so that we hold an
85% interest in our newly created company, DRDGOLD SA, which in turn holds a 100% stake in ERPM, Crown and Blyvoor.
cash) provided an initial base in that region, and led to the acquisition of a 20% interest in the unincorporated Porgera Joint Venture
(acquired in October 2003, in exchange for 6,643,902 shares and $60.3 million in cash). During fiscal 2006, we concluded a sale and
purchase agreement with Emperor, where DRDGOLD initially held 88.3% of Emperor which in turn holds a 100% interest in Tolukuma,
a 100% stake in the Vatukoula mine in Fiji, a 20% interest in the Porgera Joint Venture and all of our exploration tenements in PNG.
Subsequently, our shareholding was diluted to 78.72%, following a number of share issues in which we did not participate.
International Depository Receipts, the Over The Counter, or OTC, market in Berlin and Stuttgart and the Regulated Unofficial Market on
the Frankfurt Stock Exchange. As a result of the Emperor transaction, since Emperor was already listed on the Australian Stock
Exchange, or ASX, DRDGOLD Limited delisted from the ASX and the Port Moresby Stock Exchange in July 2006.
11) 476-2637. We are registered under the South African Companies Act, 1973 (as amended) under registration number 1895/000926/06.
For our ADSs, The Bank of New York, at 101 Barclay Street, New York, NY 10286, United States, has been appointed as agent.
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Crown Gold Recoveries (Pty) Limited, East Rand Proprietary Mines Limited and Blyvooruitzicht Gold Mining Company Limited
1998.
July 1, 2002, we sold 3% of the entire issued share capital of and shareholders loans held in Crown to KBH and 57% of the entire issued
share capital of and shareholders loans held in Crown to the IDC, for a total amount of $10.1 million. As part of this transaction, we
loaned KBH R5.3 million ($0.7 million) to fund its initial purchase of 3% interest in Crown. According to the terms of the shareholders
agreement entered into between these parties, the parties agreed that the IDC would not remain a shareholder in Crown, but would
transfer its shares and claims held in Crown to KBH. Accordingly, the IDC granted an option to KBH to purchase its shares and claims
held by it in Crown subject to certain terms and conditions. The option was exercised by KBH in July 2002 and KBH became the owner
of 60% of the entire issued share capital of and shareholders loans held in Crown. CCGR held 40% of the issued share capital of Crown,
which had four wholly-owned subsidiaries, Crown Mines Limited, City Deep Limited, Consolidated Main Reef Mines and Estate Limited
and ERPM.
competition authorities. ERPM is predominantly an underground mining operation located near the town of Boksburg on the East Rand,
which is east of Johannesburg and approximately 60 miles (97 kilometers) from Blyvoor. We loaned Crown the sum of R60.0 million
($8.0 million) to facilitate its acquisition of ERPM. We subsequently loaned Crown an additional R9.9 million ($1.3 million), which
Crown in turn loaned to ERPM as working capital.
economic empowerment equity requirement as stipulated in the Mining Charter in South Africa.
(R28.9 million).
Crown. The new structure resulted in Khumo Gold acquiring, as a first step, a 15% interest in a newly created vehicle, DRDGOLD SA,
which holds a 100% interest in ERPM, Crown and Blyvoor. We have retained an 85% interest.
million (R4.1 million) new preference shares in ERPM, subscribe $0.4 million (R2.7 million) new preference shares in Crown, subscribe
for $0.6 million (R3.9 million) new preference shares in Blyvoor and subscribe for an initial 15% of the issued ordinary shares in
DRDGOLD SA for $2.0 million (R13.2 million). Khumo Gold has been granted an option, exercisable over three years, to acquire a
further 11% interest in DRDGOLD SA for the payment consideration of $1.4 million (R9.3 million). This further equity tranche will
include a 6% stake to be placed in a new employee trust.
$0.6 million (R4.3 million). After exercising the option, Khumo Gold's shareholding in DRDGOLD SA increased by 5% to 20%. In
addition, Khumo Gold, as promoter for an employee trust, exercised the option for an employee trust to acquire from us 60,000
ordinary shares in DRDGOLD SA for a consideration of $0.7 million (R5.1 million). After exercising the option, the trust's
shareholding in DRDGOLD SA is 6%. We will finance the transaction, on condition that the terms of the finance are determined by
independent experts to be fair and reasonable to our shareholders. It is proposed that we will subscribe for preference shares in Khumo
Gold and extend a loan to the trustees of the trust.
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additional purchases on the open market to 19.81% at a total additional cost of A$4.3 million ($2.6 million). At June 30, 2004, our
effective holding had decreased to 19.78% as a result of additional shares issued by Emperor during fiscal 2004. Given the size of our
holding, Emperor appointed two of our representatives to its board of directors in January 2003.
at approximately A$105.0 million ($79.8 million). On June 10, 2004, we announced a revised final offer of five of our shares for every
twenty two shares in Emperor held. The revised offer represented a 14% increase over the previous offer. On July 30, 2004, our offer to
Emperor’s shareholders closed with us having received acceptances from Emperor’s shareholders representing approximately 25.55% of
Emperor’s issued capital, thereby increasing our shareholding in Emperor to 45.33%. Accordingly, we issued 6,612,676 shares in
exchange for the 29,097,269 Emperor shares to the value of $16.6 million, based on the market value of our shares on the date issued,
with share issue and transaction costs associated with the take over offer, amounting to $1.7 millio n.
With effect from October 5, 2005, Emperor’s Board appointed our former Chief Operating Officer, DRDGOLD Australasia,
Mr. M.P. Marriott, as an Executive Director. Subsequently, Mr. M.P. Marriott resigned on March 9, 2006, Mr. M.M. Wellesley-Wood
and Mr. R.L. Johnson resigned on June 26, 2006.
Loan Facility was negotiated by the independent directors of Emperor. The financing package also included an agreement with ANZ
Bank, subject to a number of conditions, to a restructuring of Emperor’s debt servicing obligations to assist them with their restructuring
plan. The ANZ Bank also consented to the Convertible Loan Facility and the related security. The Convertible Loan Facility was
approved by the shareholders of Emperor on August 29, 2005 (we did not participate in the voting). In addition, in July 2005 we entered
into an operational support agreement negotiated on behalf of Emperor’s independent directors, pursuant to which we would provide
Emperor with management and technical services.
Emperor would continue as a going concern and, therefore, whether it would realize its assets and extinguish its liabilities in the normal
course of business and at the amounts stated in the annual report. In Emperor’s fiscal 2006 annual report, its auditors issued an
unqualified audit report.
comprising of the 20% interest in the Porgera Joint Venture, the 100% interest in Tolukuma Gold Mines Limited and all of our
exploration tenements in PNG. The purchase consideration of $237.3 million was subject to certain completion adjustments to reflect the
change in the capital position of both Emperor and DRD Isle of Man between October 1, 2005, which was the effective date, and April 6,
2006, the date that the transaction was completed. The purchase consideration included 751,879,699 new Emperor shares issued to DRD
(Offshore) Limited, or DRD (Offshore), and a cash consideration of $37.3 million payable to DRD (Offshore). An amount of
$5.0 million is outstanding on the cash consideration and is repayable in two installments to DRD (Offshore) on March 30, 2007 and
Ju ne 30, 2007. This outstanding amount attracts interest at the London Inter-bank Offered Rate, or LIBOR, plus 2% per annum and
has been entered into on market related terms. Subsequent to June 30, 2006, the board of DRD (Offshore) has agreed to convert this
loan to equity. After the issue of the new Emperor shares, we held 88.3% of Emperor. Subsequently, our shareholding was diluted to
78.7%, following a number of share issues in which we did not participate.
on November 27, 2006. The loan bears interest at LIBOR plus 3% per annum and is repayable on December 31, 2007.
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flexibility to production areas, improve infrastructure and increase the productivity of the workforce. The plan includes development
of higher grade areas at Philip Shaft and upgrading of associated shaft infrastructure. In addition, the entire workforce was to undergo
comprehensive assessment, re-skilling and retraining.
On October 14, 2006, a serious incident involving a mine shaft conveyance occurred in the Philip Shaft at the Vatukoula
surface winder mechanism. The Philip shaft was closed following the incident, while investigations and repairs were undertaken.
Production at Philip Shaft recommenced on November 14, 2006.
On December 5, 2006, after an extensive three-month review of Vatukoula, we determined that continued mining operations
strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed on a care and
maintenance program.
Director; Mr. C. Moore, Emperor’s Chief Financial Officer appointed on February 20, 2006, as an Executive Director;
Mr. R. McDonald, a Non-Executive Director appointed on April 6, 2006; and Mr. I.D. Graulich, our Group Strategic Development
Officer, appointed on June 26, 2006, as a Non-Executive Director. On November 13, 2006, Mr. J.W.C. Sayers – Chief Financial
Officer and Executive Director of DRDGOLD Limited was appointed as a Non-Executive Director of Emperor. On November 22, 2006, Mr. C. Moore announced his resignation from Emperor. Mr. J.W.C. Sayers is the acting Chief Financial Officer of Emperor.
Porgera Joint Venture (Papua New Guinea)
and our wholly-owned subsidiary, Dome Resources (PNG) Limited which was subsequently renamed DRD (Porgera) Limited.
price of $77.1 million comprised $60.3 million in cash and 6,643,902 ($16.7 million) of our ordinary shares based on the prevailing
market value on November 22, 2003, being the final settlement date. As at June 30, 2006, the Porgera Joint Venture is owned by Barrick
(75%), DRD (Porgera) Limited (20%) and the MRE, on behalf of the Enga Provincial Governments and landowners in Papua New
Guinea (5%). Barrick acquired Placer Dome Inc. and by default its affiliate, Placer (PNG) Limited and took over as operator of the
Porgera Joint Venture in December 2005. Porgera is subject to the control of a management committee made up of representatives of the
joint venture partners, including one of our representatives. The management committee is governed by an operating agreement that
prevents the partners from acting unilaterally.
Buffelsfontein Gold Mines Limited
continuing seismic activity in the area and on March 16, 2005, we closed the No. 2 Shaft because of concerns for the safety of employees.
On March 22, 2005, application was made to the High Court of South Africa for the provisional liquidation of Buffelsfontein Gold Mines
Limited, or Buffelsfontein (which owned the North West Operations), which order was granted on the same day.
amounted to $0.8 million (R5.1 million). We incurred expenses of approximately $0.08 million (R0.5 million) during fiscal 2006 for a
social plan for employees, which included counseling and re-skilling programs, and we incurred legal and other costs of $0.5 million
(R3.2 million). We were reimbursed approximately $2.6 million (R16.7 million) by the liquidators for costs we incurred from the
inception of the liquidation. Additionally, an insurance claim was submitted for damage caused by the earthquake and as a result
approximately $16.2 million (R104.0 million) was paid out to the liquidators.
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environmental rehabilitation and the management and pumping of underground water. The proposed scheme of arrangement was
conditional upon the following:
imposing further responsibility on us;
proposed by S&J; and
On October 21, 2005, the scheme of arrangement for the acquisition of Buffelsfontein proposed by S&J and accepted by the
applied to the High Court for the lifting of its provisional liquidation, which order was granted on November 1, 2005.
Other
R15.0 million ($2.2 million). On the exercise of the option, the option fee would be deemed part payment of the purchase consideration.
right in respect of the property in terms of an agreement dated December 1996, pursuant to which the property should be sold to them
on similar terms. We have since repudiated our agreement with M5 and have notified Rand Leases Properties Limited that we do not
intend offering the property to them. Both parties have indicated to us their intentions to institute legal proceedings for the sale and
transfer of the property. To date we have received no service of legal process related to this matter.
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Description of Our Mining Business
Exploration
clearer definition of the ore body and the portions with the potential to be mined. Geological techniques are constantly refined to improve
the economic viability of exploration and exploitation.
Mining
Our Metallurgical Plants and Processes
Market
uses, including jewelry, electronics, dentistry, decorations, medals and official coins. In addition, central banks, financial institutions and
private individuals buy, sell and hold gold bullion as an investment and as a store of value (due to the tendency of gold to retain its value
in relative terms against basic goods and in times of inflation and monetary crises).
play some part in determining the price of gold, this does not occur to the same extent as in the case of other commodities. Instead, the
gold price has from time to time been significantly affected by macro-economic factors such as expectations of inflation, interest rates,
exchange rates, changes in reserve policy by central banks, and global or regional political and economic crises. In times of inflation and
currency devaluation, gold is often seen as a safe haven, leading to increased purchases of gold and support for its price.
considerable correction after that, but the price started tending upwards again in June 2006. One of the reasons for the significant rise
in the gold price has been the growth in Exchange Traded Funds, or ETFs, securities that allow investors to buy and sell gold in the
form of listed paper without the trouble of storing or insuring the product. These funds now hold some 16.6 million ounces of gold in
vaults – that is almost double the annual gold output (10.5 million ounces in 2005) of South Africa, the world’s biggest gold producer.
Stated in different terms, ETFs accounted for 5.2 million ounces, or 11% of the 46.76 million ounces of gold bought by investors in
2005. We believe these investment vehicles have facilitated institutional investors’ move into gold, b ringing a new group of investors
to the market. We have supported the growing trend to expand gold ownership and accessibility through our investment in the
internet-based gold investment company, Net-Gold Services Limited, which now holds gold and silver in circulation to the value of
around $157.0 million.
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approximately 85% gold, 7-8% silver and the balance comprises copper and other common elements. The gold bars are sent to the RRL
for assaying and final refining where the gold is purified to 99.9% and cast into troy ounce bars of varying weights. RRL then sells the
gold on the same day as delivery, for the London afternoon fixed Dollar price on the day the gold is sold, with the proceeds remitted to us
in Rand within two days. In exchange for this service, we pay RRL a variable refining fee plus fixed marketing, loan and administration
fees. We currently own 4.1% (2005: 3.0%) of RRL (which is jointly owned by South African mining companies). Mr. D.J. Pretorius, our
Group Legal Counsel and Chief Executive Officer of DRDGOLD SA, is a director of RRL.
we are paid in Dollars. We do not have an interest in AGR Matthey.
selling price is determined by the spot price at the time of sale and we are paid in Dollars.
Reuters for two day settlement and we are paid in Dollars.
Porgera Joint Venture is based on the information disclosed by Placer Dome Inc. in a news release for its Fourth Quarter Results for
the period ended December 31, 2005 released on February 20, 2006
gold price of $400 per ounce, and on the Australian Dollar and Kina average long-term exchange rates to the US Dollar of A$1.39 =
$1.00 and K3.33 = $1.00.
Ore Reserve estimates in this Annual Report are reported in accordance with the requirements of the SEC’s Industry Guide 7.
existing rights to mine, or within the time period of assured renewal periods of our rights to mine. In addition, as of the date of
reporting, all reserves are covered by required permits and governmental approvals. See Item 4D: “Property, Plant and Equipment” for a description of the rights in relation to each mine.
requirements for fiscal 2005, however, their Fourth Quarter Results Release was prepared in accordance with US generally accepted
accounting principles, or US GAAP.
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recognize Mineral Resources. Accordingly, we do not include estimates of Mineral Resources in this Annual Report.
visual inspection of the planning to deliver an individual block to the metallurgical plant, and the recovery, and deposition of the tails,
took place. A check is also made of the financial input into the costs and revenue to affirm that they are within reasonable limits.
mining. The first is pay-limit, which includes cash costs, including overhead costs, to calculate the pay-limit grade. The second is the cut-
off grade which includes cash costs, excluding fixed overhead costs, to calculate the cut-off grade, resulting in a lower figure than the full
pay-limit grade. The cut-off grade is based upon direct costs from the mining plan, taking into consideration production levels, production
efficiencies and the expected costs. We use the pay-limit to determine which areas to mine, as an overhead inclusive amount that is
indicative of the break-even position, especially for marginal mining operations.
calculation also considers the previous three years’ mining and milling efficiencies, which includes metallurgical and other mining factors
and the production plan for the next twelve months. Only blocks above the pay-limit grade are considered for mining. The pay-limit grade
is higher than the cut-off grade, because this includes overhead costs, which indicates the break-even position of the operation, especially
significant for marginal mines.
software;
Ore Reserve estimates contained herein inherently includes a degree of uncertainty and depends to some extent on statistical inferences
which may ultimately prove to have been unreliable.
have to be adjusted and mining plans may have to be altered in a way that might adversely affect our operations. Moreover, if the price of
gold declines, or stabilizes at a price that is lower than recent levels, or if our production costs increase or recovery rates decrease, it may
become uneconomical to recover Ore Reserves containing relatively lower grades of mineralization.
set forth in its news release for its Fourth Quarter Results for the period ended December 31, 2005 as was released
February 20, 2006, assuming an average long-term gold price of $400 per ounce and average long-term exchange rates of
A$1.39 = $1.00 and K3.33 = $1.00.
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Australasian assets, Ore Reserves for Tolukuma were determined assuming a gold price of $381 per ounce at an exchange rate of
K3.44 = $1.00. Ore Reserves in respect of our 20% attributable interest in the Porgera Joint Venture, were as determined by Placer
Dome and set forth in its annual report for the fiscal year ended December 31, 2004, and filed with the SEC on Form 40-F on March
3, 2005, assuming a gold price of $350 per ounce and exchange rates of A$1.54 = $1.00 and K3.33 = $1.00.
Our Ore Reserves as of June 30, 2006 and 2005 are set forth in the table below.
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75% stake in the Porgera Joint Venture, acquired subsequently by Barrick.
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75% stake in the Porgera Joint Venture, acquired subsequently by Barrick.
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Reserves of 8.8 million ounces of gold as of June 30, 2006 per the above Imperial schedule, we would have significantly different
reserves. Using the same methodology and assumptions as were used to estimate our Ore Reserves as of June 30, 2006 but with different
gold prices that are 10% above and below the R117,055 per kilogram ($582 per ounce) gold price used to estimate our attributable gold
reserves per our above schedules, our attributable gold reserves would be as follows:
Rand gold price per kilogram
The approximate mining recovery factors for the 2006 Ore Reserves shown in the above table are as follows:
The approximate mining recovery factors for the 2005 Ore Reserves shown in the above table are as follows:
The following table shows the average drill/sample spacing (rounded to the nearest foot), as at June 30, 2006, for each category of Ore
Reserves at our mines:
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South Africa
Common Law Mineral Rights and Statutory Mining Rights
African government under the provisions of the MPRD Act, and old order proprietary rights, need to be converted to new order rights of
use within certain prescribed periods, as dealt with in more detail below.
Old Order Rights - Mining Authorizations
authorization, two requirements had to be fulfilled. First, the mining entity must either be the registered holder of the mineral rights or
have obtained the written consent of the registered holder of the mineral rights to mine the minerals concerned for its own account.
Second, the Department of Minerals and Energy, or the DME, must be satisfied with the scale, manner and duration of the intended
prospecting or mining operations and must approve an Environmental Management Program, or EMP. A prospecting permit was issued
for a limited period but could be renewed on application. A mining license was generally issued until such time that the minerals could no
longer be mined in an economically viable manner. The rights enjoyed under these authorities will endure until they are converted within
the period of time prescribed in the MPRD Act. Thereafter, such rights will lapse.
Conversion of Rights under the Mineral and Petroleum Resources Development Act, 2002
to the program, provision for environmental management and rehabilitation, and compliance with certain black economic empowerment
and the social and labor plan. These applications need to be submitted within five years after the promulgation of the MPRD Act on
May 1, 2004. Similar procedures apply where we hold prospecting rights and a prospecting permit and conduct prospecting operations.
Where we hold unused old order rights however, the application for conversion to mining or prospecting rights had to be submitted within
one year from May 1, 2004. The requirements for unused old order rights are more stringent than for used old order rights, particularly
insofar as the percentage of ownership from historically disadvantaged groups is concerned.Under the MRPD Act, mining rights are not
perpetual, but endure for a maximum of thirty years, after which they may be renewed for a further thirty years. Prospecting rights are
limited to five years, with one renewal of three years. Applications for conversion are in the process of being prepared and we plan to
submit them during the fiscal year 2007.
area over which the new order right applies, if it is of the view that the prospecting or mining works programs submitted by an applicant
do not justify the extent of the area covered by the old order right. They may also be suspended or cancelled by the Minister of Minerals
and Energy in the event of a breach or, in the case of mining rights, of non-optimal mining in accordance with the mining works program.
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required to sustain a mining operation over the life of mine. This results in an additional tax benefit, not afforded to other commercial
outlined in the draft Royalty Bill, which was released in March 2003 for comment. The draft Royalty Bill proposed a three percent
royalty on gross revenue for gold mining companies. In conjunction with the South African Mining Development Association we have
made submissions to the government outlining our concerns about a revenue based royalty and recommended a profit based royalty be
introduced instead. In his budget speech in February 2004, the South African Finance Minister acknowledged that the draft Royalty Bill
may need some refinement, but also stated that government’s preference is for a revenue based royalty, with introduction of the revenue
based royalty as of 2009. After extensive consultations, the Royalty Bill was revised to reflect a significant red uction of royalty rates
compared to the proposals in the first draft but still proposes a revenue based royalty payment system. In October 2006, the second
draft of the Royalty Bill was approved and is open for comment until January 31, 2007. The introduction of the proposed royalty would
have an adverse effect on the profitability of our South African Operations. We are currently evaluating the impact of the proposed
royalty.
into effect in August 2004. In its current format its objectives include:
of mining communities; and
companies to historically disadvantaged persons on a willing seller, willing buyer basis at fair market value. The goals set by the Mining
Charter require each mining company to achieve 15 percent ownership by historically disadvantaged South Africans of its South African
mining assets within five years and 26 percent ownership within ten years from May 1, 2004. It also sets out guidelines and goals in
respect of employment equity at management level with a view to achieving 40 percent participation by historically disadvantaged
persons in management and ten percent participation by women in the mining industry, each within five years from May 1, 2004.
Compliance with these objectives is measured on the weighted average “scorecard” approach in accordance with a sc orecard which was
first published by the government in February 2003.
created vehicle, DRDGOLD SA, which holds 100% of ERPM, Crown and Blyvoor. (See Item 4A.: “History and Development of the
Company”). However, at this point we are unable to set out a definitive timeline of when we will comply with our objectives before the
expiration of the 10 year time limit. We are also unable to identify any permits, rights or investments which we may lose as a result of any
non-compliance. The provisions of the Mining Charter apply to each mining company individually. Accordingly, it is not possible for us
to meet our obligations by disposing of our less profitable operations which would undermine the objectives of the Mining Charter. As
transactions, to comply with the Mining Charter, are to be at fair market value, we do not anticipate incur ring any loss in fulfilling our
obligations provided that we are able to identify suitable partners that are able to obtain adequate funding.
Mine and Safety Regulation
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 or reduce our production capacity.
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disability or death arising in the course of their work. Employees who are incapacitated in the course of their work have no claim for
compensation directly from the employer and must claim compensation from the COID Act fund. Employees are entitled to
compensation without having to prove that the injury or disease was caused by negligence on the part of the employer, although if
negligence is involved, increased compensation may be payable by this fund. The COID Act relieves employers from the prospect of
costly damages, but does not relieve employers from liability for negligent acts caused to third parties outside the scope of employment.
In fiscal 2006, we contributed approximately $0.7 million under the COID Act to a multi-employer industry fund administered by Rand
Mutual Assurance Limited.
exposed to dust, gases, vapors, chemical substances or other working conditions which are potentially harmful, or if the employee
contracts a “compensatable disease,” which includes pneumoconiosis, tuberculosis, or a permanent obstruction of the airways. No
employee is entitled to benefits under the Occupational Diseases Act for any disease for which compensation has been received or is still
to be received under the COID Act. Currently the Group is compliant with these payment requirements, which are based on a
combination of the employee costs and claims made during the fiscal year.
uranium and radon emissions and believe that we are currently in compliance with all local laws and regulations pertaining to uranium
and radon management and that we are within the current legislative exposure limits prescribed for workers and the public, under the
Nuclear Energy Act, 1999 (as amended) and Regulations from the National Nuclear Regulator.
Environmental Regulation in South Africa
specific areas of environment impact, as in the case of the Air Quality Act 2004, the National Water Act (managing effluent), and the
Nuclear Regulator Act 1999. Liability for environmental damage is also extended beyond the corporate veil to impose personal liability
on managers and directors of mining corporations that are found to have violated applicable laws.
environment.
required to demonstrate both the technical and financial ability to sustain an ongoing environmental management program, 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 DME as a prerequisite for the issue of a new order mining right. Various funding mechanisms are in place, including trust funds
and concurrent rehabilitation budgets, to fund the rehabilitation liability.
In November 2006, amended EMPs to conform to the required format of the MPRD Act were submitted for all operations in South Africa
for approval. Additionally, the key environmental issues have been prioritized and are being addressed through active management input
and support as well as progress measured in terms of activity schedules and timescales determined for each activity. Two environmental
compliance assessments have been conducted at Blyvoor and Crown, which both show that these mines are in substantial compliance
with the conditions of their EMPs.
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further periods not exceeding 10 years in accordance with applicable laws. Current exploration activities are covered by a number of
exploration licenses. These licenses have been granted for a term not to exceed two years but can be renewed for further two-year periods.
In total, there are 11 exploration licenses or applications covering Tolukuma.
Porgera Joint Venture. The Porgera Contract specifies, among other matters, the annual rents that must be paid for the Special Mining
Lease and the various classes of compensation that are payable to the landowners for the various land uses. The Special Mining Lease,
which expires in 2019, encompasses approximately 5,530 acres (2,240 hectares) including the mine area and the areas in which the
project infrastructure is located. There is no expiration date for the Porgera Contract, but it is tied to the continuation of the Special
Mining Lease. Leases for mining purposes have also been awarded by the Government of Papua New Guinea for land use associated with
the mining operation such as waste dumps, campsite, and an airstrip. Permits are held for water use, including run-off from
unconsolidated surfaces, such as the open pit, the underground mine and the waste dumps. These permits are renewable on a regular basis
and are subject to public hearing before approval.
The Mining Safety Act and Regulations
requirements pertaining to worker training, risk assessment and safe working procedures with regard to all activities associated with
mining.
Environmental Regulations in Papua New Guinea
regulation of air and water pollution. Both Tolukuma and Porgera have a number of licenses and permits with which those respective
operations are required to comply.
being more likely to create an adverse impact on the environment. Pursuant to the grandfathering provisions of the Environmental Act
and Regulations, both Tolukuma and Porgera are able to continue to operate under their existing environmental plans and permits.
three principal conditions were:
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Aspects.”
Fiji
those permits or leases. In addition, the Director of Mines has power to cancel a lease or permit where the holder of that lease
or permit has failed to comply with certain requirements of the Fijian Mining Act;
once mining operations cease. There is also a requirement to pay compensation to land owners for any damage to the surface
of land caused by the mining operations; and
Fijian Mining Act further requires all areas of subsidence to be clearly marked and fenced off with warning signs posted.
accompanying washes and antidotes, dust abatement requirements and the construction of dams.
September 2006, the Fijian government announced that it would soon enact the Environment Management Bill, or the Bill, first
introduced on July 28, 2004. When passed, the Bill will introduce a number of environmental protection measures, many of which will
impact the mining industry. The Bill contains provisions imposing liability upon directors for offenses committed by a company.
Financial Provision for Rehabilitation
the life of the mine to environmental trust funds established for each operation. Funds are irrevocably contributed to trusts that function
under the authority of trustees that have been appointed by, and who owe a statutory duty of trust, to the Master of the High Court of
South Africa. The funds held in these trusts are invested primarily in interest bearing debt securities and equity-limited unit trusts. As of
June 30, 2006, we held a total of $8.3 million in trust, the balance held in each fund being $1.8 million (2005: $1.8 million) for West
Wits, $2.8 million (2005: $2.5 million) for Blyvoor, $2.1 million (2005: $2.1 million) for Durban Deep, $0.9 million (2005: $0.9 million)
for Crown and $0.7 million (2005: $0.2 million) for ERPM. Trustee meetings are held as require d, and quarterly reports on the financial
status of the funds, are submitted to our board of directors.
mining equipment at the end of the life of the mine. If any of the operations are prematurely closed, the rehabilitation funds may be
insufficient to meet all the rehabilitation obligations of those operations.
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approach in dealing with this change, and has indicated that the traditional ring fencing of funds may, for investment purposes be relaxed,
and that insurance instruments may also be received subject to the DME’s consent, to make up the shortfall in available cash funds.
provision for Crown, ERPM and Vatukoula.
Refer to Exhibit 8.1 for a list of our directly held subsidiaries.
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South Africa
Witwatersrand Basin Geology
Basin. Crown exploits various surface sources, including sand and slime tailings deposited as part of historical mining operations. ERPM
is predominantly an underground mining operation with a surface operation for the processing of sand from the Cason Dump. Our
underground operations are typical of the many gold mining operations in the area which together have produced approximately
1.5 billion ounces of gold over a period of more than 100 years.
The sedimentary rocks generally dip at shallow angles towards the center of the basin though locally this may vary. The Witwatersrand
Basin is Achaean in age and the sedimentary rocks are considered to be approximately 2.7 to 2.8 billion years old.
East Rand Goldfield, the West Rand Goldfield, the Far West Rand Goldfield, the Central Rand Goldfield, the Klerksdorp Goldfield and
the Free State Goldfield. As a result of faulting and other primary controls of mineralization, the goldfields are not continuous and are
characterized by the presence or dominance of different reef units. The reefs are generally less than 6 feet (2 meters) thick but in certain
instances, these deposits form stacked elastic wedges which are hundreds of feet thick.
Blyvoor
Overview
of the adjacent mines of Blyvooruitzicht and Doornfontein which are located within the Far West Rand Goldfields on the northwestern
edge of the Witwatersrand Basin. Blyvoor was the first mine in the “West Wits” line. Together, these two operations have produced over
35 million ounces of gold since inception. The net book value of the mining assets at Blyvoor is $48.0 million at June 30, 2006, with
5.3 million ounces of Ore Reserves.
with possible future restructuring initiatives depending on the economic circumstances. In terms of the agreement, organized labor
recorded its commitment to certain production targets, and undertook not to disrupt production for at least six months for reasons related
to restructuring of the operations. As of June 30, 2006, the mine has 4,520 employees, including contractors.
770,491 ounces of gold from 2.4 million tons of ore with an average delivered grade of 8.18 g/t, over a 20 year period. This project has
been re-designed in two phases now called the Way-Ahead Project, or WAP. Phase 1 of the No. 2 Sub-Shaft Project - involving the re-
establishment of access to No. 2 Shaft from No. 5 Shaft and development and stoping of mining areas en route – was completed in the
first half of fiscal 2006. Phase 2 – involving the re-equipping of the sub-shaft has been reviewed. As a consequence of this review, it has
been decided, instead, to access the orebody between 27 and 35 levels from No. 5 Shaft. This approach is expected to lower the capital
cost of the project to $6.2 million (R40.0 million). Phase 2 is scheduled for completion in two years.
ease congestion and further improve plant efficiency, together with the implementation of a number of in-plant process upgrades to ease
maintenance demands. A 24% increase in volume, a 12% increase in gold production, and a slight reduction in operating costs are
expected. The capital cost of the expansion was minimized by acquiring pipes, pumps and valves second-hand from AngloGold Ashanti’s
Ergo surface reclamation operation which closed in 2005.
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via the R528 road to Carletonville on the N12 Johannesburg-Potchefstroom-Kimberly highway.
5 degrees Celsius) in June and July to a maximum of 93 degrees Fahrenheit (34 degrees Celsius) in December and January.
plants, tailings dams and waste rock dumps. Blyvoor also houses the majority of its employees in Blyvoor-owned houses on the property
and in the town of Carletonville. The normal support structures, including training, security, sport and recreational facilities, schools and
churches are situated on the property. Blyvoor has mining title to 16,242 acres (6,573 hectares) and owns 5,138 acres (2,079 hectares) of
freehold property.
History
1937
June 10, 1937.
2004. By October 5, 2004 1,619 employees had been retrenched at a cost of approximately $3.1 million.
Project to establish mining operations from the No. 2 Shaft and expansion to further improve plant efficiency, respectively.
On July 6, 2005 we signed a Memorandum of Understanding with KBH regarding the acquisition by Khumo Gold of a 15%
stake in our South African Operations.
On October 27, 2005, our Board of Directors approved the transaction with Khumo Gold. The new structure resulted in
Khumo Gold acquiring a 15% interest in a newly created vehicle, DRDGOLD SA, which includes ERPM, Crown and
Blyvoor. We own an 85% interest in DRDGOLD SA.
to the option agreement concluded between us and Khumo Gold in October 2005 to acquire a further 11% in DRDGOLD
SA.
Geology and Mineralization
approximately 246 feet (75 meters) vertically above the Carbon Leader Reef horizon. The Carbon Leader Reef is the principal economic
horizon across the lease area and is a planar single sheet conglomerate. The Carbon Leader Reef typically comprises basal carbon
seam, overlain by a thin, small pebble conglomerate, enriched in carbon in the lower portion. The grade of the Carbon Leader Reef is
more variable than the Middelvlei Reef. The Middelvlei Reef consists of a variable number of polymictic quartz conglomerate bands,
interbedded with coarse grain quartzite. The grade of the Middelvlei Reef is more erratic, with distinctive payshoots forming as
southward-orientated linear zones.
of the lower grade Middelvlei Reef.
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been merged to form Blyvoor. The shaft system consists of four vertical shafts from the surface, thirteen sub-incline shafts and two sub-
vertical shafts underground. Of these thirteen sub-incline shafts, only nine are in operation and are used for the conveyance of personnel,
pumping and hoisting of mined ore and waste.
hoisted up via the Blyvoor No. 5 Shaft, from where it is trucked to the gold plant. The average mining depth at Blyvoor is 10,541 feet
(3,213 meters), 5,292 feet (1,613 meters) below mean sea level.
and transported to the metallurgical plant for gold extraction.
thickening and cyanide leaching in a Carbon-in-Pulp, or CIP, carousel arrangement. The gold is recovered through electrowinning
followed by smelting to doré. The circuit was recently modified by the closure of the filtration system and the commissioning of a modern
carbon Kemix pumpcell plant.
the opening up of additional mining areas to further enable the effective mining of reserves at Blyvoor.
Processing of material from the No. 4 and 5 slimes dam project, which was commissioned in December 2003, is building up to the
planned processing capacity of 240,000 tpm and will replace the processing of the surface rock dump material which has been depleted.
Initial processing of material took place from the No. 4 Slimes Dam and the recovery grades were below expectation. From August 2004,
the processing of material from the No. 5 Slimes Dam commenced and the recovery grade improved. With the conclusion of the 60-day
review entered into on June 28, 2004, certain shafts were placed on a “care and maintenance” program, resulting in a decrease to a total of
seven vertical and decline shafts.
Reef mining to appropriate levels at No. 5 and No. 6 Shafts in response to gold price fluctuations.
affected high-grade No. 5 Shaft and more from the lower-grade No. 6 Shaft areas. By the end of fiscal 2006, implementation of the new
plan was under way with ore milled of 70,000 tons per month targeted. Earlier than expected interceptions of the Alpha Dyke in the high-
grade No. 5 Shaft area during the third quarter of fiscal 2006, had a negative impact on production. Drilling to determine the extent of the
dyke was under way at year end and early indications were that it is at least 98 feet (30 meters) thick.
Blyvoor is provided from the West Wits substation outside Carletonville at 44,000 volts. Further substations, located on mine site,
transform the power to 6,600 volts or 22,000 volts for direct supply to the shaft winder and air compressors. The power supply is further
reduced to 525 volts for smaller devices and equipment used on the mine. The average annual power consumption is about 432 GWHr
and the maximum demand is about 66 MW.
In fiscal 2006, approximately $8.8 million was spent mainly on opening-up and development at Blyvoor.
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$6.9 million including the conversion of leaching tanks, linear screens, pipes and site construction. The No. 6 Slimes Dam has been
extended to provide additional capacity for the tailings from this project at a cost of $0.7 million. The project involves the reclamation of
approximately 24 million tonnes of slime material at a rate of 240,000 tpm by high water monitoring and processed through a CIP circuit.
The project has an estimated life of 8 years and an average recovery grade of 0.02 ounces per ton at a cash cost of $200 per ounce of gold
produced. The project costs were funded from the R65.0 million ($10.4 million) loan facility from the IDC.
Environmental and Closure Aspects
sinkholes.
operations is discharged into the Wonderfonteinspruit and the Doorndraai Dam. In order to address the risk of contamination of ground
water, streams and wetlands, water is sampled and the level of contaminants monitored in accordance with Blyvoor’s water management
plan. Fissure water at Blyvoor is generally of a good quality, therefore we believe that the contribution of this water to pollution of water
in the area is minimal.
mining operations. The Far West Rand Technical Forum has been established to address water issues in this area. The DWAF are
chairing this forum. The forum consists of government departments, NGO’s, mining companies and other interested and affected parties.
The Wonderfonteinspruit Action committee, of which Blyvoor is a member, has been established to look at the feasibility of cleaning up
the spruit. This committee reports to the main forum.
water resources stored in the dolomitic formations. The occurrence of sinkholes is limited to a particular area of Blyvoor, which requires
an active program in water management and control. Water from leaking pipes is reported to a monitoring committee and the necessary
repairs are undertaken immediately. Ground subsidence surveys are undertaken to timely identify any possible sinkholes. Sinkholes that
do occur are filled to prevent further inflow of surface water and potential enlargement of the hole. Sinkholes which form outside of our
property are repaired by the Far West Rand Dolomitic Water Association.
molasses, are also applied when deemed necessary. In the long-term, dust suppression and water pollution is managed through a program
of progressive vegetation of the tailings complexes followed by the application of lime, to neutralize the natural acidic conditions, and
fertilizer as the organic growth medium.
impacts associated with the reclamation of the dams and the extension of the No. 6 return water dam and identified remedial measures
to minimize the risk. The DWAF visited the site in August 2004 and was satisfied with our environmental performance.
including the defunct Uranium plant.
rehabilitation, restoration and closure costs on our balance sheet. A total of $2.8 million has been contributed to a Rehabilitation Trust
Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and who are appointed as trustees by the
Master of the High Court of South Africa.
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June 30, 2005, the Proven and Probable Ore Reserves of Blyvoor were 4.0 million ounces. The increase of 1.3 million ounces emphasizes
the sensitivity of the operation to the gold price. A Mineral Resource competent person is appointed at each operation to review our Ore
Reserve calculations for accuracy. For Blyvoor, Mr. David Edwin James Whittaker (SACNASP) is the appointed Mineral Resource
competent person.
subsidiaries.
Consequently concerns for employee safety prompted the development of a volume-driven mine plan involving less mining from the
affected high-grade No. 5 Shaft and more from the lower-grade No. 6 Shaft areas. Surface gold production increased from 23,920 ounces
in fiscal 2005 to 39,515 ounces in fiscal 2006.
rock dump feed to the mill and poor initial recoveries from the Slimes Dam Project. As a result of operational difficulties, we also
announced a 60-day review of the operations on July 28, 2004 in order to restore profitability.
employee costed. Cash costs of $482 per ounce in fiscal 2006 increased from $456 per ounce in fiscal 2005. Total costs for fiscal 2006 of
$520 per ounce also show an increase compared to $498 per ounce in fiscal 2005.
Item 5A: “Operating Results.”
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into an agreement with third parties to purchase the entire issued share capital and all shareholders’ claims of ERPM for a purchase
price of $11.0 million. Until November 30, 2005 we accounted for our 40% interest in Crown under the equity method. On July 6,
2005, we signed a Memorandum of Understanding with KBH regarding the acquisition by Khumo Gold of a 15% stake in our South
African Operations. On October 27, 2005, our board of directors approved the transaction with Khumo Gold. The new structure
resulted in Khumo Gold acquiring a 15% interest in a newly created vehicle, DRDGOLD SA, which includes 100% of ERPM, Crown
and Blyvoor. We currently own 85% of Crown, which we consolidated as a subsidiary from December 1, 2005, through our 85%
holding in DRDGOLD SA.
(R4.3 million). After exercising the option, Khumo Gold's shareholding in DRDGOLD SA increased by 5% to 20%. In addition,
Khumo Gold, as promoter for an employee trust, exercised the option for an employee trust to acquire from us 60,000 ordinary shares
in DRDGOLD SA for a consideration of $0.7 million (R5.1 million). After exercising the option, the trust's shareholding in
DRDGOLD SA is 6%. We will finance the transaction, on condition that the terms of the finance are determined by independent
experts to be fair and reasonable to our shareholders. It is proposed that we will subscribe for preference shares in Khumo Gold and
extend a loan to the trustees of the trust. For a full description of the transactions associated with our acquisition of Crown, see Item
4A: “History a nd Development of the Company.”
under the management of Crown based on the current rate of production of approximately 178,000tpm. Crown undertakes the
retreatment of surface sources deposited as tailing from non-operating mining sites across central Johannesburg.
Property
converting these old order property rights to new order rights under the MPRD Act.
Road on the M1 Johannesburg-Kimberley-Bloemfontein highway. The City Deep operation is located on the West Wits line within the
Central Goldfields of the Witwatersrand Basin, approximately 3 miles (5 kilometers) south-east of the Johannesburg central business
district in the province of Gauteng. Access is via the Heidelberg Road on the M2 Johannesburg-Germiston motorway. The Knights
operation is located at Stanley and Knights Road Germiston off the R29 Main Reef Road.
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treat the surface gold tailings created from the underground section of the original Crown Mines, which had been in
operation since the start of gold mining on the Witwatersrand in the late 1800's.
establish a company that would acquire dump retreatment operations on the Witwatersrand. This resulted in the formation
of CCGR, which was incorporated as a public company in South Africa in May 1997. Crown was a wholly owned
subsidiary of CCGR and consists of the surface retreatment operations of Crown Central, City Deep and Knights.
15% stake in our South African Operations.
On October 27, 2005, our board of directors approved the transaction with Khumo Gold. The new structure resulted in
Khumo Gold acquiring a 15% interest in a newly created vehicle, DRDGOLD SA, which includes 100% of ERPM, Crown
and Blyvoor. We own an 85% interest in DRDGOLD SA.
to the option agreement concluded between us and Khumo Gold in October 2005 to acquire a further 11% in DRDGOLD
SA.
Mining and Processing
recovery over the period of time the material was deposited. Archive material is a secondary source of gold bearing material. This
material is generally made up of old gold metallurgical plant sites as well as “river bed” material.
processing of sand and slime. Crown also operates the ERPM surface operations with ore being treated at the Knights plant. All of the
plants have undergone various modifications during recent years resulting in significant changes to the processing circuits.
Shaft Crown Mines, and for the Knights by the Ekhurhuleni Town Council. Electricity is supplied directly from the national power
grid to the substation and town council at 44,000 volts. Substations, located on mine sites, transform the power to 6,600 volts for
direct supply to the plants. The power supply is further reduced to 525 volts for smaller devices and equipment.
Sand is reclaimed using mechanical front-end loaders, re-pulped with water and pumped to the plant. Slime is reclaimed using high
pressure water monitoring guns. The re-pulped slime is pumped to the plant and the reclaimed material is treated using screens,
cyclones, ball mills and CIL technology to extract the gold. As at June 30, 2006, the overall plant utilization was 95%.
followed by calcining and smelting to doré. In 1998, the plant was converted to a slimes only operation. However, due to operational
difficulties caused by the particulate nature of the slimes, the milling circuit has subsequently been recommissioned to facilitate the
treatment of sand.
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precipitation followed by calcining and smelting to doré.
electrowinning and smelting to doré.
process material on certain tailings dams. The impact of windblown dust on the surrounding environment and community is addressed
through a scientific monitoring and evaluation process, with active input from the University of Witwatersrand and appropriate
community involvement. Environmental management programs, addressing a wide range of environmental issues, have been prepared by
specialist environmental consultants and applied specifically to each dust sample recovery monitoring site and integrated into Crown’s
internal environmental assessment process. Although Crown completed a project for thickening re-processed tailings, there also remains a
risk of localized sloughing which can result in that section of the tailings dam being closed temporarily, with repair wo rk being done to
the dam wall. Water pollution is controlled by means of a comprehensive system of return water dams which allow for used water to be
recycled for use in Crown’s metallurgical plant. Overflows of return water dams may, depending on their location, pollute surrounding
streams and wetlands. Crown has an ongoing monitoring program to ensure that its water balances (in its reticulation system, on its
tailings and its return water dams) are maintained at levels that are sensitive to that capacity of return water dams.
dormant tailings dams. Additionally, environmentally friendly dust suppressants, such as molasses, are applied. Dust fall-out is also
monitored. In the long-term, dust suppression and water pollution is managed through a program of progressive vegetation of the tailings
followed by the application of lime, to reduce the natural acidic conditions, and fertilizer to assist in the growth of vegetation planted on
the tailings dam.
source and opens up land for development. Crown has conducted its environmental management program performance assessment, which
was submitted to and approved by the DME during fiscal 2005.
Crown Rehabilitation Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and who are
appointed as trustees by the Master of the High Court of South Africa.
Life of Mine
per kilogram, our 40% share of Proven and Probable Ore Reserves of Crown was 0.3 million ounces. Crown’s Ore Reserves have not
changed from the previous year. A Mineral Resource competent person is appointed at each operation to review our Ore Reserve
calculations for accuracy. For Crown Surface, Mr. William John Laing (PLATO) is the appointed Mineral Resource competent person.
The current life-of-mine is estimated to be eight years.
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incorporation of Crown into DRDGOLD SA as a wholly owed subsidiary with effect from December 1, 2005.
ERPM
On October 27, 2005, our board of directors approved the transaction with Khumo Gold. The new structure resulted in Khumo Gold
acquiring a 15% interest in a newly created vehicle, DRDGOLD SA, which includes 100% of ERPM, Crown and Blyvoor. We own
85% of ERPM, which is consolidated as a subsidiary from December 1, 2005, through our 85% holding in DRDGOLD SA.
(R4.3 million). After exercising the option, Khumo Gold's shareholding in DRDGOLD SA increased by 5% to 20%. In addition,
Khumo Gold, as promoter for an employee trust, exercised the option for an employee trust to acquire from us 60,000 ordinary shares
in DRDGOLD SA for a consideration of $0.7 million (R5.1 million). After exercising the option, the trust's shareholding in
DRDGOLD SA is 6%. We will finance the transaction, on condition that the terms of the finance are determined by independent
experts to be fair and reasonable to our shareholders. It is proposed that we will subscribe for preference shares in Khumo Gold and
extend a loan to the trustees of the trust.
operation will continue to operate until 2013 under the management of Crown based on the current rate of production of approximately
178,000tpm.
Item 5A: “Operating Results.”
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highway. Underground mining and recovery operations comprise relatively shallow remnant pillar mining in the central area and
conventional longwall mining in the south-eastern area. Surface reclamation operations including the treatment of sand from the
Cason Dump, is conducted through the metallurgical plant, tailings deposition facilities and associated facilities.
decommissioned resulting in the retrenchment of 806 employees in August 2004. At FEV, there has been a drive on development and
a focus on effective grade control. Improvements in production, efficient cost controls, a better Rand gold price received and the re-
institution of State assistance with pumping have all contributed to restoring the mine’s underground operations to profitability.
Underground flooding continued during liquidation.
and employing an outside contractor, the mine re-commenced mining operations in February 2000.
loss of secondary outlet at the FEV shaft in November 2003.
2005. The closure program was prevented by a reduction in costs and improved productivity at the mine.
On July 6, 2005, we signed a Memorandum of Understanding with KBH regarding the acquisition by Khumo Gold of a
15% stake in our South African Operations.
On October 27, 2005, our board of directors approved the transaction with Khumo Gold. The new structure resulted in
Khumo Gold acquiring a 15% interest in a newly created vehicle, DRDGOLD SA, which includes 100% of ERPM, Crown
and Blyvoor. We own an 85% interest in DRDGOLD SA.
to the option agreement concluded between us and Khumo Gold in October 2005 to acquire a further 11% in DRDGOLD
SA.
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the hoisting of rock, the SWV Shaft and the Hercules Shaft that are used for water pumping only. The Cason Dump Project is used for the
retreatment of surface material mined from the defunct Cason shaft.
performance of the ERPM underground operations to consider options to restore the operations to profitability. A task team comprising
management, union representatives and labor was established to assess the proposals and make a final recommendation.
expected to be completed by March 2005. Following the retrenchment of 806 employees in August 2004 at a cost of $0.6 million
(R3.7 million), the mine achieved a reduction in costs coupled with improved productivity. As a result, the original planned closure of the
underground section was prevented.
conveyor was another key focus of attention during the year. Production build-up from newly opened-up, lower grade areas above
70 level – both to relieve pressure on the decline conveyor and as a safety response to increasing seismicity in higher grade areas below
70 level began during the last quarter of fiscal 2006.
to ERPM is provided to the Cason Dump, SEV and FEV Shafts from the Bremmer substation, located in close proximity to the mine
in Boksburg. Transmission is at the rate of 88,000 volts. The Simmer Pan substation, located approximately 10 miles (16 kilometers)
away from the mine site in Germiston, supplies the SWV and Hercules Shafts. Transmission is at the rate of 44,000 volts. The two
substations, located on mine site, transform the power to 6,600 volts for direct supply to the shaft winder and air compressors. The
power supply is further reduced to 525 volts for smaller devices and equipment used on the mine. The average annual power
consumption is about 240 GWHr and the maximum demand is about 52 MW.
transformer oil in the circuit breakers.
face length. There is also the prospect of extending ERPM’s Ore Reserves into the neighboring Sallies lease area and significantly
increasing the life of the mine’s underground operations. A prospecting right permit has been issued to ERPM covering the Sallies lease
area. The first prospect borehole of a four-year exploration drilling program in this area, now known as ERPM Extension 1, was
completed during fiscal 2006 and preliminary results indicate that the reef is well developed.
Environmental and Closure Aspects
reasons due to the withdrawal of the pumping subsidy and the low Rand gold price making the cost of full time pumping unaffordable,
with occasional pumping to surface conducted on weekends. In December 2004 the mine received the pumping subsidy funds and
continuous pumping was reinstated. Studies on the estimates of the probable rate of rise of water have been inconsistent, with certain
theories suggesting that the underground water might reach a natural subterranean equilibrium, whilst other theories maintain that the
water could decant or surface. A program is in place to routinely monitor the rise in water level in the various underground compartments
and there has been a substantial increase in the subsurface water levels. ERPM is currently pumping the Central Basin water out of the
South West Vertical, or SWV, Shaft. The ‘plugging’ program undertaken by ERPM will ensure that ERPM will not be dependant on
pumping this water after December 2006.
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infrastructure is being demolished and rehabilitated. ERPM is in the process of updating its EMP to include all the requirements to the
MPRD Act. The updated EMP will be submitted to the DME for approval by the end of calendar 2006.
Rehabilitation Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and who are appointed
as trustees by the Master of the High Court of South Africa.
Life of Mine
remaining 0.3 million ounces relate to the Cason Dump surface material which, based on the estimated rate of production, will be
processed over a remaining 7 year period ending in fiscal 2013. Based upon a gold price of approximately R88,960 per kilogram, at
June 30, 2005, our 40% share of Proven and Probable Ore Reserves of ERPM were 0.4 million ounces. The year on year increase is
mostly attributable to the continuation of mining operations which were planned to be suspended in March 2005 and the increase in our
attributable share from 40% to 85%. A Mineral Resource competent person is appointed at each operation to review our Ore Reserve
calculations for accuracy. For ERPM, Mr. Johan Smit (PLATO) is the appointed Mineral Resource competent person. The current
underground life-o f-mine is five years.
Current Production
Our attributable share of gold production for ERPM was 80,324 ounces in fiscal 2006 compared to our 40% attributable share of gold
production of 44,600 ounces in fiscal 2005 and 44,896 ounces for fiscal 2004. The increase in fiscal 2006 is due to the incorporation of
ERPM into DRDGOLD SA as a wholly owned subsidiary with effect from December 1, 2005.
Item 5A: “Operating Results.”
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Porgera
Overview
PNG. We purchased this interest in October 2003 for a purchase consideration of $77.1 million. Barrick is the owner of a 75% interest.
The remaining 5% interest is held by Mineral Resources Enga Limited, or MRE (on behalf of Enga Provincial Government and
landowners in PNG). All of the various mineral tenements making up Porgera are exploited collectively by the joint venture partners.
parties through the management committee. The parties also have a right of first refusal with regard to certain assignments of assets which
make up Porgera. Each party has the right to own and to take in kind and dispose of its share of all ores, concentrates and refined products
produced by Porgera. Each party also pays for its proportionate share of the costs associated with the mining activities.
The net book value of our share of property, plant and equipment, deferred stripping and purchased undeveloped mineral
residents, while the remainder work on a “fly-in-fly-out” basis.
Production from Porgera is subject to a 2% net smelter royalty payable to the National Government Department of Mining
Property
Hagen, 275 miles (443 kilometers) northwest of Port Moresby, and about 425 miles (684 kilometers) by road from the coastal port of
Lae from which all materials are freighted. The road is partly paved and passes through unstable mountainous terrain with many major
river crossings. Personnel are transported to mine site by bus, fixed wing aircraft and helicopter.
Porgera Contract specifies, amongst other matters, the annual rents that must be paid for the Special Mining Lease, and the various
classes of compensation that are payable to the landowners for the various land uses. The Special Mining Lease, which expires in
2019, encompasses approximately 2,240 hectares including the mine area and the areas in which the project infrastructure is located.
There is no expiration date for the Porgera Contract, but it is tied to the continuation of the Special Mining Lease. Leases for Mining
Purposes have also been awarded by the Government for land use associated with the mining operation such as waste dumps,
campsites, water supply, power generation and an airstrip. The Porgera Joint Venture holds a mining lease for the operation of a
limestone q uarry for the supply of lime to the process plant. Permits are held for water use, including run-off from unconsolidated
surfaces, such as the open pit, the underground mine and the waste dumps. These water use permits are renewable on a regular basis
and are subject to a public hearing before approval. The Porgera Joint Venture runs an environmental monitoring program to ensure
compliance with the requirements of these permits.
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mining tenements, there are two Exploration Licenses adjacent to the Porgera Mine, namely EL454 and EL858, which we assert we
have 20% ownership of as joint venture assets. Barrick asserts we do not have a 20% interest in these Exploration Licenses and that
the Exploration Licenses are not joint venture property. On August 9, 2004, we placed a caveat on the title register in order to prevent
changes taking place without notification to us. The dispute between us and Barrick regarding these Exploration Licenses is the
subject of ongoing discussion and the tenements are the subject of ongoing exploration expenditure.
Porgera has on a number of occasions experienced delays in the granting of operating permits and licenses necessary to
future permits essential to lawful operations are not obtained, or exemptions not granted, there is a risk that Porgera may not be able to
operate for a period of time. Future government actions cannot be predicted, but may impact the operation and regulation of mines
including Porgera.
History
1938
of a two-third interest in an exploration venture with Mount Isa Mines Limited (now MIM Holdings Limited.), or MIM.
of Goldfields Limited) each held a one third interest and the Independent State of Papua New Guinea, or the State, had
the right to acquire at cost up to a 10% interest in the project if developed.
The State accepted its full 10% entitlement (inclusive of 5% on behalf of the Enga Provincial Government), thus diluting
each of the other joint ventures down to 30% each. The State took its interest in the name of a corporate nominee,
Mineral Resources Porgera Limited.
Gold.
the State in the name of a corporate nominee, Orogen Minerals (Porgera) Limited.
the acquisition of Highlands Gold.
Venture to Mineral Resources Enga Limited owned by the Enga Provincial Government and project area landowners.
The State reorganized its holdings in the Joint Venture such that Oil Search Limited then held a 20% direct interest in the
Joint Venture through two subsidiaries.
Limited through the amalgamation of Mineral Resources Porgera Limited with Orogen Minerals (Porgera) Limited and
Dome Resources (PNG) Limited, our wholly-owned subsidiary.
effectively we held 88.3% of Emperor who in turn holds the 20% interest in the Porgera Joint Venture.
Geology and Mineralization
The Porgera ore body is an epithermal style ore body hosted within thermally metamorphosed sediments. The known ore
is commonly no more than 65 to 98 feet (20 to 30 meters). The intrusive diorite complex has many individual stocks and dykes. The
rocks are competent however they tend to be brittle, and in the vicinity of the ore body, are extensively veined and brecciated. The
intrusive bodies tend to be concentrated towards the footwall of the deposit.
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Mining and Processing
14% of the contained gold in mill feed.
tonnes per annum. Waste stripping requirements will reduce as the open pit mining operation approaches closure in calendar 2008,
allowing a progressive retirement of the mining fleet.
mined from the 2,390 meter level in Stage 5. Stage 5 is the final open pit development stage and will be completed in late 2008 at
2,050 meter level. Stockpiled low grade ore will form the basis of ongoing gold production from mid 2008 until 2015. Remediation
work following the failure of the West Wall during the previous fiscal year continued during fiscal 2006, leading to reliance on low-
grade, long-term stockpile material as the primary feed. This together with damage to access infrastructure caused by heavy rainfall,
power failures and a strike related to a change of management from Placer Dome to Barrick had a negative impact on gold production
during fiscal 2006.
On completion of the open pit operation, the mill will continue to process accumulated lower grade ore stockpiles through to
fall, as lower grade stockpile ore replaces the open pit ore feed.
and leaching capacity increasing the nominal throughput from 10,000 tonnes per day to 17,700 tonnes per day. Further improvements
were made in 1999 with the addition of further flotation capacity and the installation of gravity concentrators to remove free gold and
to improve overall recoveries.
four water treatment plants for potable water and five sewage treatment plants.
13MW. The average power requirement of the mine is about 60 MW. Average annual power consumption is 518 GWHr.
The most significant capital expenditure during fiscal 2006 related to deferred stripping, and our 20% share amounted to
Exploration and Development
shares the same characteristics. Drilling also was carried out in the later part of 2004 on the Lower Central Zone. Both these zones are
hosted within diorite bodies and surrounding altered sediments and consist of continuous or on echelon quartz roscoelite veins. There
is still further resource potential in these zones, as they are not completely closed off. Drilling will continue to further define these
targets as suitable for development. A small amount of open pit delineation drilling has been carried from underground in order to
upgrade the geological model.
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place. This drilling is designed to bring these target ounces to an indicated Mineral Resource status. There are also some targets that
are less well known and more conceptual in nature.
In addition, during fiscal 2005 a project termed Porgera Deep Minex was initiated and continued into fiscal 2006. This
particular part of the exploration process consists of a multi-disciplinary approach to determine targets and test the volume of ground
below the known Porgera deposits. This approach involves the building of an integrated geological and geophysical model, various
geochemistry techniques, and the use of seismics is to be investigated. Much of this will be the “mining” and integrating of existing
data. Drilling will be carried out with a prime target being the intersection of the Roamane Fault and the North Zone shear in depth.
The Stage 6 program was completed in September 2006 and work continued on modeling the Stage 6 data and preliminary
Regionally, drilling planned at Tupagai is awaiting finalization of the drill contract. Landowner clearances for drill pads and
Target areas have now been identified for further assessment. Results of earlier field work at Liawin area have also been encouraging.
Elsewhere, three target areas have been identified and follow-up field work has commenced. The targets identified were
December 31, 2005, before Ore Reserve depletion, is 1.3 million ounces. Our attributable 16% share of the Proven and Probable Ore
Reserves in the Porgera Joint Venture is based on the Ore Reserve information disclosed by Placer Dome Inc. in its earnings release
for the period ended December 31, 2005, as released on February 20, 2006 in accordance with US GAAP. At December 31, 2005,
Placer Dome held a 75% stake in the Porgera Joint Venture pending being acquired subsequently by Barrick. At June 30, 2006, our
attributable Ore Reserves decreased by 5.4%, or 0.1 million ounces, from fiscal 2005 and Ore Reserves decreased by 6.0%, or 0.1
million ounces, from fiscal 2004, mainly due to the open pit mining depletion. For Porgera, the reserve information was provided by
Barrick and wa s reviewed by Mr. Richard Johnson (AusIMM).
Environmental and Closure Aspects
New Guinea Government approved riverine disposal as the most appropriate method for treated tailing and soft incompetent waste rock.
Competent rock is stored in stable waste dumps. The mine follows a government approved Environmental Management and Monitoring
Program.
its report CSIRO made certain recommendations to the Porgera Joint Venture that have either been implemented or are in the advanced
stages of implementation. An advisory group, called the Porgera Environmental Advisory Komiti, or PEAK, was formed as a result of the
CSIRO recommendations. PEAK comprises representatives from the Papua New Guinea Government and international non-
governmental organization groups, Barrick and independent technical experts. The primary function of PEAK is to enhance
understanding and provide transparency of Porgera's environmental (physical and social) issues with external stakeholders and to assist in
reviewing its environmental performance and public accountability. In 2002, PEAK had its terms of reference expanded to include mine
closure.
is $7.6 million. This has been included in the provision for environmental rehabilitation, reclamation and closure costs.
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the mine, had predicted lower production in calendar 2006 due to a shift of operations from Stage 4 to Stage 5 of the open pit, which has
harder ore and lower grades. Performance in fiscal 2006 has been negatively affected, however, by the impact of heavy rains on the
stability of the pit’s West Wall. Work on the West wall cutback as at November 30, 2006 was 72% complete and the joint venture expects
mining of ore from the open pit to begin in calendar 2007.
Tolukuma
Overview
ordinary shares for A$0.30 ($0.19) per share. In June 2001 we acquired all the shares in Dome which we did not already own.
headwaters of Iwu Creek, which drains into the Auga River. Elevations in the mine lease area range from 1,100 meters above sea level
(asl) at the Auga River to 1,750 meters asl at the top of Tolukuma hill.
Item 5A: “Operating Results.”
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and four licenses under application totaling 1,073,884 acres (434,600 hectares). The total exploration area amounts to approximately
2,456,144 acres (994,000 hectares). For a summary of our exploration licenses see “Exploration Projects” in Item 4D: “Property, Plant
and Equipment.”
August 29, 2012, and is renewable for further periods not exceeding 10 years each.
by road. All transport of employees, materials and equipment to and from the mine is by helicopter. As a result, approximately 17% of
the production costs of the mine are spent on transportation and logistics, including the cost of jet fuel. Tolukuma is worked on a “fly-
in-fly-out basis,” with all staff being accommodated in quarters when at the mine.
rainforest and thick vegetation associated with high rainfall and mountainous regions.
landowners and the rest made up of outsiders coming into the area to seek employment. There is a Memorandum of Agreement, or
MOA, between National Government, Provincial Government, the landowners and Tolukuma. The MOA is a working document
which indicates the responsibilities of each party and their role in the sustainable development of the community. The MOA is
reviewed every two years, with an MOA to be mutually agreed by the parties if revised. Currently, there is an agreed MOA in place.
History
1984
holds the 100% interest in Tolukuma.
five. An air-driven Kempe rig, commissioned in December 2003, is used for short holes underground, currently targeting the down dip
extension of the Tinabar ore body and an LMA90 drill rig, commissioned in January 2004, is used for longer exploration holes,
initially in the Gulbadi south area and the Milaihamba structural target. Another manportable DT600P was purchased to support the
existing manportable DT250P on surface drilling of ML104 and later the Saki, Sere Sere, Taula and Taula North prospects in
Exploration License 580 followed by other regional targets. The LY44 is also currently drilling ML104 targets.
mill feed. Drilling in fiscal 2005 continued at new structures that have been identified for drill testing including the Loch, Tofun, and
Banana vein structures.
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or EL, covering 8,183 square kilometers. Seven tenements have been granted namely EL683, 1297, 1379, 1284, 1271, 1352 and 1366;
and four tenements EL580, 894, 1264 and 1327 awaiting renewal.
Geology and Mineralization
usually occurring in well-defined zones on dip and along strike.
The Tolukuma deposit is comprised of two sub-parallel structures that are connected by a series of linked structures trending
strike length of more than 0.9 mile (1.4 kilometers). Likewise, the Zine and 120 veins located approximately 250 meters to the east,
have similar geological features. These are connected by a series of linked structures tending generally in a south east to north west
direction.
All the current Ore Reserves are located within these veins in five sections that have different geological characteristics.
X-veins. Clay zones of variable width are located in the intersections on two or more structures. Minor loops off the main veins, minor
splay veins and minor cross veins are excluded from the potential reserves, although they are mined at times. Infill diamond drilling of the
Zine and 120 veins is continuing and an underground diamond drilling program has commenced.
Mining and Processing
recovered from low grade stockpiles. All mining is conducted using mining plant and equipment owned by Tolukuma. The average
mining depth at Tolukuma is 490 feet (150 meters) below surface or approximately 4,760 feet (1,450 meters) above mean sea level.
Access to underground workings is via decline shafts. Mining methods vary according to local ground conditions and are generally
mechanized cut and fill shrinkage methods.
June 30, 2006 is capable of processing 18,000 tpm. Cyanide in the residue is neutralized in a detoxification plant prior to riverine
discharge.
are installed, capable of generating 1.8 MW of power. These units are dependant on the supply of adequate water. These generators
supply 32,000 volts via overhead lines to the mine, where it is transformed down to either 6,600 volts, 1,000 volts or 525 volts,
depending on the requirement. On average the mine consumes 30 MW of power. Any shortfall from the hydro units is made up by the
diesel units (a total of 3.2 MW of diesel generating power is installed).
$2.8 million and $1.5 million was spent on heavy equipment.
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the government’s regulatory requirements, Tolukuma has implemented a broad-based Environmental Management and Monitoring
Program, or EMMP. The measures we have taken to implement this program include addressing water quality, population dietary surveys
and aquatic fauna and metals-in-tissue surveys. These surveys were conducted during July and September of 2003. During March 2003,
an environmental audit was concluded at Tolukuma which found the operations to be in substantial compliance with applicable Papua
New Guinea legislation and the EMMP environmental plan. The studies conducted in 2003 confirmed existing trends that had been
established over recent years. The water quality meets legal requirements, as per the criteria set by the water license.
Tailings are routinely discharged into the Auga/Angabanga river system. The discharging of tailings into riverine and marine
of conventional tailings dams. Due to the fact that ore mined at the Tolukuma Mine, and the surrounding land in general is high in
mercury, the potential does exist that levels of mercury discharged into the river system might expose us to criminal liability under Papua
New Guinea legislation. As a result of an internal study of the Tolukuma Mine in 2000, in order to ensure that mercury discharges remain
within allowable limits, the following program is being followed:
cyanide is degraded in a detoxification process and levels are monitored daily.
Through visits with local communities by mine staff members, we have been informed that communities located downstream from
water from creeks, tributaries and strategically placed wells, many of which we have provided, and we are not aware of any adverse
health effects on communities associated with the Tolukuma Mine.
Furthermore, we are not aware of any scientific or engineering report that states that the level of mercury discharges from the
released their “Mining Ombudsman Annual Report 2001-2002” which we believe made inaccurate and unsubstantiated references to
mercury output and other findings contained in an internally prepared study on Tolukuma done in 2000. This study was not conclusive on
the mercury output at Tolukuma and the results of this study were not scientifically tested. Nonetheless, as discussed above, we increased
our environmental management systems in response to this study.
Two water quality and geochemical investigations were conducted by an independent consultant in July 2000 and June 2002. These
being dumped into the Auga/Angabanga river system and the naturally occurring sediments in the area. Although mercury is detectable in
the mining derived sediments immediately adjacent to the discharge point, these levels are immediately diluted to levels below detectable
limits upon meeting with the Alabule River. This area consists of steep gorges and fast, turbid currents. The result is a high dilution of
mining sediments and, therefore, negligible impact on the lower Angabanga floodplain and oxbow lakes which are located downstream
from the Tolukuma Mine. An additional study took place during June 2003, reinforcing earlier findings. Further water quality and
geochemical monitoring performed by an independent consultant in December 2005 on the Auga/Angabanga river system , reported
findings to be within compliance. The mill tailings analyzed by the Australian Laboratory Services in Brisbane for filtered metals,
ammonia, cyanide, conductivity and total suspended solids are also within compliance criteria.
rehabilitation, reclamation and closure costs on our balance sheet.
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$1.00, at June 30, 2005, the Proven and Probable Ore Reserves of Tolukuma were 0.22 million ounces. The decrease in Ore Reserves is
primarily due to the reduction in our attributable portion of ounces from 100% to 79% as a result of the purchase and sale agreement with
Emperor.
been assessed with a two year life of mine for its underground operations.
Current Production
lack of available face in the first half of fiscal 2006 and the consequent treatment of low-grade underground stockpiles. Extensive
underground development from the second half of fiscal 2006 began to redress this issue by the end of fiscal 2006. Cash costs increased
to $610 per ounce of gold in fiscal 2006 from $331 per ounce of gold in fiscal 2005, primarily due to lower gold production, the higher
cost of fuel and the logistics involved in keeping the mine supplied with consumables and services. Inclement weather also affected
logistics, in particular helicopter access to the mine. As a consequence, supplies of critical consumables such as diesel were disrupted.
Going forward, a second hydro plant will reduce the level of dependence on diesel fuel as a power source. In fiscal 2006 the total cost per
ounce increased to $767 per ounce from $434 per ounce in fiscal 2005.
Item 5A: “Operating Results.”
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since operations commenced. The Vatukoula Mine is a multi-shaft underground mine. The Vatukoula Mine is Fiji's second largest private
employer with 1,856 employees at June 30, 2006.
Convertible Loan Facility was negotiated by the independent directors of Emperor. The financing package also included an agreement
with ANZ Bank, subject to a number of conditions, to a restructuring of Emperor’s debt servicing obligations to assist them with their
restructuring plan. The ANZ Bank also consented to the Convertible Loan Facility and the related security. The Convertible Loan Facility
was approved by the shareholders of Emperor on August 29, 2005 (we did not participate in the voting). In addition, in July 2005 we
entered into an operational support agreement negotiated on behalf of Emperor’s independent directors, pursuant to which we provided
Emperor with management and technical services.
turn holds our PNG assets, comprising of the 20% interest in the Porgera Joint Venture, the 100% interest in Tolukuma and all of our
exploration tenements in PNG. We held 88.3% of Emperor and subsequently, our shareholding was diluted to 78.72%, following a
number of share issues in which we did not participate.
loan bears interest at LIBOR plus 3% per annum and is repayable on December 31, 2007.
strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed on a care and
maintenance program.
typically less than a meter in width, principally on the western fringe of the caldera. The mine can be accessed via the highway from
Nadi to the Vatukoula Mine. Mining is conducted underground from four main shafts exploiting the ore bodies in the southwest
portion of the volcanic margin to the Tavua Caldera, a large shield volcano about 9 miles (15 kilometers) in diameter and the recently
accessed R1 ore bodies situated within the caldera. The main mining licenses include Special Mining Lease 54, 55 and 56.
our Executive Chairman, Mr. M.M. Wellesley-Wood as Managing Director and our Divisional Director: Australasia,
Mr. R Johnson as Non-Executive Director, both with effect from August 3, 2004.
In November 2004, Emperor’s rights offer closed and we subscribed for our entitlement under the rights offer.
operational and support agreement was also signed pursuant to which we will provide Emperor with management and
technical services.
On December 5, 2006, after an extensive three-month review of Vatukoula, the mine ceased production. Pending completion
of a strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed on a care
and maintenance program.
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along the margin of Tavua volcanic caldera and consist of various types of quartz-adularia-telluride-auriferous-pyrite fillings deposited in
fractured, faulted and shattered volcanic rocks.
caldera.
gold is found as native gold, auriferous pyrite, and as gold tellurides.
Mining and Processing
as sub-level stoping and caving, cut-and-fill, shrinkage stoping and up-dip mining, are also practiced. The remnants of 50 years of room
and pillar mining are also currently being successfully exploited.
shutdown following which Philip Shaft production was gradually restarted in June 2006.
the grinding circuit product. Both circuits are combined in a thickener and roasted before passing through a CIP circuit. Loaded carbon is
stripped and the gold-rich solution is combined with the calcine rich solution for zinc precipitation and to be able to smelt into bars.
Implementation of the mine’s new ACDTP during fiscal 2006, involved a temporary shutdown of the mine on April 20, 2006
infrastructure and increase the productivity of the workforce. The plan includes development of higher grade areas at Philip Shaft and
upgrading of associated shaft infrastructure. In addition, the entire workforce will undergo comprehensive assessment, re-skilling and
retraining. On December 5, 2006, the mine was placed on a care and maintenance program.
addition, Emperor undertakes environmental projects to ensure compliance with all relevant regulations.
to the attention of the full board of directors.
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material adverse impact on the Group’s business.
rehabilitation, reclamation and closure costs on our balance sheet.
June 30, 2006 reflected 8 years, however on December 5, 2006, the mine was placed on a care and maintenance program. A Mineral
Resource competent person is appointed at each operation to review our Ore Reserves calculations for accuracy. For Emperor, Mr. Greg
MacDonald (AusIMM) is the appointed Mineral Resource competent person.
from the temporary shut down of the mine to implement the ACDTP. On December 5, 2006, the mine was placed on a care and
maintenance program, which will further impact production for fiscal 2007.
production results for fiscal 2004.
Item 5A: “Operating Results.”
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$2.1 million for Tolukuma. During fiscal 2006, we lodged an application for a prospecting right in respect of the Argonaut area in
South Africa. ERPM also lodged an application for a prospecting right over the Sallies area in South Africa. Both these applications
were approved and prospecting permits issued by the DME.
South Africa
Argonaut Project
possible exploitation of part of the potential mineralized material striking 3 miles (5 kilometers) east/west from City Deep Mine to
Robinson Deep Mine and extending from 9,900 feet to 13,200 feet (3,018 meters to 4,023 meters) below surface. Most of the main
exploration target area incorporated by our 42 square kilometers of mineral rights above the 5,000 meter depth contour of the Main
Reef Leader is covered by urban residential development. The mining activity may, as a result, give rise to an increase in seismicity and
associated environmental pollution in the immediate proximity of the mine. If operated, this would be the first mine in the world to
operate at such depths and the seismicity associated with the mining activity and the impact on the health and safety of th e mine
employees working in the underground section are unknown at this stage.
In utilizing a comprehensive computerized database of historical underground sample and borehole core assay values of the
former Central Rand have been undertaken with the objective of defining sedimentological facies trends and delineating geozones for
statistical and geostatistical estimation purposes and predictive analysis. A log-linear extrapolation technique was applied to the trend
directions exhibited within the data for each geodomain, enabling the calculation of the likely distances over which the gold
accumulation decreases within the respective geodomains down the palaeoslope. The end product is a grade block model for the Main
Reef Leader showing the rapid downdip decrease in the gold accumulation in all of the defined geodomains.
reported. Due to unreliable data, no estimate of mineralized material was deduced for the Main Reef. Future work will include the
drilling of three additional boreholes to test the model and extrapolations and estimates, as well as upgrade and increase the
mineralized material estimate within our mineral rights area.
During fiscal 2004, progress on advancing the Argonaut Project towards a bankable feasibility study was hampered by the
MPRD Act, the prospecting permit is classified as a pending application and, as a result, only geological modeling and resource
estimation took place.
The Argonaut Project still represents a promising, yet challenging deep-level mining development opportunity which is dependent on
significant increases in the Rand gold price before becoming viable.
prospecting right by an additional 4,002 hectares has been submitted to the DME. On approval, a Mineral Resource for the revised
area will be declared.
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Reef payshoot currently being exploited at ERPM through the existing mine boundary.
envisaged that prospecting will take place through the development situated 50 meters in the footwall. Owing to the high induced
stress experienced at depth, it will be necessary to protect the excavation by means of concurrent over-stoping on the reef plane.
Although this is the safest option, permission must first be sought from the DME.
The development will be supplemented by 1,340 meters of exploration diamond drilling, conducted from exploration cross-
convert the prospecting right to a mining right will be submitted in fiscal 2007. On approval, the Measured and Indicated Resource
will be upgraded to Ore Reserves. An application to extend ERPM’s existing prospecting right eastwards into the Rooikraal/Withok
area, incorporating the southern sections of the old Van Dyk mining lease area and a small portion of the Sallies Mine has been
submitted to the DME. The additional area, referred to as ERPM Extension 2, totals 5,500 hectares, with a potential exploration target
of some 7.0 million ounces to 11.0 million ounces of gold and could result in a deep level mine with a life in excess of 15 years.
Papua New Guinea
Tolukuma
extensive exploration tenements in the vicinity of the mine covering approximately 9,937 square kilometers and within 40 minutes
flying radius of the mine site. Tolukuma is being explored using geophysical surveys, interpretation of satellite images, mapping and
sampling of streams. This is followed up by detailed mapping, trenching and drilling of prospective target areas.
new drills were added during fiscals 2005 and 2006. The short-term focus will continue to be on increasing the resource base at and
around Tolukuma.
exploration was also carried out in a few of the outer ELs.
The short-term exploration focus will continue to be on increasing the resource base at and around Tolukuma. In fiscal 2006,
mineralization in the Zine Structure, a significant regional structure that is parallel to the main Tolukuma Structure and approximately
350 meters to the east.
Based on the model that structures at Tolukuma host bonanza grade gold mineralization, underground exploration has
Tinabar Structure. Intersecting structures often form dilation zones where gold can precipitate.
Most recent exploration activities have focused on the drilling of Zine, with minor work being completed on the Banana
discovered vein set in the Fundoot area has returned encouraging results from trenching across this structure.
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developed in two drives on the 1,525 meter RL and 1,495 meter RL levels respectively. To date more than 140 meters of strike length
of the Zine Structure has been sampled as mineralized on 1,525 meter RL level and 30 meters on 1,495 RL meter level. An
exploration drive along the new Zine Splay structure has sampled 97 meters of mineralized strike length. This discovery of the
mineralized splay structure off the main Zine Structure is considered very significant as it is the first high grade mineralized vein to be
found extending eastwards from the known vein array that has been mined at Tolukuma. It indicates the potential for an entirely new
mineralized corridor to the east, as well as a new internal target area along the potential north-west extension.
continuation of these known structures. This data will be used to define the location of the multiple vein corridors in the area and
generate further targets for trenching and drilling. Several significant geochemical anomalies found will be followed up by trenching
and drilling.
result of supergene enrichment. This area is currently being mapped and trenched and will be targeted with drilling in the near future.
2005 has neared completion. Much of the “modern” exploration from the past (1960s onward), has been sourced, reviewed and
synthesized and has greatly assisted in defining individual prospects, their potential and the broader regional opportunity. Together
with recently acquired Landsat 7 thematic images and an Aster (15m) digital terrain model, a comprehensive base now exists for
future exploration planning on the existing tenements and the immediate regions.
several at an advanced stage requiring major drilling and exploration. This exploration review establishes the basis for the aggressive
$11.0 million (A$15 million) exploration program.
source. The most significant exposure to date is a vegetation anomaly (similar to the Tolukuma vegetation anomaly) on a prominent
hill. Trenching and detailed sampling of this wider area has been conducted and interpretation of the results is in progress.
gold throughout and in perched alluvial banks but failed to realize significant zones of hydrothermal alteration to indicate a major
primary mineralization source. Future work includes completion of soil lines and reconnaissance sampling of the Gira Circular
Structure as well as the Green Creek prospect in EL 1366 to the south and the Baranuma Prospect area in EL 1327 to the northwest of
Ioma.
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North West Operations
Overview
mining operations of the North West Operations consisted of Buffels and Harties, which lie adjacent to each other within the Klerksdorp
Goldfield on the northwestern rim of the Witwatersrand Basin.
Mining activity at Harties, including exploration, development and production dates back to 1949 with gold production from the
approximately 3,000 employees retrenched and the placing of No. 6 Shaft of Harties on a “care and maintenance” program, effectively
suspending the use of the asset. On March 16, 2004, we reopened the No. 6 Shaft at Harties to mine high grade areas on a selective basis.
We recalled approximately 800 employees previously retrenched from the North West Operations to man this shaft. On
February 18, 2004, we announced the closure of the No. 11 Shaft at Buffels after the revised work practices implemented based on the
operational review proved to be unsustainable. As a result, approximately 1,000 employees were retrenched. The total cost of the
July 21, 2003 and March 16, 2004 retrenchments was $7.1 million.
parties early in August 2004 to close the No. 9 Shaft, but to keep the No. 10 and 12 Shafts in operation, on the condition that certain
defined sustainability thresholds are met. This agreement resulted in the retrenchment of 120 employees at this mining operation during
fiscal 2005, at a cost of R 3.7 million ($0.6 million). At October 31, 2004, approximately 600 employees were employed at No. 10 and 12
Shafts.
continuing seismic activity in the area and on March 16, 2005, we closed the No. 2 Shaft because of concerns for the safety of employees.
On March 22, 2005, application was made to the High Court of South Africa for the provisional liquidation of Buffelsfontein Gold Mines
Limited, which order was granted on the same day. For further details, see the “Legal Proceedings” section of Item 4D: “Property Plant
and Equipment.”
environmental rehabilitation and the management and pumping of underground water. The proposed scheme of arrangement was
conditional upon the following:
imposing further responsibility on us;
proposed by S&J; and
to the High Court for the lifting of its provisional liquidation which was granted on November 1, 2005.
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Johannesburg-Potchefstroom-Kimberley highway.
5 degrees Celsius) in June and July to a maximum of 93 degrees Fahrenheit (34 degrees Celsius) in December and January.
to 15,560 acres (6,297 hectares) and freehold title to 375 acres (152 hectares), all held in the name of Buffels. Buffels consisted of one
mining license, ML4/2001 in respect of statutory mining rights, and one prospecting permit, RP54/2002 in respect of statutory mining
rights and mineral rights held by Buffels.
to royalty-based tribute agreements with Lucas Block Minerals Limited, a South African company, and Harties.
History
1949
Africa on June 20, 1949. The company is dormant and no longer trades.
1995, under the name Camelian Investments (Pty) Limited. Camelian Investments changed its name to Buffelsfontein Gold
Mines Limited on December 29, 1995. As of December 31, 1995, Buffels acquired the assets and liabilities of the
Buffelsfontein mine division of Buffelsfontein Gold Mines Company Limited previously managed by Gencor Limited, a
South African mining company.
September 21, 2003, with approximately 3,000 employees retrenched at a cost of $6.5 million and the placing of certain
infrastructure (No. 6 Shaft at Harties) on a “care and maintenance” program.
previously retrenched to man this shaft.
In April 2004, the No. 11 Shaft at Buffels was closed as the shaft reached the end of its economic life. Approximately 1,000
employees were retrenched at a cost of $0.6 million.
In September 2004, the No. 9 Shaft at Buffels was closed as the shaft reached the end of its economic life.
On March 16, 2005, further seismic activity in the area occurred and we closed the No. 2 Shaft because of concerns for the
employees’ safety.
On March 22, 2005, an application was made to the High Court of South Africa for the provisional liquidation of
Buffelsfontein Gold Mines Limited, which order was granted on the same day.
On October 6, 2005, we concluded an agreement with Simmer and Jack Limited, or S&J for the sale of its shareholding in
Buffelsfontein Gold Mines Limited subject to certain conditions.
On October 21, 2005, the scheme of arrangement for the acquisition of Buffelsfontein Gold Mines Limited proposed by S&J
and accepted by the majority of Buffelsfontein creditors, including us, was approved and sanctioned by the High Court of
South Africa.
Buffelsf ontein applied to the High Court for the lifting of its provisional liquidation which was granted on November 1, 2005.
majority of Buffelsfontein creditors, including us, was approved and sanctioned by the High Court of South Africa.
Buffelsfontein applied to the High Court for the lifting of its provisional liquidation which was granted on November 1, 2005.
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Buffels and Harties, were predominantly underground operating mines located within a geographical region known as the
rock dumps. The Vaal Reef is an oligomictic, quartz-pebble conglomerate no more than 20 inches (50 centimeters) thick. Gold is
present throughout the reef horizon, but is concentrated on the bottom contact, where carbon commonly forms as a thin seam.
reserves and blocks originally bypassed because of structural complexity. Access from the surface to the underground workings of the
mine was through vertical and underground incline shafts. Mining of the reef took place in stope panels. Holes were drilled into the solid
rock and were charged with explosives and blasted. The loosened rock was removed from the stope panels and was conveyed to the shaft,
tipped into the ore-pass systems, hoisted to the surface and conveyed to the metallurgical plant for gold extraction.
the mining of shaft pillars and scattered remnants. Harties has been converted from a high-grade mine with a short life to a medium-grade
mine with a longer life. This has been achieved in three stages, firstly, by the conversion of the previous owners' mine plan and operating
method, secondly, by dropping the pay limits and putting in place a medium-term operational plan including the opening up of old mining
areas for remnant mining, and thirdly, developing a sustainable life of mine plan that will be supported by areas not included in the
previous owners' mining plan due to high pay limits.
Mining and Processing
Gold Plant, or LGGP, with limited underground material. These plants had a combined operating capacity of 260,000tpm.
North West Operations is provided from the Kardell and Hermies substation located between Stilfontein and Orkney in the Buffels area.
Electricity is supplied directly from the national power grid to these substations at 88,000 volts. Further substations, located on mine site,
transform the power to 6,600 volts for direct supply to the shaft winder and air compressors. The power supply is further reduced to 525
volts for smaller devices and equipment used on the mine. The average annual power consumption is about 852 gigawatt hours, or GWHr
and the maximum demand is about 92 megawatts.
tailings complex. Based on the results of geo-chemical analyses performed, the tailings medium was prepared for vegetation by the
addition of lime to neutralize the natural acidic conditions and fertilizer. Vegetation was then established and care was taken to select
species endemic to the area. A variety of species selected were then planted to ensure species diversity using either the leaching
(irrigation) or dry land method. Regular monitoring was conducted. To address dust pollution in unvegetated areas, in the short-term, the
open surface areas on top of the tailings dam were ridge ploughed mechanically. This method significantly reduced dust re-suspension.
As an additional measure in inaccessible areas, environmentally friendly chemical and organic dust suppressants were employed, where
necessary.
however, of drawing down against the rehabilitation trust fund which was transferred to the DME upon the provisional liquidation of
Buffelsfontein.
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liquidation:
Durban Deep
Overview
the Witwatersrand Goldfield in 1886 at nearby Langlaagte.
37 million ounces of gold prior to the cessation of operations.
R15.0 million ($2.2 million). The option lapsed on November 19, 2005. On the exercising of the option the option fee would be deemed
part payment of the purchase consideration. If not, the option fee would be forfeited to us.
right in respect of the property in terms of an agreement dated December 1996, pursuant to which the property should be sold to them
on similar terms. We have since repudiated our agreement with M5 and have notified Rand Leases Properties Limited that we do not
intend offering the property to them. Both parties have indicated to us their intentions to institute legal proceedings for the sale and
transfer of the property. To date we have received no service of legal process related to this matter
Item 5A: “Operating Results.”
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and owns 3,667 acres (1,484 hectares) of freehold property. These include administrative buildings, hospital, recreation complexes,
housing in both hostel and free-standing houses and a security complex. We have title to substantial land tracts on the outskirts of the City
of Roodepoort, which is located in this section. We do not intend to convert our rights under the MPRD Act.
Mining and Processing
area.
Environmental and Closure Aspects
residual and latent environmental risks and impacts were identified and prioritized. The risks identified are currently being addressed in
accordance with the closure program.
dams, the closure program is also focused on the sealing of shafts and openings to the surface, the demolition and rehabilitation of shaft
infrastructure and the rehabilitation of open surface areas.
Central Basin water level is being maintained by pumping operations at ERPM, approximately 900 meters below surface.
hectares of additional vegetation was established on 2L24 Dump and, with the exception of Circular Shaft, all previously operational
shafts have now been closed and filled. All plugs used have been approved by the DME which also performs periodic inspections during
the sealing phase to monitor progress. However, despite these sealing programs, naturally occurring water conduits and other geological
features which are not mine-related and may not be located on mine property will allow surface water, especially storm runoff, to reach
underground aquifers. This will eventually cause water levels to rise.
environmental rehabilitation, restoration and closure costs on the balance sheet. A total of $2.1 million has been contributed to the
Environmental Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and who are
appointed as trustees by the Master of the High Court of South Africa.
West Wits
Overview
loan to WWGH, on April 1, 1996. We also acquired the entire issued share capital and the shareholders' claim and loan account of East
Champ d'Or Gold Mine Limited, a gold mining company with mining title in the West Rand. The mining assets were sold to Bophelo
Trading (Pty) Limited, subsequently renamed, Mogale Gold (Pty) Limited, or Mogale, during fiscal 2004, effectively leading to the
closure of the mining operation.
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all of its mining operations were situated. These rights were sold to Mogale during fiscal 2004.
5 degrees Celsius) in June and July to a maximum of 93 degrees Fahrenheit (34 degrees Celsius) in December and January.
initiative is to collectively collect, process and report environmentally sensitive information relating to the impact of underground water
seepage on to surface to DWAF. It has set itself the objective of putting in place the requisite infrastructure and technology to establish a
commercially self-sustainable entity to extract underground water, treat the same and to dispose of it either for commercial or agricultural
use. Representations to DWAF to allow the treatment and disposal of water on commercial terms were favorably received.
captures and treats underground water before it decants into the Tweelopiesspruit area and the Krugersdorp Game Reserve (which is just
upstream from the Sterkfontein Caves system) is in place. If the above initiatives fail and the ingress of water and the subsequent flooding
into sensitive areas occur, and to the extent that liability is attributed to us, and not only to West Wits, the amounts involved could be
significant.
History
1967
Mogale, for the sale of the West Wits gold plant, freehold areas, surface rights permits and certain related assets.
establishment of a regional underground water management vehicle.
Mining and Processing
prohibitively expensive. The mining operation is an agglomeration of old mines on the Randfontein Basin separated from the main part of
the Witwatersrand Basin by a geological structure known as the Witpoortjie Horst. Over fifteen different gold-bearing pebble horizons
have been mined. Ore has been mined from outcrops at the surface down to a maximum depth of 5,900 feet (1,798.3 meters).
gold since inception, before the cessation of underground and open-pit operations at the end of August 2000. Subsequent to the cessation
of mining operations, the metallurgical plant at West Wits was taken over by Crown for the processing of sand dumps only.
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closure program was prepared and submitted to the DME in December 2000. The drafting of the program was preceded by a
comprehensive risk assessment process, during which both residual and latent environmental risks and impacts were identified and
prioritized. The risks identified are currently being addressed by the West Wits, in accordance with the closure program submitted to the
DME. In order to mitigate the impact of windblown dust from dormant tailings dams in proximity to surrounding communities, dust
monitoring and mitigating measures are implemented as required. These surface deposits have been purchased by Mogale, who are
actively prospecting to determine mining potential and are therefore not being vegetated at present.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, we have estimated that the remaining
environmental rehabilitation, restoration and closure costs on the balance sheet. A total of $1.8 million has been contributed to the
Environmental Trust Fund. This is an irrevocable trust, managed by specific responsible people who we nominated and who are
appointed as trustees by the Master of the High Court of South Africa.
Legal Proceedings
Securities class action
same officers. The cases have been consolidated and a consolidated amended complaint has been filed. To date, neither us, nor the
individual defendants have been formally served with any complaint regarding these matters.
public statements regarding, among other things:
direction from court on a date to present argument on the application, if the judge decides to hear oral argument, or for a ruling on the
application, should he decide not to hear argument.
Rio Tinto Rawas Holdings Limited, Continental Goldfields Limited, Consolidated African Mines Limited, JCI (Isle of Man) Limited,
Weston Inv. Limited and Consolidated African Mines Australia Pty Limited, all of which were creditors of Laverton or Laverton
subsidiaries, below the average stated capital price. At the time, our then executive chairman, Mr. R.A.R. Kebble, was a director of
Laverton Gold NL and JCI Gold Limited. These ordinary shares were ostensibly issued pursuant to the planned acquisition of Rawas, a
gold mine located in Indonesia, in consideration for, or in anticipation of receiving, shares in and claims against various companies with
ownership interests in Rawas and its mining rights. Evidence came to light revealing that the ordinary shares were issued without our
legal authority and suggesting that this occurred as a result of a transaction entered into for the benefit of certain third parties. However,
because of subsequent trades, splits and consolidations, it was no longer possible to distinguish the affected shares from all of the other
ordinary shares resulting in their identity being lost. This meant that it was no longer possible to identify the invalidly issued shares or
their holders. Accordingly, it was not possible to remove these invalidly issued shares from our members' register. Under the South
African Companies Act, 1973 (as amended), the High Court of South Africa is permitted to validate an invalid share issuance. During a
shareholders' meeting in 2002, our shareholders, by special resolution, resolved to ratify the share issuance. We subsequently made an
application to the High Court of South Africa to validate the invalid issuance. This application was successful and the High Court
validated the issuance in July 2002.
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Limited and DRD Australasia Aps instituted action in the High Court of South Africa, against Messrs. R.A.R. Kebble, M. Prinsloo,
J. Stratton and H. C. Buitendag and JCI Limited. The following claims are being pursued:
for:
Liquidation of Buffelsfontein
levels in the area by pumping water from underground to surface at three of its own shafts, as well as the Margaret Shaft of the
neighboring Stilfontein Gold Mines Limited, or Stilfontein. The latter arrangement occurred in terms of an agreement entered into in 1992
between Stilfontein and Hartebeestfontein Gold Mines Limited, or Hartebeestfontein. Hartebeestfontein became a wholly-owned
subsidiary of Buffelsfontein when Buffelsfontein subsequently acquired Hartebeestfontein.
provisional liquidation. Relief was also sought against the relevant government departments to either assume responsibility for, or
contribute to the pumping of underground water. These proceedings were postponed after the DWAF issued various directives under
Section 19 of the Water Affairs Act against us, the provisional liquidators of Buffelsfontein, Harmony Gold, AngloGold Ashanti and
Stilfontein to continue with pumping operations and to contribute to pumping costs in equal shares. A total of three directives have been
issued, the last of which expired on October 21, 2005.
obligations that could arise relating to environmental rehabilitation and the management and pumping of underground water. The
proposed scheme of arrangement was conditional upon DWAF agreeing to substitute us with S&J to the extent that DWAF envisaged
imposing further responsibility on us. On October 21, 2005, the scheme of arrangement for the acquisition of Buffelsfontein proposed by
S&J and accepted by the majority of Buffelsfontein creditors, including us, was approved and sanctioned by the High Court of South
Africa. Buffelsfontein applied to the High Court for the lifting of its provisional liquidation which was granted on November 1, 2005.
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Supreme Court of Western Australia for payment of A$3.3 million ($1.9 million) plus interest in respect of dishonestly assisting
Mr. C. Mostert in making payments referred to below and receiving part of the proceeds of these wrongful actions.
Mr. R. Bryer in the Supreme Court of Western Australia for payment of A$378,000 ($238,560) in respect of undue payments
made to Newshore Nominees (Pty) Limited.
Australia Limited, Noble Investments (Pty) Limited and Mr. T. Lebbon for unauthorized and undue payment of A$5.9 million
($3.4 million) in connection with the purchase of 11,150,000 shares, of Continental Goldfields Limited, a publicly traded
company in Australia.
the over payment to Goldspark Limited of A$260,000 ($0.2 million) pursuant to an agreement for the purchase of 7,140,000
shares in Dome from Goldspark Limited as well as an undue and unauthorized payment to Transit Securities Inc of
A$2.0 million ($1.2 million).
Silver upon his retirement from the board of directors of Dome. Mr. M. Silver retired from Dome's board of directors in May 2000. The
contract was also entered into in May 2000. However, we believe that this contract is not enforceable as it was not authorized by our
directors or shareholders nor was it authorized by Dome's directors or shareholders. Therefore, we and Dome have not made any payment
to Mr. M. Silver. We believe that this action is without merit and will continue to vigorously defend against it. The trial on the matter was
heard on April 4 and 15, 2005 and September 12 to 14, 2005. At this stage it is not certain when judgment will be delivered.
investigator firm. Their claim is based on allegations that we hired AIN to invade their privacy by obtaining personal information about
them and to cause them embarrassment and commercial harm. They seek compensation for damages suffered as a result of these alleged
actions in an amount of R1.0 million ($0.2 million) each from us, Mr. M.M. Wellesley-Wood and AIN jointly and severally. In addition,
they seek punitive damages in a total amount of R10 million ($1.6 million) from us and AIN jointly and severally. The punitive damages
claim is unique under South African law. Initial hearings have taken place to decide a preliminary point raised by us that no such claim
exists in South African law. The court has ruled against us on a technicality, making a ruling to the effect that the tria l court will hear and
adjudicate this issue. We will continue to defend against these claims. We are currently awaiting the allocation of a trial date.
beginning in September 1999, and ending in April 2000, under a restraint of trade agreement entered into between us and Mr. R.A.R.
Kebble. We believe that Mr. R.A.R. Kebble has repudiated and/or materially breached the provisions of this agreement. We have,
accordingly, cancelled the agreement and we seek restitution of the amounts paid. Mr. R.A.R. Kebble has lodged a counterclaim,
claiming cancellation of an agreement providing for the payment of retirement benefits ($0.3 million), and challenging the cancellation of
share-options that he held at the time of his resignation from the our board. Both these claims are being defended.
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which we extended an option to purchase to JCI Limited and CAM Limited against payment of an agreed option fee, plus a further claim
for the reimbursement of costs, totaling R3.0 million ($0.5 million) which we had incurred on behalf of the defendants in the attempted
corporate reconstruction of Western Areas Limited and Randfontein Estates Gold Mine Limited. The matter was heard on August 30,
2004. At this date partial settlement of certain small claims related to the larger JCI Limited and CAM Limited claim, to the value of R2.4
million ($0.4 million), was awarded to us by the High Court of Johannesburg. On October 21, 2004, the High Court of Johannesburg
ordered JCI Limited and CAM Limited to pay us an amount of R35.7 million ($5.5 million), plus interest and co sts, including the costs of
two of our legal counsel. JCI Limited’s and CAM Limited’s counterclaim to recover the earlier part-payment was also dismissed with
costs. JCI Limited and CAM Limited made an application to the High Court of Johannesburg for leave to appeal, which was rejected. In
fiscal 2005, we received full payment of this claim.
complaint alleges that Mittal is abusing its dominant position by charging excessive prices for its local flat steel products and providing
inducements for steel purchasers to refrain from importing competing steel products. The Competition Commission dismissed our claim,
and the matter has since been referred to the Competition Tribunal, who has the authority to overrule the determination of the
commission. Evidence by a number of witnesses was adduced before the Competition Tribunal during March and April 2006 and the
matter was set down for November 29 and 30, 2006, for argument. At the Tribunal all parties presented their arguments and the Tribunal
will reserve judgment to be delivered on a later date.
Kagiso, who reside adjacent to tailings deposition sites of the now dormant Durban Deep mine, and at West Wits mine, respectively.
Whilst no financial compensation is sought, the communities are seeking orders for the revision of the EMPs of both sites, and for the
sites to be rehabilitated and closed in accordance with the standards of the MPRD Act. Whilst we are challenging the sustainability of the
legal basis on which the claims have been brought, as well the extent of the relief sought we have:
and
in discussion to and in collaboration with us, implement interim dust suppression measures pending Mogale’s initiatives to
obtain prospecting and mining permits for these sites.
We concluded an agreement with M5 on July 21, 2005, pursuant to which M5, against payment of a non-refundable fee of R1.5 million
($0.2 million), was granted an option to acquire Durban Deep’s mine village for R15.0 million ($2.2 million). On November 18, 2005,
M5 exercised the option and provided a guarantee for payment. Prior to the registration of the transfer occurring, we were notified by
Rand Leases Properties Limited (formerly JCI Properties Limited) of an alleged pre-emptive right in respect of the property in terms
of an agreement dated December 1996, pursuant to which the property should be sold to them on similar terms. We have since
repudiated our agreement with M5 and have notified Rand Leases Properties Limited that we do not intend offering the property to
them. Both parties have indicated to us their intentions to institute legal proceedings for the sale and transfer of the prop erty. To date
we have received no service of legal process related to this matter
Not applicable.
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statements and management's assessment of factors and trends which are anticipated to have a material effect on the Company's
financial condition and results in future periods. This section is provided as a supplement to, and should be read in conjunction with,
our audited financial statements and the other financial information contained elsewhere in this Annual Report. Our financial
statements have been prepared in accordance with US GAAP. 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.
principal uncertainties and variables facing our business and the primary factors that have a significant impact on our
operating performance.
or will impact, our performance.
performance.
estimates.
financial statements. The analysis is presented both on a consolidated basis, and by geographic segment.
sources.
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Business overview
including the requisite infrastructure and metallurgical processing plants. Our operations are located in South Africa, Papua New
Guinea and Fiji. We divide our worldwide operations into two geographic regions, based on revenue generated from the location of
the seller, as follows:
operation.
Vatukoula.
In fiscal 2006, the South African Operations accounted for 60% of our attributable production, 76% of our Ore Reserves, a
our Ore Reserves, a net loss after tax of $10.3 million and 72% of our total assets.
Exploration activities are undertaken in South Africa, Papua New Guinea, Fiji and Australia.
From 1895 to 1997, our principal mining operation was the Durban Deep mine. Up to 1999, our general growth strategy was
units by introducing low-cost mining methods and reducing costs through employing our experience in managing marginal gold mines
to more efficiently utilize existing infrastructures. Since 1999 our focus has been to expand our operations outside of South Africa by
acquiring lower cash cost and higher margin mines than those in South Africa, through the acquisition of Tolukuma, our 20% interest
in Porgera and our 78.9% interest in Emperor (Vatukoula).
our mining assets, following the acquisition of Crown, ERPM and Emperor, as well as $41.0 million spent on capital expenditure
during the year. Our working capital deficit in fiscal 2006 has, however, increased primarily as a result of the classification of the
Senior Convertible Notes as current liabilities.
As at June 30, 2006, we had Ore Reserves of approximately 8.8 million ounces, compared to 5.6 million ounces as at
Key drivers of our operating results and principal factors affecting our operating results
developing countries in which we operate.
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jewellery demand, expectations with respect to the rate of inflation, the strength of the Dollar (the currency in which the price of gold
is generally quoted) and of other currencies, interest rates, actual or expected gold sales by central banks, forward sales by producers,
global or regional political or economic events, and production and cost levels in major gold-producing regions such as South Africa.
In addition, the price of gold sometimes is subject to rapid short-term changes because of speculative activities. The demand for and
supply of gold may affect gold prices, but not necessarily in the same manner that supply and demand affect the prices of other
commodities. The supply of gold consists of a combination of new production from mining and existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. As a
general rule we sell the gold produced at market prices to obtain the maximum benefit from prevailing gold prices.
relevant exchange rates has been significant on our operating results. The average gold price in Rand and Australian Dollars has
shown the following movements:
ounce in fiscal 2005 (a 2% decrease from fiscal 2004) and R3,381 per ounce in fiscal 2006 (a 29% increase from fiscal
2005).
A$562 per ounce in fiscal 2005 (a 3% increase from fiscal 2004) and A$705 per ounce in fiscal 2006 (25% increase
from fiscal 2005).
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production of 199,850 in fiscal 2005 and 341,861 in fiscal 2004.
component of production costs, constituting 35% of production costs for fiscal 2006, as the majority of our mining operations are deep
level underground mines which are more labor intensive.
ounces in fiscal 2005, produced from 9.8 million tonnes milled at an average yield of 0.80g/t, and then increased to 315,976 ounces
produced from 12.3 million tonnes milled at an average yield of 0.80g/t in fiscal 2006. During fiscal 2006, the average Rand gold
price strengthened by 28%, in comparison to a declining average Rand gold price recorded over the preceding two fiscal years. This
created an opportunity to mine ore grades that were previously seen to be unprofitable. During fiscal 2005, our South African
Operations increasingly focused on mining higher grade ore panels, to achieve an increased yield from the tonnages milled, as a result
of the declining Rand gold price experienced at that time. Blyvoor produced 159,693 ounces from 4.3 million tonnes milled at an
aver age yield of 1.15g/t in fiscal 2006, in comparison with 161,878 ounces from 3.5 million tonnes milled at an average yield of
1.43g/t in fiscal 2005 and 233,094 ounces, produced from 3.1 million tonnes milled at an average yield of 2.33g/t in fiscal 2004. The
decrease in the grade noted in fiscals 2006 and 2005 was due to a decision taken to move out of seismically active areas, resulting in
lower grades being mined. Crown produced 75,959 attributable ounces from 6.2 million attributable tonnes milled at an average yield
of 0.38g/t in fiscal 2006, in comparison with 45,424 attributable ounces from 3.6 million attributable tonnes milled at an average yield
of 0.40g/t in fiscal 2005 and 51,982 attributable ounces, produced from 4.1 million attributable tonnes milled at an average yield of
0.40g/t in fiscal 2004. ERPM produced 80,324 attributable ounces from 1.8 million attributable tonnes milled at an average yield of
1.37g/t in fiscal 2006, in comparison with 44,600 attributable oun ces from 0.9 million attributable tonnes milled at an average yield of
1.55g/t in fiscal 2005 and 44,896 attributable ounces, produced from 0.3 million attributable tonnes milled at an average yield of
4.41g/t in fiscal 2004. The fiscal 2006 production at Crown and ERPM represents 100% of the production from December 1, 2005: Prior
to this date we owned 40% of Crown and ERPM.
from 1.6 million tonnes milled at an average yield of 6.07g/t in fiscal 2005, and then decreased to 211,425 ounces, produced from 1.5
million tonnes milled at an average yield of 4.53g/t in fiscal 2006. Our 20% interest in Porgera contributed 128,238 attributable
ounces in fiscal 2006, produced from 1.1 million attributable tonnes milled at an average yield of 3.64g/t, in comparison with
195,394 attributable ounces, produced from 1.2 million attributable tonnes milled at an average yield of 5.06g/t in fiscal 2005 and
147,475 attributable ounces, produced from 0.9 million attributable tonnes milled at an average yield of 4.87g/t in fiscal 2004
(acquired October 14, 2003). The decrease in fiscal 2006 was due to structural challenges experienced in the west wall cutback,
resulting in delayed production. Tolukuma has performed poorer in fiscal 2006, producing 54,790 ounces from 0.2 million tonnes milled
at an average yield of 8.83g/t, in comparison with 76,314 ounces from 0.2 million tonnes milled at an average yield of 11.25 g/t in fiscal
2005 and 85,715 ounces from 0.2 million tonnes milled at an average yield of 13.60g/t in fiscal 2004. This was due to poor weather
conditions preventing continuous freight movement to the mine site by helicopter, ultimately resulting in several plant shutdowns and
underground flooding caused by heavy rainfall during fiscal 2006. Vatukoula also performed poorer in fiscal 2006, producing 28,397
attributable ounces from 0.2 million attributable tonnes milled at an average yield of 5.49g/t, in comparison with 45,426 attributable
ounces from 0.2 million attributable tones milled at an average yield of 6.63 g/t in fiscal 2005 and 24,926 attributable ounces from
0.1 million attributable tonnes m illed at an average yield of 6.83g/t in fiscal 2004. Implementation of Vatukoula’s new Accelerated
Development and Training Program, or ACDTP, involved a temporary shutdown of the mine on April 20, 2006, and a gradual start-up
early in June 2006. Consequently, gold production for the fourth quarter was 88% lower than that of the comparative period in fiscal
2005. The ACDTP has been designed to introduce flexibility to production areas, improve infrastructure and increase the productivity of
the workforce. The plan includes development of higher grade areas at Philip Shaft and upgrading of associated shaft infrastructure. In
addition, the entire workforce will undergo comprehensive assessment, re-skilling and retraining. The fiscal 2006 production at Vatukoula
represents 100% of the production from April 6, 2006; prior to this we owned 39.52% (2005: 45.33% and 2004: 19.78%).
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General economic factors
risks relating to these specific countries. In conducting mining operations, we recognize the inherent risks and uncertainties of the
industry, and the wasting nature of the assets.
Effect of exchange rate fluctuations
are denominated in local currencies, such as the South African Rand, the Papua New Guinean Kina and the Fiji Dollar. In fiscal 2006,
we derived 100% of our revenues in Dollars and incurred approximately 80% of our production costs in these local currencies. Fiscal
2006 was marked by more consistency in the Dollar, leading to a weakening in the Rand-Dollar exchange rate, which accounted for a
$16 per ounce, or 3%, decrease in cash costs per ounce for our South African Operations from fiscal 2005 to fiscal 2006. This follows
the trend noted in fiscal 2005 which was marked by a stabilization of the prior year trends of the weakening of the Dollar against the
Rand. However, in fiscal 2005, this currency movement still accounted for approximately $4 per ounce, or 6%, of the total incr ease in
cash costs per ounce for our South African Operations from fiscal 2004. As the price of gold is denominated in Dollars and we realize
our revenues in Dollars, the depreciation of the Dollar against these local currencies reduces our profitability, whereas the appreciation
of the Dollar against these local currencies increases our profitability. Based upon average rates during the respective years, the Rand
weakened by 3% against the Dollar in fiscal 2006 compared to fiscal 2005 and strengthened 10% from fiscal 2004 to fiscal 2005. This
has led to an effective increase of 4% in the average Rand gold price in comparison to June 30, 2005 and a decrease of 10% in fiscal
2005, compared to fiscal 2004. The Kina, based on average rates in the respective fiscal years, weakened by 7% against the Dollar in
fiscal 2006 compared to fiscal 2005 and strengthened by 4% in fiscal 2005 compared to fiscal 2004. The Australian Dollar, based on
average rates in the respective fisca l years, strengthened by 1% against the Dollar in fiscal 2006 compared to fiscal 2005 and
weakened by 5% in fiscal 2005 compared to fiscal 2004, respectively.
As a predominantly unhedged gold producer we do not enter into forward gold sales contracts to reduce our exposure to
revenue from gold sales falls for a substantial period below our cost of production at our operations, we could determine that it is not
economically feasible to continue commercial production at any or all of our operations or to continue the development of some or all
of our projects. Our weighted average total costs per ounce for the continuing operations of our subsidiaries, as well as Porgera, was
$525 per ounce of gold produced in fiscal 2006, $449 per ounce in fiscal 2005 and $418 per ounce in fiscal 2004. The average gold
price received, from continuing operations, was $531 per ounce in fiscal 2006, $423 per ounce in fiscal 2005 and $393 per ounce in
fiscal 2004.
In addition, to fund local operations and comply with South African exchange controls, we hold funds in local currencies,
fluctuations and, as a result, our cash and cash equivalents reported in Dollars could change. At June 30, 2006, approximately 52% of
our cash and cash equivalents (including restricted cash), being $35.3 million, were held in such currencies, compared with 64%, or
$14.8 million, at June 30, 2005, and 66%, or $14.8 million, at June 30, 2004.
Results.”
Results.”
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devaluation of the local currency or an increase in the price of gold, our costs will increase, negatively affecting our operating results.
The movement in the Rand/Dollar exchange rate, based upon average rates during the periods presented, and the local annual
profitability experienced as a result of the movement in the CPIX inflation rate, as illustrated above.
The movement in the Kina/Dollar exchange rate, based upon average rates during the respective years, and the local annual
movement in the CPIX inflation rate.
The movement in the Fiji Dollar/Dollar exchange rate, based upon average rates during the respective years, and the local
exchange control regulations. Governmental officials have from time to time stated their intentions to lift South Africa’s exchange
control regulations when economic conditions permit such action. Over the last few years, certain aspects of exchange controls for
companies and individuals have been incrementally relaxed. It is, however, impossible to predict when the South African Government
will remove exchange controls in their entirety. South African companies remain subject to restrictions on their ability to export and
deploy capital outside of the Southern African Common Monetary Area, unless dispensation has been granted by the South African
Reserve Bank. For a detailed discussion of exchange controls, see Item 10D.: “Exchange controls.”
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have been placed under the custodianship of the South African government under the provisions of the MPRD Act, and old order
proprietary rights need to be converted to new order rights of use within certain prescribed periods. We have submitted certain
applications in this regard. This process is described more fully under Item 4B.: “Business Overview – Governmental regulations and
their effects on our business - South Africa – Common Law Mineral Rights and Statutory Mining Rights.”
Papua New Guinea and Fiji political, economic and other factors
Our operations based in Papua New Guinea and Fiji are also subject to political and economical uncertainties, including the
or taxation policies, currency exchange restrictions and international monetary fluctuations.
To enable cash surpluses from Papua New Guinea companies to be applied to entities in Australia or Fiji, the exchange
money to, borrow money from or pledge security to, for or on behalf of an Australian or Fiji entity an approval will be required from
the Papua New Guinea Central Bank. Whether that approval is granted depends on the precise nature and terms of the proposed
transaction. The Papua New Guinea Central Bank does not provide prospective rulings. Before any funds can be remitted out of Papua
New Guinea over a limit of Kina 200,000 in any one calendar year a tax clearance must be obtained from the Internal Revenue
Commission of Papua New Guinea. This applies to both the remittance of declared dividends and the remittance of advanced funds. If
the Papua New Guinea operating company has outstanding filings or taxes due, the approval will be withheld until the taxation affairs
are put in ord er. There is a dividend withholding tax on funds remitted out of Papua New Guinea as dividends and if funds are
borrowed from overseas a withholding tax on interest. There are certain special arrangements applicable to borrowings by mining
companies and if structured appropriately the Papua New Guinea operating entities might be able to avail themselves of certain
exemptions from interest withholding tax. The Papua New Guinea requirements will be additional to any requirements of Fiji or
Australian authorities on the other end of any intercompany transaction.
Due to a change in Fijian tax legislation, a withholding tax is now payable on interest on intercompany loans.
Recent acquisitions and dispositions
trend and to identify value-adding business combinations and acquisition opportunities. To ensure that our Ore Reserve base is
maintained, or increased, we are currently focusing on acquiring low cost, high margin mines in other global regions.
On November 16, 2005, we concluded a sale and purchase agreement with Emperor, in terms of which Emperor acquired our
Porgera Joint Venture, a 100% interest in Tolukuma and all of the exploration tenements in Papua New Guinea. Implementation of the
transaction required the restructuring of our offshore operations, whereby DRD (Isle of Man) transferred the following material assets
to our new wholly owned subsidiary, DRD (Offshore) on January 1, 2006:
Emperor, in terms of which we can elect to convert such debt facility into additional Emperor shares at $0.23 (A$0.30) per
Emperor share.
On March 31, 2006, we sold DRD (Isle of Man) to DRD (Offshore) and on April 6, 2006, DRD (Offshore) sold DRD (Isle of
the capital position of both Emperor and DRD (Isle of Man) between October 1, 2005, which was the effective date, and completion
of the transaction on April 6, 2006. The purchase consideration was settled by the issue of 751,879,699 new Emperor shares at $0.266
per share (valued at $200.0 million) to DRD (Offshore), a cash consideration of $32.3 million and a short-term loan provided by DRD
(Offshore) to the value of $5.0 million.
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transactions could not be separated and are accounted for as one transaction. The transaction has been accounted for by the Company as a
partial sale of DRD (Isle of Man) and a partial acquisition of Emperor. Accordingly a profit has been recognized by the Company on the
portion of DRD (Isle of Man) sold to minority shareholders. The Company has revalued the assets and liabilities of Emperor to the extent
acquired and has revalued the assets and liabilities of DRD (Isle of Man) to the extent that DRD (Isle of Man) was acquired by the
minority shareholders at the date of acquisition. The purchase consideration is the fair value of the assets transferred to Emperor and the
fair value of the additional interest acquired in Emperor.
On December 5, 2006, after an extensive three-month review of Vatukoula, we determined that continued mining operations
strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed on a care and
maintenance program.
the 10-year, 26% black economic empowerment equity requirement as stipulated in the Mining Charter. On October 27, 2005, our board
of directors approved the black economic empowerment transaction. In addition, on July 20, 2005, we acquired, from the IDC all of its
Crown and ERPM debt through the issue of 4,451,219 shares, which at the date of issue represented $4.5 million (R28.9 million).
been granted an option, exercisable over the next three years, to acquire a further 11% interest in DRDGOLD SA for the payment
consideration of $1.4 million (R9.3 million). This further equity tranche will include a 6% stake to be placed in a new, proposed
Employee Trust. The transaction was financed by the issuance of $4.8 million (R31.8 million) new Khumo Gold preference shares, to
which we subscribed. The proceeds from these preference shares were used by Khumo Gold to settle an existing loan to KBH of
$1.2 million (R7.9 million), subscribe for $0.6 million (R4.1 million) new preference shares in ERPM, subscribe for $0.4 million
(R2.7 million) new preference shares in Crown, subscribe for $0.6 million (R3.9 million) new preference shares in Blyvoor and
subscribe for an initial 15% of the issued ordinary shares in DRDGOLD SA for $2.0 million (R13.2 million).
(R4.3 million). After exercising the option, Khumo Gold's shareholding in DRDGOLD SA increased by 5% to 20%. In addition,
Khumo Gold, as promoter for an employee trust, exercised the option for an employee trust to acquire from us 60,000 ordinary shares
in DRDGOLD SA for a consideration of $0.7 million (R5.1 million). After exercising the option, the trust's shareholding in
DRDGOLD SA is 6%. We will finance the transaction, on condition that the terms of the finance are determined by independent
experts to be fair and reasonable to our shareholders. It is proposed that we will subscribe for preference shares in Khumo Gold and
extend a loan to the trustees of the trust.
November 18, 2005, M5 exercised the option and provided a guarantee for payment. Prior to registration of transfer occurring, we
were notified by Rand Leases Properties Limited (formerly JCI Properties Limited) of an alleged pre-emptive right in respect of the
property in terms of an agreement dated December 1996, and demanding that the property be sold to them on similar terms. We have
since repudiated the agreement of sale with M5, but have also notified Rand Leases Properties Limited that we do not intend offering
the property to them. Both parties have indicated that they intend to institute legal proceedings for the sale and transfer of the property
and we await service of legal process
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We consider the key performance measures for the growth of our business and its profitability to be gold revenue, production,
the key performance measurement data for the past three fiscal years:
Continuing operations
Discontinued operation
entities becoming subsidiaries. The operating data includes our 20% attributable interest in the proportionately consolidated Porgera
Joint Venture.
Results.”
Results.”
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from 433,586 ounces in fiscal 2005 to 462,058 ounces in fiscal 2006. The effect on revenue of the increased gold price was offset
marginally by the weakening of local currencies against the Dollar and widespread production problems, especially in the Australasian
Operations.
The effect on revenue of the increased gold price was offset by the decrease in production of 32,698 ounces from fiscal 2004. On
March 22, 2005 we announced the provisional liquidation of the North West Operations. Revenues from the North West Operations
for the period ended March 22, 2005 were $81.5 million compared to $130.0 million in fiscal 2004. These operations have been
treated as a discontinued operation.
reporting periods accordingly.
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Attributable gold production from our continuing South African Operations increased by 25% from 251,902 ounces produced
Operations, which included the acquisition of 60% of Crown and ERPM on December 1, 2005. At Blyvoor an increasing level of
seismicity was experienced in the high-grade No. 5 Shaft areas in the first half of fiscal 2006. Consequent concerns for employee
safety prompted the development of a volume-driven mine plan involving less mining from the affected high-grade No. 5 Shaft areas
and more mining from the lower-grade No. 6 Shaft areas. While rock dump material declined both in volume and grade as forecast,
the slimes dam retreatment project at Blyvoor showed improvement both in terms of volume and grade, notwithstanding setbacks due
to higher than average summer rainfall.
reporting periods accordingly.
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failure of the west wall at Porgera in fiscal 2005, leading to reliance on low-grade, long-term stockpile material as the primary ore
feed, together with damage to access infrastructure caused by heavy rainfall, power failures and a strike related to a change of
management from Placer Dome to Barrick, had a negative impact on production at Porgera. At Tolukuma production was adversely
affected by a lack of available face in the first half of fiscal 2006 and the consequent treatment of low-grade underground stockpiles,
as well as production disruptions caused by underground flooding. At Vatukoula production for fiscal 2006 was adversely affected by
an amalgam of factors including a lack of available face, shaft infrastructure problems, ageing underground equipment, inflows of hot
water, high underground working temperatures and deteriorating ground conditions.
For fiscal 2005, our total attributable gold production from continuing operations (including our attributable production from
Attributable gold production from our continuing South African Operations decreased by 24% from 329,972 ounces
Blyvoor and the restructuring, which impacted productivity, completed in the second quarter of fiscal 2005 at Blyvoor. At Crown the
Knights plant’s absorption of tonnage from ERPM’s Cason surface retreatment operations was relatively smooth, however the Crown
plant did not meet expectations largely due to a general decrease in grade, less reclamation site flexibility and pipeline failures.
Attributable gold production at the Australasian Operations increased by 23% from 258,116 ounces in fiscal 2004 to 317,134
grades and the installation of a secondary crusher. Vatukoula faced operational problems during fiscal 2005, ranging from halted
production at the Philip Shaft, where a winder failed, lower than expected grades and delays in the supply of components needed to
rebuild the heavy vehicles.
The North West Operations were placed under provisional liquidation on March 22, 2005, following a series of events
A more detailed review of gold production at each of our operations is provided under Item 4D.: “Property, Plant and
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operations increased to $536 per ounce of gold from $449 per ounce of gold in fiscal 2005.
In fiscal 2006, the cash costs per ounce from our continuing South African Operations increased by 4%, from $464 per ounce
ounce to $421 per ounce, compared to fiscal 2005. The marginal increase in cash costs per ounce at our South African Operations was
mainly due to price increases in key consumables (labor, consumables and electricity) and a decrease in production at Blyvoor,
partially offset by the relatively lower cash costs per ounce at Crown and ERPM. The increase in cash costs per ounce at our
Australasian Operations was primarily attributable to operational problems at Tolukuma, costs associated with the West Wall
remediation at Porgera and a six-week shut down of operations in the fourth quarter of fiscal 2006 at Vatukoula.
In fiscal 2005, the cash costs per ounce from our continuing South African Operations increased by 18%, from $393 per
per ounce to $226 per ounce, compared to fiscal 2004. The increase in cash costs per ounce at our South African Operations was
mainly attributable to the strengthening of the Rand against the Dollar, price increases in key consumables, a decrease in production
due to the poor recoveries at the Slimes Dam Project and the restructuring completed in the second quarter of fiscal 2005 at Blyvoor.
The increase in cash costs per ounce at our Australasian Operations was due to less efficient mining and increased costs associated
with consumables and services, especially the cost of fuel.
Our total cost per ounce from continuing operations, increased from $418 per ounce in fiscal 2004 to $449 per ounce in fiscal
in South Africa in fiscal 2005, unrealized foreign exchange losses of $9.3 million ($15 per ounce) recorded in fiscal 2005, compared
to unrealized foreign exchange gains of $10.7 million ($26 per ounce) recorded in fiscal 2004.
Results.”
Results.”
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and exploration costs. Cash costs per ounce are calculated by dividing production costs by ounces of gold produced. Cash costs per
ounce have been calculated on a consistent basis for all periods presented.
Total production costs include cash costs of production, depreciation, depletion and amortization and the accretion of
the cumulative effect of accounting changes. These costs are excluded as the mines do not have control over these costs and they have
little or no impact on the day-to-day operating performance of the mines. Total costs per ounce are calculated by dividing total costs
by attributable ounces of gold produced. Total costs and total costs per ounce have been calculated on a consistent basis for all periods
presented.
(loss)/profit before tax and other items or any other measure of financial performance presented in accordance with US GAAP or as an
indicator of our performance. While the Gold Institute has provided definitions for the calculation of cash costs, the calculation of cash
costs per ounce, total costs and total costs per ounce may vary significantly among gold mining companies, and these definitions by
themselves do not necessarily provide a basis for comparison with other gold mining companies. However, we believe that cash costs
per ounce, total costs and total costs per ounce are useful indicators to investors and management of an individual mine's performance
and of the performance of our operations as a whole as they provide:
by each mine for each of those periods.
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(in $'000, except as otherwise noted)
reclamation and closure costs .......................
charges ............................................................
proportionately consolidated Porgera Joint Venture.
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(in $'000, except as otherwise noted)
reclamation and closure costs .................... (1,353)
charges ........................................................
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(in $'000, except as otherwise noted)
reclamation and closure costs .................
charges .......................................................
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African Operations, capital expenditure increased from $0.8 million in fiscal 2005 to $14.1 million in fiscal 2006, mainly due to
$8.8 million spent on opening up and development related to implementation of the new mine plan at Blyvoor, infrastructural
improvements of $1.6 million at ERPM and $2.0 million towards the installation of the new mills at the Knights plant at Crown.
Capital expenditure in the Australasian Operations, increased from $20.5 million in fiscal 2005, to $26.9 million in fiscal 2006. Of this
expenditure $17.2 million related to Porgera, as a result of capitalized deferred stripping costs and remediation work following the
failure of the west wall in fiscal 2005. In addition, $11.1 million was spent at Vatukoula in the initial phase of upgrading the Philip
Shaft infrastructure, $5.2 million of which was in fiscal 2006 since becoming a subsidiary, the replacement of outdated underground
equipment, and improved underground environmental control. Tolukuma has spent $2.8 million on mine development and
$1.5 million on heavy equipment in fiscal 2006.
$0.8 million in fiscal 2005, due to an increased focus on efficient utilization of existing assets. This expenditure included the
installation of a Knelsen concentrator and Acacia reactor at the Blyvoor plant. Capital expenditure in the Australasian Operations,
increased from $12.2 million in fiscal 2004, to $20.5 million in fiscal 2005. Of this expenditure $17.2 million related to Porgera,
mostly as a result of capitalized deferred stripping costs of $11.1 million and $3.4 million to Tolukuma.
Reserves have increased by 3.8 million ounces, or 68%. This is primarily due to the acquisition of Crown and ERPM and the stronger
gold price. As at June 30, 2005, our Ore Reserves from continuing operations were estimated at 5.6 million ounces, as compared to
approximately 6.0 million ounces at June 30, 2004, representing a 7% decrease. Excluding the effect of depletion, the reserves had in fact
increased by 3% due to continued efforts to explore and prove up Ore Reserves at Tolukuma.
reporting periods accordingly.
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uncertainty and are based on our historical experience, terms of existing contracts, management's view on trends in the gold mining
industry and information from outside sources.
individual mines) using the units of production method. Under the units of production method, we estimate the amortization rate based on
actual production over total Proven and Probable Ore Reserves of the particular mine. This rate is then applied to actual costs capitalized
to date to arrive at the amortization expense for the period. Proven and Probable Ore Reserves of the particular mine reflect estimated
quantities of economically and legally recoverable reserves, as determined in accordance with the SEC's Industry Guide 7 under the US
Securities Exchange Act of 1934. The estimate of the total reserves of our mines could be materially different from the actual gold mined
due to changes in the factors used in determining our Ore Reserves, such as the gold price, for eign currency exchange rates, labor costs,
engineering evaluations of assay values derived from sampling of drill holes and other openings. Any change in management’s estimate
of the total Proven and Probable Ore Reserves, would impact the amortization charges recorded in our consolidated financial statements.
Deferred stripping costs
operations stripping costs are expensed in the period in which they are incurred. Stripping costs included in mining assets as at
June 30, 2006, for Porgera were $23.6 million (June 30, 2005: $12.5 million; June 30, 2004: $3.5 million) with $12.9 million capitalized
to mining assets during fiscal 2006 (fiscal 2005: $11.1 million; fiscal 2004: $4.1 million). During fiscal 2006, the average stripping ratio
for Porgera was 9.2 in comparison with the life of mine stripping ratio of 10.2. Wedge and mudstone failure on the West Wall of the
Stage 5 pit at Porgera at the end of fiscal 2005 created unplanned waste material, which is in the process of being removed, which has
negatively affected the life of mine stripping ratio. The stripping ratio is determined based on the life of mine plan. The estimate of the
total reserves of a mine could be materially different from the actual gold mined and from the actual usage of a mine due to changes in the
factors used in determining the economic value of our mineral reserves and deferred stripping costs, such as the gold price and foreign
currency exchange rates. Any change in management’s estimate of the total expected future life of a mine would impact the amortization
charge recorded and deferred stripping capitalized in our consolidated financial statements.
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dramatic change in the manner in which the Ore Reserves are used, a substantial drop in the gold price, a change in the law or
environment in the country in which the Ore Reserves are based or gold is sold, forecasts showing lack of long-term profitability or
production costs are in excess of an amount originally expected when the asset was acquired or constructed. Recoverability of an asset or
asset group is assessed by comparing the carrying amount of an asset or group of assets to the estimated future undiscounted net cash
flows of the asset or group of assets. Estimates of future cash flows include estimates of future gold prices and foreign exchange rates.
Therefore, changes could occur which may affect the recoverability of our mining assets. If an asset or asset group is considered to be
impaired, the impairment which is recognized is measured as the amount by which the carrying amount of the asset or group of assets
exceeds the discounted future cash flows expected to be derived from that asset or group of assets. The expected future cash flows are
discounted at a market rate commensurate with the risk in the respective geographic locations in which our assets are held. The asset or
asset group is the lowest level for which there are identifiable cash flows that are largely independent of other cash flows. In carrying out
the economic valuations, an assessment is made of the future cash flows expected to be generated by these assets, taking into account
current market conditions and the expected lives of our assets. The lowest level for which there are identifiable cash flows that are largely
independent of other cash flows is calculated on a mine-by-mine basis. We make the analysis periodically on a mine-by - -mine basis or
when indicators of impairment exist. During fiscal 2006, $nil was recorded as an impairment and during fiscal 2005 and 2004,
$0.7 million and $1.4 million (from the discontinued operation), respectively, were recorded as an impairment by applying these
principles.
Deferred income and mining taxes
amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate
changes enacted during the year.
deferred tax assets requires management to make significant estimates related to expectations of future taxable income. If these tax assets
are not more likely than not to be realized, an adjustment to the valuation allowance would be required, which would be charged to
income in the period that the determination was made. If we determine that it is more likely than not that we would be able to realize the
tax assets in the future, in excess of the recorded amount thereof, an adjustment to reduce the valuation allowance would be recorded.
Management considers historical taxable positions in determining if a tax asset will be utilized, specifically with reference to the
immediately preceding three fiscal years. As a result of these determinations, increases in the valuation a llowance of $0.3 million,
$10.1 million and $16.9 million were recorded during fiscal 2006, 2005 and 2004, respectively. The bulk of these related to our
continuing South African Operations. In addition, an increase in the valuation allowance relating to our discontinued operation, the North
West Operations, amounting to $70.2 million was recorded in fiscal 2004.
adopted it on July 1, 2002. SFAS 143 requires that the fair value of liabilities for asset retirement obligations be recognized in the period
in which they are incurred. A corresponding increase to the carrying amount of the related asset, where one is identifiable, is recorded and
is depreciated over the life of the asset. Prior to the adoption of SFAS 143, we accrued for the estimated reclamation and closure liability
through annual charges to earnings over the estimated life of the mine.
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these costs is complex and requires management to make estimates and judgments because most of the removal obligations will be
fulfilled in the future and contracts and regulations often have vague descriptions of what constitutes removal. These estimates are subject
to changes in regulations and unexpected movements in inflation rates and are, therefore, subject to annual review to ensure that the asset
and liability is a fair reflection of the expected reclamation and closure costs as at June 30 of every year. The actual liability for
rehabilitation costs can vary significantly from our estimate, if our assessment of these costs changes. As we use the expected cash flow
technique to determine our future liability, the liability is determined by discounting the estimated cash flows using a credit-adjusted risk-
free rate. Thus, the effect of our credit standing is reflected in the discount rate rather than in the estimated cash flows. As at
June 30, 2006, the discount rate was determined to be 7.26%.
was recorded in fiscal 2006, 2005 and 2004, respectively, including the discontinued operation.
Collectability of receivables
affecting the receivable are considered. These principles were applied in evaluating the collectability of the receivables owed by Crown
and ERPM (prior to these operations becoming subsidiaries), as well as KBH and Mogale. Advances to the value of $1.9 million were
provided for in fiscal 2004. No further advances were made during fiscal 2005 and 2006, however we provided for $0.6 million against
the receivable owed by Mogale in fiscal 2005. In fiscal 2006 an agreement was signed with the IDC pursuant to which we acquired all of
the IDC loans, including the rights securing payment of such loans, to Crown and ERPM for a purchase consideration of $4.5 million. As
uncertainty over the repayment of the loans existed subsequent to their acquisition, an allowance of $4.5 million was rais ed.
Post-retirement medical benefits
dependants of ex-employees. These liabilities are provided in full, calculated on an actuarial basis. Periodic valuation of these
obligations is carried out by independent actuaries using appropriate mortality tables, long-term estimates of increases in medical costs
and appropriate discount rates. Actuarial gains and losses are included in determining net income or loss. At June 30, 2006 a provision
of $2.3 million (June 30, 2005: $nil) for post-retirement medical benefits has been raised. During fiscal 2006, we expensed
$0.5 million (2005: $nil; 2004: $nil) relating to these post-retirement medical benefits.
assumptions occur.
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Comparison of financial performance for the fiscal year ended June 30, 2006 with fiscal year ended June 30, 2005
Revenue
offset by an increase in the Dollar gold price received at all the operations. The average gold price received by us increased from $423
per ounce in fiscal 2005 to $531 per ounce in fiscal 2006.
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in fiscal 2006 increased by 55% to $211.6 million compared to production costs of $136.5 million in fiscal 2005. This increase was
primarily attributable to production and trough-put problems at the Australasian Operations as well as the acquisition of Crown,
ERPM and Emperor.
Shaft areas in the first half of the year. Consequent concerns for employee safety prompted the development of a volume-driven mine
plan involving less mining from the affected high-grade No. 5 Shaft areas and more mining from the lower-grade No. 6 Shaft areas.
While rock dump material declined both in volume and grade as forecast, the slimes dam retreatment project at Blyvoor showed
improvement, both in terms of volume and grade, notwithstanding setbacks due to higher than average summer rainfall. At Crown and
ERPM, production costs were $26.7 million and $28.6 million from December 1, 2005, producing 56,000 ounces and 61,278 ounces,
respectively, during this time.
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This, together with damage to access infrastructure caused by heavy rainfall, power failures and a strike related to a change of
management from Placer Dome to Barrick, had a negative impact on production. At Tolukuma production was adversely affected by a
lack of available face in the first half of fiscal 2006 and the consequent treatment of low-grade underground stockpiles, as well as
production disruptions caused by underground flooding, leading to an increase in production costs from $25.3 million in fiscal 2005 to
$33.4 million in fiscal 2006. At Vatukoula, production costs from April 6, 2006, amounted to $7.5 million. Production costs at
Vatukoula were adversely affected by an amalgam of factors including a lack of available face, shaft infrastructure problems, ageing
underground equipment, inflows of hot water, high underground working temperatures and deteriorating ground conditions.
As of June 30, 2006, we estimate our total rehabilitation provision, being the discounted estimate of future costs, to be
compared to $22.6 million at June 30, 2005. Accretion of $2.4 million was recorded in fiscal 2006, and $2.7 million (relating to
continuing operations only) was recorded in fiscal 2005.
A total of $8.3 million was invested in our various environmental trust funds as at the end of fiscal 2006, as compared to
also made during the year under review, due to under-funding of the liability at certain South African Operations. The shortfall
between the trust funds and the estimated provisions is expected to be financed by ongoing financial contributions over the remaining
production life of the respective mining operations.
Depreciation and amortization
Depreciation and amortization charges relating to the continuing operations were $24.8 million for fiscal 2006 compared to
Employment termination costs
Employment termination costs decreased to $0.9 million in fiscal 2006 from $4.2 million for fiscal 2005. In fiscal 2006, these
and the retrenchment of 120 employees, at a cost of $0.7 million, after the temporary shut down in April 2006 of Vatukoula for
restructuring.
Impairment of assets
During fiscal 2006 an impairment of $nil was recorded compared to an impairment of $0.7 million in fiscal 2005.
Management and consulting fees
Management and consulting fees in fiscal 2006 decreased by $4.3 million to $2.4 million compared to $6.7 million in fiscal
instituted.
Profit/(loss) on derivative instruments
Changes in the fair value of derivative instruments in fiscal 2006 resulted in a gain of $10.8 million, as compared with a gain
component of the senior convertible loan notes, a profit of $5.4 million (2005: $3.8 million)
Selling, administration and general charges
The selling, administration and general charges increased in fiscal 2006 to $19.0 million as compared to $17.8 million in
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Interest and other income decreased from $2.4 million in fiscal 2005 to $1.7 million in fiscal 2006. In fiscal 2005, we earned
institutions.
Unrealized foreign exchange (losses)/gains
Our functional currency is the Rand for our South African Operations, the Kina for our Papua New Guinean Operations and
of $9.3 million for fiscal 2005, represents the effect of the translation of monetary items, primarily external debt, which is
denominated in currencies other than our functional currencies.
Profit on disposal of subsidiaries
Emperor. Accordingly a profit has been recognized on the portion of DRD (Isle of Man) sold to minority shareholders. This profit
represents the excess of the portion of the fair value of DRD (Isle of Man) sold over that portion of its historical cost. In fiscal 2006, we
also realized a profit on the sale of Stand 752 Parktown Extension (Pty) Limited (a subsidiary which owned our corporate offices) of
$0.1 million.
Interest expense
Our interest expense increased to $11.5 million for fiscal 2006 as compared to $11.4 million for fiscal 2005. This expense is
fiscal 2006. The increase in the long-term debt, however, mostly relates to borrowing facilities with the ANZ Banking Group Limited,
held by Emperor and its subsidiaries. Emperor became our subsidiary in April 2006, therefore the interest expense relating to these
facilities has not been included in the consolidated results for the entire year.
Income and mining tax expense
The net tax expense of $4.1 million for fiscal 2006 comprises a current taxation charge of $2.4 million mainly relating to
$12.6 million and a net deferred tax benefit of $6.8 million in fiscal 2005. The decrease in the current taxation charge is due to the
decreased profitability of our Australasian Operations. The increase in the deferred tax charge was mainly as a result of the increase in
the life of mine of Porgera.
A loss of $19.9 million was recorded during fiscal 2006 in relation to Emperor and Crown, which were previously our
carried at nil value, until April 6, 2006, from which date Emperor has been consolidated as a subsidiary. Furthermore, during fiscal
2006, we acquired loans from the IDC, which the IDC previously held with Crown, our previous associate, and its subsidiary, ERPM.
These loans were acquired as part of the restructuring of the South African Operations. As uncertainty over the repayment of the loans
existed subsequent to their acquisition, an allowance of $4.5 million was raised. The investment in Crown was carried at nil value until
December 1, 2005, the date that Crown became a subsidiary.
Profit from discontinued operation, net of taxes
In fiscal 2006 we recovered costs of $2.9 million from the liquidator relating to the liquidation of Buffelsfontein Gold Mines
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Revenue
the continuing South African Operations, because of poor recoveries at the Slimes Dam Project, the restructuring completed in the
second quarter of our financial year at Blyvoor and the yield at these operations decreasing in fiscal 2005. The decrease in production
in fiscal 2005 was partially offset by a stronger Dollar gold price received during the year. The average gold price received by us was
$423 per ounce in fiscal 2005, compared to $393 per ounce in fiscal 2004.
Production costs
The following table illustrates the year-on-year change in production costs from continuing operations by evaluating the
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As gold mining in South Africa is very labor intensive, labor costs and contractor services are the largest components of our
production costs of $136.5 million in fiscal 2005, compared to $143.0 million in fiscal 2004. The decrease of 5% is mostly as a result
of a decrease in production volumes at the continuing South African Operations which have been partially offset by an increase in
production at the Australasian Operations. The majority of our production costs are incurred in local currencies and foreign exchange
movements on these costs also contributed to the increase in production costs.
Rehabilitation provision
As of June 30, 2005, we estimated our total rehabilitation provision being the discounted estimate of future costs, to be
($18.5 million of this balance relating to the discontinued North West Operations). Accretion of $2.7 million was recorded in fiscal
2005 and $1.2 million was recorded in fiscal 2004, relating to the continuing operations. The total rehabilitation provision of
$19.6 million on March 22, 2005, relating to the North West Operations, was transferred to the liquidators.
A total of $6.4 million was invested in our various environmental trust funds at the end of fiscal 2005, as compared to
of the fiscal 2004 balance having been transferred to the liquidators of Buffelsfontein Gold Mine Limited (the North West
Operations). The shortfall relating to the continuing operations is expected to be financed by ongoing financial contributions to the
Environmental Rehabilitation Trust Funds of the respective mining operations.
Depreciation and amortization
Depreciation and amortization charges were $13.8 million for fiscal 2005 as compared to $26.0 million for fiscal 2004. This
underground operations and non-recurring amortization charges during fiscal 2004, which were associated with the restructuring of
Tolukuma.
Employment termination costs
Employment termination costs increased to $4.2 million for fiscal 2005 as compared to $0.9 million for fiscal 2004. For fiscal
retrenched at a cost of $3.1 million, by October 5, 2004. In addition, retrenchments at our head office, to improve corporate
efficiencies and minimize corporate expenditure, gave rise to an expense of $1.2 million in fiscal 2005.
Impairment of assets
During fiscal 2005, real estate located at the Durban Deep mine was written down by $0.7 million to $2.2 million, being the
negotiations.
Management and consulting fees
Management and consulting fees in fiscal 2005 increased by $4.3 million to $6.7 million compared to $2.4 million in fiscal
complying with the Sarbanes-Oxley Act of 2002 and capital raisings.
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The profit/(loss) on derivative instruments in fiscal 2005 was a gain of $3.6 million, as compared with a loss of $1.0 million
$1.4 million compared to the remaining 50,000 ounces which were closed out in fiscal 2005, realizing a loss of $0.4 million. Due to
higher interest rates in fiscal 2005, the fair value adjustment on the interest rate swap was a profit of $0.2 million compared to a loss of
$1.6 million in fiscal 2004. The fair value adjustment on the derivative portion of the senior convertible notes was a profit of
$3.8 million in fiscal 2005 (2004: $2.0 million).
In fiscal 2005, the selling, administration and general charges decreased by $4.8 million to $17.8 million from $22.6 million
contributed to the reduction of these expenses.
Interest and other income
Interest and other income increased by $1.2 million, or 100%, from $1.2 million during fiscal 2004 to $2.4 million during
held at financial institutions.
Unrealized foreign exchange gains
Our functional currency is the Rand for our South African Operations and the Kina for the Papua New Guinea Operations.
the effect of the translation of monetary items, primarily external debt, which is denominated in currencies other than our functional
currencies.
Interest expense
Our interest expense increased to $11.4 million for fiscal 2005 as compared to $7.8 million for fiscal 2004. The increase was
fiscal 2005.
Income and mining tax expense
The net tax expense for fiscal 2005 comprised a deferred tax benefit of $6.8 million and a current tax charge of $12.6 million.
increase in the current tax charge mostly related to the inclusion of Porgera for a full year compared to nine months in fiscal 2004. In
fiscal 2004, $5.5 million of the deferred tax charge related to the South African Operations and $1.3 million related to the Australasian
Operations. Valuation allowances of $30.5 million were raised against the deferred tax assets of the South African Operations in fiscal
2005, compared to $96.4 million in fiscal 2004. The decrease is primarily as a result of the liquidation of the North West Operations in
fiscal 2005.
Equity in loss from associates
A loss of $20.5 million was recorded during fiscal 2005 in relation to our associate, Emperor, $13.3 million relating to an
amount was recorded for Crown, as no further advances were made to this associate during fiscal 2005 and the investment is carried at
nil value in fiscal 2005 (2004: $nil). An impairment of $8.8 million was recognized in fiscal 2004 relating to advances made during
that fiscal year to Crown, which were seen by management to be irrecoverable.
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On March 22, 2005, application was made to the High Court of South Africa for the provisional liquidation of Buffelsfontein
the liquidation, a profit of $18.1 million was recorded in fiscal 2005. Included in the calculation of this profit is expenditure of $7.3
relating to the liquidation. This expenditure includes additional wages of $4.5 million, $1.5 million set aside for a social plan, $0.8
million relating to essential services, such as pumping, and $0.5 million relating to legal and other costs.
yield of 3.32 g/t. During fiscal 2004, 341,861 ounces of gold were produced from 3.2 million tonnes of ore milled, with a yield of
3.37 g/t.
On June 26, 2004, we entered into a further 60- day review period at Buffelsfontein designed to restore the operations to
distributed to the Department of Labor and the Department of Minerals and Energy, for their input. Agreement was reached with all
the relevant parties early in August 2004 to close the No. 9 Shaft, but to keep the No. 10 and 12 Shafts in operation on condition that
certain defined sustainability thresholds were met. This agreement resulted in the retrenchment of 120 employees at this mining
operation during fiscal 2005 at a cost of R3.7 million ($0.6 million).
At December 31, 2004, due to the poor operational results at the North West Operations, we evaluated the carrying amount of
value of the North West Operations’ mining assets was recognized as an impairment loss of $39.5 million for the year ended June 30,
2005. The fair value was determined by calculating the present value of future cash flows of the North West Operations’ mining assets
discounted at the credit adjusted rate.
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Net cash utilized by operating activities
working capital movement represented an outflow of cash of $6.4 million, compared to an inflow of $1.6 million in fiscal 2005. With the
acquisition of Emperor, the liability relating to the derivative instruments has increased resulting in an increase in the cash outflow
associated with these instruments in fiscal 2006. In fiscal 2006, $5.8 million was used to settle a portion of the forward gold contracts in
Emperor. In fiscal 2005, $3.6 million was used to close out the remaining balance of the Eskom gold for electricity contract. The decrease
in cash utilized by operating activities in fiscal 2006 compared with fiscal 2005 was primarily due to improved profitability from our
South African Operations.
Net cash utilized in investing activities
Cash utilized in investing activities during fiscal 2006, included capital expenditure of $41.0 million net of cash acquired from
Limited of $0.6 million. In fiscal 2005, cash utilized in investing activities included $6.9 million with regards to taking up our share of
the Emperor Rights offering, $1.7 million relating to costs of the Emperor share offer and capital expenditure of $21.4 million relating to
our continuing operations and $3.5 million relating to our discontinued operation (North West Operations). Cash utilized in investing
activities in fiscal 2004 comprised funds advanced to Crown and ERPM of $8.8 million, our acquisition of a 20% interest in the Porgera
Joint Venture for $59.2 million, net of cash acquired, our acquisition of a 50.25% interest in Net-Gold Services Limited for $0.6 million,
net of cash acquired, and capital expenditure at our continuing operations of $21.4 million and $5. 5 million at our discontinued operation.
improved underground environmental control at Vatukoula at a cost of $ 5.2 million; and
equipment was sold during the year, the proceeds of which amounted to $2.2 million. Significant capital projects for fiscal 2005 included:
expenditure of Porgera. Redundant capital equipment was sold during the year, the proceeds of which amounted to $3.4 million.
Significant capital projects for fiscal 2004 included:
stripping costs of $4.1 million.
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operations and upgrading current metallurgical plants as follows:
holdings, the mine has been placed on a care and maintenance program and this capital expenditure will be reviewed); and
$0.5 million. In addition we issued 4,451,219 shares to the IDC for loans we acquired from them for $4.5 million, which the IDC
previously held with Crown and ERPM. Furthermore, 932,857 shares were issued as payment for consulting services rendered of
$1.2 million.
total shares issued in fiscal 2005, we issued 17,000,000 shares to Baker Steel by way of a specific issue raising $14.4 million, 15,804,116
shares through a claw-back rights offer raising $13.3 million and 23,348,465 shares to Investec raising $38.2 million, in settlement of
financing facilities acquired in the fourth quarter of fiscal 2004 and the first and second quarters of fiscal 2005.
revised final offer of five of our shares for every twenty two shares in Emperor held. The revised offer represented a 14% increase over
the previous offer. On July 30, 2004, our offer to Emperor’s shareholders closed with us having received acceptances from Emperor’s
shareholders representing approximately 25.55% of Emperor’s issued capital, thereby increasing our shareholding in Emperor to 45.33%.
Accordingly, we issued 6,612,676 shares in exchange for the 29,097,269 Emperor shares to the value of $16.6 million, based on the
market value of our shares on the date issued, with share issue and transaction costs associated with the take over offer amounting to $1.7
million.
Borrowings and funding
Senior Convertible Notes
the principal amount thereof. If not converted or previously redeemed, the notes could be repaid at 102.5% of their principal amount plus
accrued interest on the fifth business day following their maturity date in November 2006. The notes were convertible into our ordinary
shares, or, under certain conditions, ADSs, at a conversion price of $3.75 per share or ADS, subject to adjustment in certain events. We
were entitled to redeem the notes at their accreted value plus accrued interest, if any, subject to certain prescribed conditions being
fulfilled, after November 12, 2005. As of June 30, 2006, the effective interest rate on the convertible notes was 16.08% per annum and the
outstanding balance was $66.9 million. On November 15, 2006, we paid a total of $69.6 million to the holders of the notes from our
available cash resources and borrowing facilities in full and final settlement of our obligations under the notes.
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First National Bank of Southern Africa Limited on overdraft. The loan is repayable in 48 monthly installments. Repayments were
suspended in January 2005 until January 2006. The loan is secured by means of a general notarial bond over the Blyvoor metallurgical
plant.
of 10.5%.
Investec Bank Limited and Investec Bank (Mauritius) Limited
On October 14, 2004, our subsidiary, DRD (Isle of Man) entered into a facility of $15.0 million with Investec Bank
LIBOR, plus 300 basis points. Funds advanced and interest on this facility must be repaid in cash in equal installments every three
months from the date of the relevant advance so that the amount of the advance is paid in full to Investec (Mauritius) on or before
November 12, 2007. The facility was secured by DRD (Isle of Man)’s shares in Emperor, DRD (Porgera) Limited and Tolukuma. The
loan agreement prohibited us from disposing of or further encumbering the secured assets. The facility restricted the flow of payments
from DRD (Isle of Man) to the Company through requiring that all net operating cash or cash distributions received by DRD (Isle of
Man) in respect of the secured assets must be used to first service our interest and principal payment obligations under the facil ity by
requiring that we hold, in a debt servicing account, sufficient cash to cover our quarterly principal payments. Any funds in excess of
these repayment requirements could be transferred to the Company. Investec (Mauritius) had the option to require DRD (Isle of Man)
to pay 50% of any payments, which are a distribution, by or on behalf of DRD (Isle of Man) to or for the account of the Company as a
prepayment of the facility. The facility agreement contained a number of additional customary restrictive covenants. At June 30, 2005,
$10.0 million had been drawn down under this facility. During fiscal 2006 this facility was fully repaid.
On December 10, 2004, we entered into a facility of R100.0 million ($15.0 million) with Investec. The facility bears interest
down R60.0 million ($9.0 million) under this facility. and settled this amount by issuing 8,060,647 ordinary shares to the value of
R60.0 million ($9.6 million), based on the market value at the date of issue. In fiscal 2006 we drew down a further R40.0 million
($6.2 million) under this facility and repaid this amount by issuing 4,129,915 ordinary shares to the value of R40.0 million
($6.2 million). This facility is not renewable.
On March 3, 2005, an additional acquisition facility of $35.0 million was entered into with Investec (Mauritius). The
similar restrictions on the flow of funds and could be settled through the issue of shares. As at June 30, 2005, this facility had not been
utilized. During fiscal 2006, we had drawn down $14.4 million under this facility, which was fully repaid by March 16, 2006, by the
issue of 8,498,250 of our ordinary shares to the value of $14.4 million (including interest). On September 13, 2006, the $35.0 million
acquisition facility was amended. The terms are similar to the previous agreement except for the facility now being secured over our
shareholding in Emperor. The facility is renewable. At November 30, 2006 we had drawn down $33.0 million under this facility.
On April 5, 2005, we entered into a subscription agreement and an underwriting agreement pursuant to which we raised, in
clients to raise R93.5 million ($14.4 million); and
million) in accordance with the terms of a separate offering circular to our shareholders. The funds from the claw-back offer
were received on April 12, 2005.
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prior to April 5, 2005. The specific issue shares rank pari passu with our shares already in issue. At a general meeting of our
shareholders held on May 20, 2005, a specific resolution was passed to authorize our directors to allot and issue these shares. The
funds from the specific issue were received on June 1, 2005.
ANZ Banking Group Limited
(3) a first registered mortgage over Special Site Rights 6, 7, 8 and Special Mining Leases 54, 55 and 56; and
(4) a first registered Bill of Sale over its motor vehicles.
October 31, 2007 with a final payment of $0.9 million due on October 31, 2009. The loan bears interest at LIBOR plus 2.5% per
annum. The balance on this loan at June 30, 2006 was $9.8 million.
capital facility. The security in relation to this facility was as follows:
(2) fixed and floating charges over the assets of the Porgera Joint Venture, other than which require the consent of the
(4) tripartite agreements with key suppliers and contract counterparties;
(5) mortgage over the Tolukuma Tenements; and
(6) fixed and floating charge over the assets of DRD (Isle of Man) Limited.
Milman St, Clayfield, Queensland, Australia will be held by ANZ Bank as security for this loan. The loan bears interest at 6.79% per
annum. The balance on this loan at June 30, 2006 was $1.1 million.
facility was $4.0 million of which $2.0 million has been repaid. The settlement of this facility will coincide with closing out the call
options for which the facility was implemented. The balance on this loan at June 30, 2006 was $2.0 million.
(2) Non-current inventories, $30.2 million
(3) Cash and cash equivalents, $12.3 million
(4) Receivables, $6.1 million
(5) Current inventories, $23.9 million
(6) Current derivative instruments, $2.9 million
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Finance lease
Compliance with Loan Covenants
We have been in compliance with all material covenants contained in the above mentioned convertible notes indenture and
working capital of $11.6 million at June 30, 2005 and cash and cash equivalents of $22.5 million and negative working capital of
$25.0 million at June 30, 2004. At November 30, 2006, our cash and cash equivalents were $28.3 million.
convertible notes of $69.6 million, the current portion of other long-term loans of $9.2 million and working capital of approximately
$3.0 million. As at June 30, 2006, we expected to finance these commitments from cash resources of $67.3 million at that date, net
cash generated by operations and undrawn borrowing facilities of $44.3 million.
assumed that there will be an increase in production from our South African Operations and a decrease in production from our
Australasian Operations. Management has assumed a current gold price and exchange rate.
with respect to the Rand;
are therefore required to accelerate the repayment of funds; or
discussed under Item 5A.: “Operating Results” or the risk factors described in Item 3D.: “Risk Factors.”
need to reassess our operations, consider further restructuring and/or obtain additional debt or equity funding. There can be no
assurance that we will obtain this additional or any other funding on acceptable terms or at all.
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in other areas of the mine and the volume ramp-up to 70,000 tonnes per month will be achieved in February 2007. This is following a
production interruption at No. 6 Shaft, which required limited refurbishment. The No. 6 Shaft refurbishment was completed in
October 2006 and the shaft will be back to full production in January 2007.
managed Porgera mine in Papua New Guinea. Emperor’s share of production fell to 128,239 ounces in fiscal 2006 compared with
195,394 ounces in fiscal 2005 due to the program to mitigate the failure of the West Wall of the open pit. The Company took
operational control over Emperor’s Vatukoula mine in Fiji in July 2005 and immediately implemented an investigative strategy to
understand the value of the orebody and to combat the higher costs induced by higher fuel prices. This culminated in the ACDTP
which resulted in the temporary closure of the mine on April 13, 2006. This planned closure provided for a reduction in the workforce
and necessary repairs to Philip Shaft that would result in the concentration on higher grade mining without jeopardizing the integrity
of the orebody. The mine returned to production in June 2006 and the ramp-up to the planned levels of 10,000 ounces per month was
on track. On October 14, 2006, during the testing of the shaft conveyance, a skip-cage fell down the Philip Shaft causing damages to
the surface winder mechanism. Repairs to the damaged shaft were completed on November 14, 2006 and production resumed. On
December 5, 2006, after an extensive three-month review of Vatukoula, we determined that continued mining operations at Vatukoula
were no longer economically viable and that the mine would therefore cease production. Pending completion of a strategic review to
optimize the value of Vatukoula and other Fijian land holdings, the mine has been placed on a care and maintenance program.
accounted for approximately $2.0 million. The remainder has been spent on ore reserve development and the upgrading of mine
infrastructure. In the forthcoming year, we had planned to invest a further US$54.2 million in capital, approximately 45% of which
would have been spent in Australasia to support the turnaround there, however pending completion of a strategic review to optimize
the value of Vatukoula and other Fijian land holdings, the planned capital expenditure will be revised.
Factors” there are inherent risks involved in acquisitions. In addition, we would need to find financing for these acquisitions through
additional borrowings or equity offerings which may not be available on favorable terms, or at all. We could also seek to use our
shares as consideration for acquisitions as we have done in the past, but this will be dependent on market conditions, our share price
and our ability to satisfy listing requirements for any such share issues.
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also obliged to close our operations and reclaim and rehabilitate the lands upon which we have conducted our mining and gold recovery
operations. The gross 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 18 “Provision
for environmental rehabilitation, reclamation and closure costs” to our financial statements.
Porgera District Authority and local landowners.
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6A. DIRECTORS AND SENIOR MANAGEMENT
Directors and Executive Officers
to election at the first annual general meeting following their appointment. Retiring directors normally make themselves available for re-
election.
Executive Directors
appointed Executive Chairman on December 19, 2003. In February 2005, when Dr. Paseka Ncholo was appointed as Non-Executive
Chairman, he resumed his role as Chief Executive Officer (and has remained in this position since Geoffrey Campbell became Non-
executive Chairman in October 2005). Mr. M.M. Wellesley-Wood holds a Bachelor of Science degree in Mining Engineering from the
Royal School of Mines, Imperial College London and a Postgraduate Diploma in Business Studies from London Metropolitan University.
He is a Chartered Engineer, a Member of the Institution of Mining and Metallurgy, a former Member of the London Stock Exchange, a
Fellow of the Securities Institute and a Member of the Society of Investment Professionals. He resigned as a director of Emperor Mines
Limited on June 26, 2006. On November 2, 2006, Mr. M.M. Wellesley-Wood announced his retirement from the Company. The effective
date of Mr. M.M. Wellesley-Wood’s retirement will be December 31, 2006. Furthermore, Mr. M.M. Wellesley-Wood was appointed
Non-Executive Chairman of DRDGOLD SA with effect from January 1, 2007.
2004, and as Financial Director of Altron Limited, from 1989 to 1996, with a Bachelor of Science (Hons) degree in Econometrics and
Statistics. Mr. J.W.C. Sayers qualified as a chartered accountant in both England and South Africa. Mr. J.W.C. Sayers is also a Non-
Executive Director of Emperor Mines Limited and their acting Chief Financial Officer. On December 11, 2006, Mr. J.W.C. Sayers was
appointed as Chief Executive Officer with effect from January 1, 2007.
Non-Executive Directors
gold mine in Canada. He then spent 15 years first as a stockbroker and afterwards as a fund manager, during which time he managed the
Merrill Lynch Investment Manager’s Gold and General Fund, one of the largest gold mining investment funds. He was also Research
Director for Merrill Lynch investment Managers. Mr. G.C. Campbell is Managing Director of Boatlaunch Limited and a director of
Oxford Abstracts. On June 26, 2006, he was appointed Non-Executive Chairman of Emperor Mines Limited.
retirement in 1999, he has spent seven years as an investment manager at Sasfin Frankel Pollak in East London. Mr. R.P. Hume is also a
director of King Consolidated Holdings Limited.
primarily in the fields of management, corporate governance and research. He currently holds the position of Professor Extraordinary at
the University of the Western Cape.
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University with a BA degree in International Economics in 1969, he has specialized in international banking, finance and investments.
After starting his career with Chase Manhattan Bank (now J.P. Morgan Chase) he joined RTB, Inc., the private investment and trading
company of a prominent precious metals trader in 1980. He moved to the United Arab Emirates in 1983 as Manager of the Commodity
Department of the Abu Dhabi Investment Authority. Since resigning from this position in 1987, he has written extensively on money and
banking.
Senior Management - Corporate
23 years’ experience in the mining industry. Mr. J.H. Dissel was appointed as acting Chief Financial Officer with effect from
January 1, 2007.
journalist and has 7 years’ experience across a number of media sectors. He has an MBA, is a director of Net-Gold Services Limited,
G.M. Network Limited, Emperor Mines Limited and an alternate director of Rand Refinery Limited.
Secretary in April 2005.
Certified Public Accountant. She was previously employed in the United States by Cox Enterprises Incorporated and Ernst and Young,
LLP.
DRDGOLD SA in January 2006. Mr. A.N. Weir has 18 years’ experience in the mining industry.
B.Comm graduate, Mr. M.C. Munroe holds a National Diploma and a National Higher Diploma in Metalliferous Mining. He obtained his
Mine Manager’s Certificate of Competency in 1999. He has 20 years’ experience in the mining industry. He was appointed Chief
Executive Officer of DRDGOLD Capital Limited in July 2006.
Senior Management - South Africa
University, and a B.Com Honors degree from the University of South Africa, or Unisa. Prior to joining the Company, he was head of
financial reporting for Liberty Group Limited and he has over eight years’ financial experience. He was appointed as Chief Financial
Officer of DRDGOLD SA in July 2006. He is an alternate director of G.M. Network Limited and Net-Gold Services Limited.
appointed to his current position in August 2005. He has 14 years’ experience in the mining industry.
appointed Operations Manager of Crown in January 2006 and General Manager in July 2006. He has 18 years’ experience in the mining
industry.
Company’s North West Operations, he was appointed to his current position in April 2005.
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years’ experience in the gold mining industry, 25 years of which have been spent in management.
2004. He has been the Head of New Business for DRDGOLD SA since January 2006. A graduate of the Camborne School of Mines,
England, he holds a BSc (Hons) in Mining Engineering, an MSc in Mining Engineering from the University of the Witwatersrand and an
MBA from the Wits Business School. A registered professional engineer with ECSA since 1998, he obtained his mine Manager’s
certificate in 1995. He has 25 years’ experience in the mining industry, in both gold and diamond sectors. He has also worked in the field
of financial management.
mining industry. He was appointed as Chief Executive Officer of DRDGOLD SA in July 2006 and is also a director of Rand Refinery
Limited.
positions within Harmony and GenGold/Gold Fields. During a career spanning 25 years, he has a B Tech degree in mining engineering, a
national diploma in Metalliferous Mining and a National higher diploma in Metalliferous Mining.
Mines’ Duvha Opencast Colliery. He holds a BA degree from Rhodes University and has completed the Management Development
Program and Development Program in Labor Relations, both at the University of South Africa’s School of Business Leadership, and an
advanced diploma in Labor Law at the University of Johannesburg. He has 16 years’ experience in the mining industry.
degree from Unisa, and he also has a National Diploma in Extractive Metallurgy.
certificate in May 2004, has a total of 30 years experience in mining, 23 years of which were spent with Gold Fields and four with Anglo
American. His career includes both production and project management experience.
engineering from the Camborne School of Mines and a graduate diploma in engineering from Wits University. He has 24 years’
experience in the mining industry.
Senior Management - Australasia
political and external affairs advice to management. He obtained a Bachelor’s degree in Applied Science in 1991.
the Placer Dome Group in Canada, South Africa and Papua New Guinea. Prior to his appointment as General Manager of Emperor’s
Vatukoula Gold Mine in Fiji in June 2006, he was Mining Manager and alternate General Manager at the Porgera Joint Venture in Papua
New Guinea.
same position in 2004. Prior to 2002, he worked for Impala Platinum Limited as an operations engineer. He has had 15 years’ experience
in the gold, platinum and coal mining industries.
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established her own practice. Her experience includes overseeing the firm’s High Court litigation practice, international clientele, black
economic empowerment consulting, and commercial consulting and drafting.
was most recently employed as Managing Director of Placer Dome Niugini Limited and prior to that as General Manager of Porgera.
Apart from the Porgera operation, he was also responsible for the Misima operation in the country. His experience includes many years in
Fiji, where he was employed by Emperor as operations Manager of the Vatukoula Gold Mine and General Manager of Tuvatu Gold
Mining Company Limited, a wholly owned subsidiary of Emperor. Mr. B. Gordon has a Bachelor’s degree in Engineering and an MBA.
Limited (ANZ), most recently as global Head of Project and Structured Financing, based in Melbourne. Prior to 2004 he was Head of
Natural Resources within ANZ’s Institutional Bank. He has 27 years’ experience in the finance industry, including senior roles in the
Americas with Dresdner Kleinwort Benson, Bank of America and Continental Illinois. He obtained a Bachelor’s degree in Economics in
1980. Emperor announced the resignation of Mr. C. Moore as Executive Director and Chief Financial Officer effective November 20,
2006. Mr. C. Moore resigned for personal reasons, but will continue to work with Emperor on selected projects in the future.
Mr. J.W.C. Sayers is the acting Chief Financial Officer of Emperor.
Development. He previously held senior positions with WMC Resources. A member of the Australasian Institute of Mining and
Metallurgy and of the Society of Economic Geologists, he holds BSc Honours (Geology) and MSc degrees.
Venture, also in Papua New Guinea. He was previously General Manger at Gold Fields Limited’s St Ives Mine in Western Australia and
Kloof operation in South Africa, and has also held positions with Anglo American, Ross Mining NL and Comalco. A member of the
Australian Institute of Company Directors and the Australian Institute of Mining and Metallurgy, he holds Bachelor of Engineering and
Master of Business Administration degrees.
New Guinea; Kaltim Prima Coal in Indonesia; and Gold Ridge in the Solomon Islands. He has extensive knowledge of the working
conditions and requirements in these regions.
Changes in our Board of Directors and Executive Officers
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appointed
# Resigned October 25, 2005
## Resigned November 30, 2005
### Appointed Chief Executive Officer with effect from January 1, 2007
has been so elected or appointed.
($2.8 million). Non-Executive Directors receive a basic fee of $30,000 per annum, subcommittee fees of $2,000 per annum for each
subcommittee of which they are a member and $4,000 per annum for each subcommittee of which they are chairperson.
JWC Sayers.......................................................
263
263
-
J Turk.................................................................
27
-
27
54
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Our senior management comprises its executive directors and executive officers. Under the JSE Listing Rules we are not
Executive Directors. However, the aggregate compensation paid to executive officers, excluding compensation paid to Executive
Directors, in fiscal 2006 was $5.4 million (fiscal 2005: $1.8 million), representing 31 executive officers in fiscal 2006 and 12
executive officers in fiscal 2005.
his remuneration package, depending on his particular agreement. Should an Executive Director not meet all the targets set in terms of the
predetermined key performance indicators, he will be entitled to a lesser bonus as determined by the Remuneration and Nominations
Committee.
Service Agreements
agreements regulate the employment relationship with Messrs. M.M. Wellesley-Wood and J.W.C. Sayers. Separate agreements of
employment were entered into with us and DRD (Isle of Man) to reflect the proportionate distribution of time and effort which they
apply between our South African and Australasian operations. Mr. Wellesley-Wood’s DRD (Isle of Man) contract has been
transferred to DRD (Offshore) with effect from July 1, 2006.
this agreement, to receive an incentive bonus of up to 50% of his annual remuneration package in respect of each of two bonus cycles
of 6 months each, over the duration of his appointment, on condition that he achieves certain agreed key performance indicators.
Mr. M.M. Wellesley-Wood’s agreements also provide that he will receive a total of up to 500,000 of our ordinary shares in two equal
tranches at intervals of 6 months over the duration of his agreements of employment. In terms of a JSE listing requirement, these
allotments were subject to approval by shareholders. We have since decided, and Mr. M.M. Wellesley-Wood has agreed, that we will
not seek the consent of our shareholders and that he will not be issued these shares. An alternate means of achieving the objective of
the retention incentive has been implemented through the payment of a bonus. Mr. M.M. Wellesley-Wood became entitled to an
amount of R1.8 million ($0.3 million) on the expiry of his previous agreement on November 30, 2005, which was equal to half his
remuneration package calculated on the basis of the remuneration package on the date of termination of employment.
Mr. J.W.C. Sayers receives from us an all-inclusive remuneration package of R2.0 million ($0.3 million) per annum.
package in respect of each of four bonus cycles of 6 months each over the duration of his appointment, on condition that he achieves
certain key performance indicators.
of the director, or upon the director reaching a certain age, or by the director upon the occurrence of a change of control of us. A
termination of a director's employment upon the occurrence of a change of control of us is referred to as an “eligible termination.” Upon
an eligible termination, the director is entitled to receive a payment equal to at least one year's salary or fees, but not more than four years
salary or fees, depending on the period of time that the director has been employed. Upon an eligible termination, all options held by the
director under our share option scheme become exercisable by the director at any time prior to the closing of the transaction involving a
change of control or, in certain circumstances in the case of executive di rectors, during the thirty day period following the closing of such
a transaction. Additionally, upon an eligible termination, the executive directors become entitled to any of the shares granted to such
executive director that have not yet vested, subject to shareholder approval. Moreover, the Board of Directors may, at its discretion,
accelerate the issuance of shares granted to the executive directors that are scheduled to vest following the expiration of the agreement in
the event that the agreement automatically terminates and is not extended or replaced by another agreement with the executive director.
Non-Executive Directors receive an annual share allocation to the value of 60% of the fees the individual directors received during 12
months preceding the allocation.
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agreements continue indefinitely until terminated by either party on not less than three months prior written notice.
Board of Directors
Executive Directors are independent under the Nasdaq requirements and the South African King II Report, with the exception of Mr.
J. Turk, by virtue of his directorship of G.M. Network Limited (GoldMoney.com), the holding company of Net-Gold Services Limited
in which we have a 50.25% interest.
In accordance with the King II Report on corporate governance, as encompassed in the JSE Listings Requirements, and in
G.C. Campbell is now the Non-Executive Chairman, Mr. M.M. Wellesley-Wood is now the Chief Executive Officer and Mr. J.W.C.
Sayers the Chief Financial Officer. Professor D.J.M. Blackmur was appointed senior independent Non-Executive Director. In future,
the evaluation of the Chairman’s performance will be considered by the Non-Executive Directors led by the senior independent Non-
Executive Director. The board has established a nominations committee, and it is our policy for details of a prospective candidate to
be distributed to all directors for formal consideration at a full meeting of the board. A prospective candidate would be invited to
attend a meeting and be interviewed before any decision is taken. In compliance with the Nasdaq rules a majority of independent
dire ctors 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
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
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,
individually and as a board, as part of an evaluation process, which is driven by an independent consultant. In addition, the
Remuneration and Nominations Committee formally evaluates the executive directors and the alternate directors on an annual basis,
based on objective criteria.
All directors, in accordance with the Company’s Articles of Association, are subject to retirement by rotation and re-election
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
concerning the affairs of the Company at the Company’s expense, should they believe that course of action would be in the best
interest of the Company.
A majority of the Non-Executive Directors have share options under the Company’s share option scheme, but we do not
Directors were issued new share options. See Item 6A.: “Directors, Senior Management and Employees” and Item 6E.: “Share
ownership”.
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of the executive directors. The board meetings include the meeting of the Risk Committee, Audit Committee and Remuneration and
Nominations Committee which act as subcommittees to the board. Each subcommittee is chaired by one of the Independent Non-
Executive Directors who provide a formal report back to the board, as part of the quarterly reporting process. Each subcommittee
meets for approximately half a day. Certain senior members of staff are invited to attend the subcommittee meetings.
The board sets the standards and values of the Company and much of this has been embodied in the Company’s Code of
directors, officers and employees, including the principal executive, financial and accounting officers, in accordance with Section 406
of the US Sarbanes-Oxley Act of 2002, the related US securities laws and the Nasdaq rules. The Code contains provisions under
which employees can report violations of Company policy or any applicable law, rule or regulation, including US securities laws.
Gordon (Chairman), Mr. B. Sampson, Mr. F. Bourchier, Mr. M. Norris, and Mr. J. Wallace. The South African operations Executive
Committee consisted of Mr. D.J. Pretorius (Chairman), Mr. C.C. Barnes, Mr. J.H. Dissel, Mr. T.J. Gwebu, Mr. I.D. Graulich, Mr. N.B.
Nyirenda, Mr. K.P. Kruger, Mr. L.C. Lamsley, Mr. J.W.C. Sayers, Mr. A.N. Weir, and Mr. M.M. Wellesley-Wood.
Executive Committees, who are unable to attend the meetings in person, are able to participate via teleconference facilities, to allow
participation in the discussion and conclusions reached.
Board Committees
approved by the board and under which specific functions of the board are delegated. The terms of reference for all committees can be
obtained by application to the Company Secretary at the Company’s registered office. Each committee has defined purposes,
membership requirements, duties and reporting procedures. Minutes of the meetings of these committees are circulated to the
members of the committees and made available to the board. Remuneration for Non-Executive Directors for their services on the
committees concerned is determined by the board. Currently this is in the case of each committee: chairperson $4,000 per annum;
members $2,000 per annum. The committees are subject to regular evaluation by the board with respect to their performance and
effectiveness.
The following information reflects the composition and activities of these committees.
Remuneration and Nominations Committee
Nominations Committee is governed by its terms of reference and is responsible for approving the remuneration policies of the
Company, the terms and conditions of employment, and the eligibility and performance measures of the DRDGOLD (1996) Share
Option Scheme applicable to directors and senior management.
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in place to measure individual performance. The committee approves the performance-based bonuses of the executive directors based
on such criteria. The General Manager Human Resources provides the committee with access to comparative industry surveys, which
assist in formulating remuneration policies. As and when required the committee may also engage the services of independent
consultants to evaluate and review remuneration policies and related issues and brief members on pertinent issues. The committee has
in the past year engaged the services of such consultants to review the employment contracts of the executive directors.
The remuneration policy, relating to the remuneration of directors and senior executives, is based on a reward system
DRDGOLD (1996) Share Option Scheme or shares for the Executive Directors.
Committee part of the meeting is chaired by Mr. R.P. Hume and the Risk Committee part of the meeting is chaired by Professor
D.J.M. Blackmur. The reason for the joint sittings is that there is a great deal of overlap between the financial risks discussed at Audit
Committee level and at Risk Committee level. The joint sittings of the Committees bring about better disclosure and ensures that the
Company conforms more closely with the process prescribed by the US Sarbanes-Oxley Act of 2002.
relating to accounting policies, internal financial control, financial reporting practices and the preparation of accurate financial
reporting and financial statements in compliance with all applicable legal requirements and accounting standards. A copy of the
charter is available by application to the Company Secretary at the Company’s registered office.
extent to which the scope of the internal audits can be relied upon to detect weaknesses in the internal controls and to review the
annual and interim financial statements prior to approval by the board. The Audit Committee reviews our annual results, the
effectiveness of our system of internal financial controls, internal audit procedures and legal and regulatory compliance. The committee
also reviews the scope of work carried out by our internal auditors and holds regular discussions with the external auditors and internal
auditors.
The committee appoints, re-appoints and removes the external auditors and approves the remuneration and terms of
our external auditors. The Company’s external audit function is currently being undertaken by KPMG Inc.
The Company’s internal and external auditors have unrestricted access to the chairman of the Audit Committee and, where
to the attention of the committee and, if necessary, to the board.
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compliance, and the monitoring and reporting of all these matters. The Risk Committee facilitates communication between the board,
the Audit Committee, internal auditors and other parties engaged in risk management activities. The terms of reference of the Risk
Committee can be obtained by application to the Company Secretary at the Company’s registered office.
Chief Financial Officer, Internal Audit and Compliance Manager, the Group Risk Manager, the Group Financial Manager, the
Operational Managers, the Group Legal Counsel, the manager responsible for safety, health and environment and the General
Manager Assets and Commercial.
Following the release of the King II Report, in South Africa, containing minimum practices to be adopted, we have
The system to manage risk involves all significant business and operational risks which could undermine the achievement of
operations have been identified and have been included in Item 3D.: “Risk factors.” Individuals have been appointed to address each
risk and the results thereof are reviewed by senior management through regular risk meetings. The aim of the internal control systems
is for management to provide reasonable assurance that the objectives will be met. In addition to the above initiatives the Group also
employs third party consultants to benchmark our operations against other mining operations throughout South Africa and more than
300 different mining companies worldwide.
covered by group insurance policies that encompass our operations world-wide. The majority of the cover is through reputable
insurance companies in London and Europe and the insurance programs are renewed on an annual basis. A cell captive has been
established to enable further reduction in annual insurance premiums. An insurance company, Fortis Limited, has been established to
provide workers compensation insurance to Tolukuma in Papua New Guinea.
Employees
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number of employees in fiscal 2006 is due to the restructuring during fiscal 2006 which incorporated Crown, ERPM (December 2005)
and Emperor (April 2006). The decrease in the number of employees in fiscal 2005 was due to the provisional liquidation of the North
West Operations which included 7,614 employees in March 2005.
Labor Relations
employees are members of trade unions or employee associations. There were no material incidents of industrial action or labor unrest at
our operations during fiscal 2006.
NUM, the main South African mining industry union, is influential in the tripartite alliance between the ruling African National Congress,
the Congress of South African Trade Unions, or COSATU, and the South African Communist Party as it is the biggest affiliate of
COSATU. The relationship between management and labor unions remains cordial. The DRDGOLD / National Union of Mineworkers
coordinating forum meets regularly to discuss matters pertinent to both parties at a DRDGOLD SA level, while operations level forums
continue to deal with local matters. The wage agreements for 2005 to 2007 provided for wage increases of 6% for the first year and 6.5%
increase for the second year. This agreement took effect from July 1, 2005. Wage agreements were also signed with the other recogni zed
unions and associations.
agreements with organized labor we undertook, as in the past, to pay packages equal to two weeks basic pay for every completed year
of service as part of a balancing compromise with the labor unions between the high additional costs of non-financial items and
incentive payments (which are deemed part of remuneration), and an additional one week benefit based on basic pay.
Manager.
estimated by the industry that the prevalence of HIV, the virus that causes AIDS, in the South African industry is currently approximately
30% to 40%. We have several AIDS awareness campaigns in place at our operations.
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Safety statistics
below (2005 statistics includes Crown and ERPM, but excludes Porgera and Emperor):
(Per million man hours)
Directors
results etc., which is not in the public domain. When these employees have access to this information an embargo is placed on share
trading for those individuals concerned. The embargo need not involve the entire Company in the case of an acquisition and may only
apply to the board of directors, executive committee, and the financial and new business teams, but in the case of quarterly results the
embargo is group-wide.
shares held by executive officers, in aggregate, do not exceed one percent of the Company’s issued ordinary share capital. For details of
share ownership of directors see Item 7A.: “Major Shareholders.”
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maximum of 15% of the issued ordinary shares is reserved for issuance thereunder and no participant may hold options at any time, which
if exercised in full, would exceed 2% of our issued share capital at that time. As at November 30, 2006, the number of issued and
exercisable share options is approximately 5% of the issued ordinary share capital, which is within the National Association of
Pension Funds (United Kingdom) international accepted guideline of 3 to 5% for such schemes. In addition, the participants in the
Scheme are fully taxed at their maximum marginal tax rate on any gains realized on the exercise of their options.
option. Each option remains in force for ten years after the date of grant, subject to the terms of the option plan. Options granted under the
plan vest at the discretion of our directors, but primarily according to the following schedule over a maximum of a three year period:
Executive Directors, Non-Executive Directors and other senior employees. Since December 2004, neither the Executive Directors, nor the
Non-Executive Directors were issued new share options. The outstanding options are exercisable at purchase prices that range from R3.11
to R36.08 per share and expire ten years from the date of issue to the participants.
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10.7% of our ordinary shares;
preference shares;
of our ordinary shares.
our ordinary shares.
101 Barclay Street
New York, NY 10011
* Indicates share ownership of less than 1% of our outstanding ordinary shares.
within 60 days of November 30, 2006, are treated as outstanding for computing the percentage of any other person. As of
November 30, 2006, we are not aware of anyone owning 5% or more of our ordinary shares other than the Bank of New York which
holds 75.0% of our issued ordinary shares through our ADR program. Unless otherwise noted, each person or group identified possesses
sole voting and investment power with respect to the shares, subject to community property laws where applicable. Unless indicated
otherwise, the business address of the beneficial owner is: DRDGOLD Limited, EBSCO House 4, 299 Pendoring Avenue, Blackheath,
Randburg, South Africa.
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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 & Exploration Company Limited in September 1997. They will only obtain their potential voting rights
once the Argonaut Project becomes an operational gold mine, and dividends accrue to them. Additionally, holders of cumulative
preference shares may vote on resolutions which adversely affect their interests and on the disposal of all or substantially all of our assets
or mineral rights. There is currently no active trading market for our cumulative preference shares. No shareholder has voting rights
which differ from the voting rights of any other shareholder. On May 1, 2005, the Argonaut mineral rights reverted to the South African
State, in terms of the MPRD Act. On February 6, 2006, a prospecting right covering an area of 969 hectares over part of the Argonaut
Project was obtained.
Rand Refinery Agreement
same day as delivery, at the London afternoon close price on the day the gold is sold. In exchange for this service, we pay RRL a variable
refining fee plus fixed marketing, loan and administration fees. For fiscal 2006 this amounted to $0.3 million and $0.4 million and $0.9
million for fiscal 2005 and 2004, respectively. Mr. D.J. Pretorius, CEO of DRDGOLD South Africa (Pty) Limited, is also a director of
RRL and is a member of their audit committee. Also, Mr. I.D. Graulich, our Group Strategic Officer, is an alternate director to Mr. D.J.
Pretorius. With the provisional liquidation of Buffelsfontein Gold Mines Limited on March 22, 2005, our 10.6% interest in RRL
decreased to our current ownership of 4.1%. RRL is jointly owned by South African gold mining companies.
C. Press Loan
were used for short-term working capital advances. As at November 30, 2006, the full balance was still outstanding.
iProp Loan Note
in Crown to KBH. This amount was originally owed by Crown to iProp Limited (previously known as RMP Properties SA Limited), or
iProp, in terms of a secured loan note. In an arrangement in which JCI Gold Limited, or JCI, paid iProp R38.0 million ($3.7 million) in
exchange for an issue by us to JCI of 8,000,000 ordinary shares, the loan note was ceded to us. The loan note has now been cancelled and
restated in terms of the loan agreement entered into on June 12, 2002. The total amount outstanding on this loan as of
November 30, 2006, is R54.6 million ($7.7 million). The loan bears interest at the prime rate of The Standard Bank of South Africa
Limited. During fiscal 2006 we agreed to suspend the interest accrual with effect from November 30, 2005 indefinitely. As of June 30,
20 06, the interest rate was 10.5% per annum and as of November 30, 2006, the interest rate on this loan stood at 12.0%. The loan is
repayable on demand within seven years. During fiscal 2005 we agreed to suspend our right to demand repayment indefinitely. The loan
is unsecured. In terms of the loan agreement the principal amount will be repaid in equal annual installments. As at November 30, 2006,
this balance was still owing to us, however, we have recognized an impairment against this loan and it is carried at a nil value.
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interest at the prime rate of The Standard Bank of South Africa Limited. The loan was fully repaid in November 2005.
made and interest is payable annually in arrears and the second loan is payable on demand within seven years from such a demand having
been made and interest is payable annually in arrears. During fiscal 2005 we reached an agreement with Crown that we would suspend
our right to demand repayment of this balance indefinitely, due to the loss making position of Crown. The total amount outstanding on
these loans, as at October 31, 2006, is R55.1 million ($7.4 million), however, we have recognized an impairment against this loan and it is
carried at a nil value. During fiscal 2006 we agreed to suspend the interest accrual with effect from November 30, 2005 indefinitely.
R190.0 million ($30.3 million). Under the terms of the share purchase agreement, 57% (R108.0 million ($17.2 million)) of the principal
amount of these loans were sold to IDC and 3% (R5.7 million ($0.9 million)) to KBH. However, upon KBH exercising its option to
purchase IDC's interest in Crown, IDC's portion of this loan was ceded to KBH. These balances are still outstanding as at
November 30, 2006, however, we have recognized an impairment against this loan and it is carried at a nil value. During fiscal 2006 we
agreed to suspend the interest accrual with effect from November 30, 2005 indefinitely.
2006 we agreed to suspend the interest accrual with effect from November 30, 2005 indefinitely.
was exercised and Investec took possession of the shares in three equal tranches in June, July and August 2004.
East Rand Proprietary Mines Limited
the Sellers, and Crown, entered into an agreement pursuant to which Crown agreed to purchase from the Sellers the entire issued share
capital and shareholders' claims of ERPM. At the time Dr. M.P. Ncholo was one of our non-executive directors and we owned a 40%
interest in Crown. The purchase price for the acquisition of the entire issued share capital and the value of shareholders’ claims was
R100.0 million ($9.5 million). Crown loaned an amount of R60.0 million ($5.7 million) to the Sellers as an interest free loan, and Crown
received from the Sellers, as security for the loan, a pledge of the entire issued share capital of ERPM and a cession of the Sellers' claims
to Crown. The conditions of the sale were fulfilled and the amount was deemed to be paid to the Sellers on a ccount of the purchase price.
An existing mortgage bond registered by ERPM in favor of Courthiel Holdings (Pty) Limited securing shareholder loans in the sum of
R10.0 million ($1.9 million) was also ceded to Crown as security on October 11, 2002. The full amount is still owing under the bond.
($3.8 million), KBH, a 60% shareholder in Crown, agreed to use its best endeavors to obtain a loan of R40.0 million ($3.8 million) from
IDC which was paid to the Sellers as final part payment of the purchase price of the ERPM acquisition. Crown procured the release of the
Sellers from all statutory environmental obligations, including obligations to furnish guarantees and similar instruments to the DME and
ERPM assumed the Sellers' responsibilities in this regard. Crown acquired ERPM, without indemnification for any disclosed or
undisclosed liabilities, which could require Crown to incur significant financial obligations to satisfy any liability.
fiscal 2006 we agreed to suspend the interest accrual with effect from November 30, 2005 indefinitely.
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on overdraft and as of October 31, 2006, the interest rate on the loan stood at 12.0%. The loan is secured by a pledge of certain movable
assets of ERPM. During fiscal 2006 we agreed to suspend the interest accrual with effect from November 30, 2005 indefinitely.
infrastructure upgrades and the purchase of mining equipment. The loan facility is repayable in equal installments over the 5 years, and
bears interest at prime less 0.5%. The debentures are repayable in 78 months from issue date and bear interest at prime (rate charged by
The Standard Bank of South Africa Limited) less 2.5%. In addition the debentures receive a royalty of 0.267% of the gross revenue
received from net smelter revenue. During fiscal 2006 we agreed to suspend the interest accrual with effect from November 30, 2005
indefinitely.
and ERPM, and described above, totaling $8.8 million were included in investment in our associate in fiscals 2004, and 2005 against
which losses recorded by the associate, were recognized against these advances in fiscals 2004 and 2005. In fiscal 2006, Crown and
ERPM were consolidated from December 1, 2005 and no further advances were made. No repayment has been received on either the loan
or the debentures and management has agreed to suspend repayments indefinitely.
Management Service Agreements
engineering services, mineral resource services and other management related services. We own an 85% interest in DRDGOLD SA.
Blyvoor, Crown and ERPM are wholly-owned subsidiaries of DRDGOLD SA. These arrangements allow us to monitor and provide
input on the management of these companies in which we have an investment.
($1.6 million). Management fees recovered from DRD (Isle of Man) for fiscal 2006 were R30.9 million ($4.8 million). We are currently
in the process of revising all management service agreements with subsidiaries.
Assistance with regards to funeral expenses
member who was a temporary employee of ERPM. In terms of ERPM’s practice, the funds were advanced on compassionate grounds
to assist the family with costs associated with the funeral. This amounted to R90,447 ($12,441). During fiscal 2006 the amount was
written off.
Black Economic Empowerment transaction with Khumo Bathong Holdings (Pty) Limited
South African operations.
newly created vehicle, DRDGOLD SA, which holds a 100% interest in ERPM, Crown and Blyvoor. We retained an 85% interest in
DRDGOLD SA.
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million (R4.1 million) new preference shares in ERPM, $0.4 million (R2.7 million) new preference shares in Crown, $0.6 million (R3.9
million) new preference shares in Blyvoor and an initial 15% of the issued ordinary shares in DRDGOLD SA for $2.0 million (R13.2
million). In accordance with the terms of the MOU, Khumo Gold has been granted an option, exercisable over three years, to acquire a
further 11% interest in DRDGOLD SA for the payment consideration of $1.4 million (R9.3 million). This further equity tranche will
include a 6% stake to be placed in a new, Employee Trust.
(R4.3 million). After exercising the option, Khumo Gold's shareholding in DRDGOLD SA increased by 5% to 20%. In addition,
Khumo Gold, as promoter for an employee trust, exercised the option for an employee trust to acquire from us 60,000 ordinary shares
in DRDGOLD SA for a consideration of $0.7 million (R5.1 million). After exercising the option, the trust's shareholding in
DRDGOLD SA is 6%. We will finance the transaction, on condition that the terms of the finance are determined by independent
experts to be fair and reasonable to our shareholders. It is proposed that we will subscribe for preference shares in Khumo Gold and
extend a loan to the trustees of the trust.
Financing and operating assistance package for Emperor Mines Limited
obligations.
Convertible Loan Facility.
relation to the Tuvatu Gold Prospect and expected to receive consideration of approximately A$10.0 million ($7.6 million) on completion
of that transaction. On January 25, 2006, Emperor announced that it has not granted a further extension for the sale of the Tuvatu Gold
Prospect and the agreement was terminated.
Exchange prior to the date of conversion.
Sale and purchase agreement with Emperor
holds our PNG assets, comprising of the 20% interest in the Porgera Joint Venture, the 100% interest in Tolukuma Gold Mines Limited
and all of our exploration tenements in PNG. The purchase consideration of $237.3 million was subject to certain completion adjustments
to reflect the change in the capital position of both Emperor and DRD (Isle of Man) between October 1, 2005, which was the effective
date, and April 6, 2006, the date that the transaction was completed. The purchase consideration was settled by the issue of 751,879,699
new Emperor shares at $0.266 per share (valued at $200.0 million) to DRD (Offshore), a cash consideration of $32.3 million and a short
term loan provided by DRD (Offshore) to the value of $5.0 million. The loan is repayable in two installments to DRD ( Offshore) on
March 30, 2007 and June 30, 2007. The loan attracts interest at LIBOR plus 2% per annum and has been entered into on market
related terms. Subsequent to June 30, 2006, the board of DRD (Offshore) has agreed to convert this loan to equity. After the issue of
the new Emperor shares, we held 88.3% of Emperor. Subsequently, our shareholding was diluted to 78.7%, following a number of share
issues in which we did not participate.
on November 27, 2006. The loan bears interest at LIBOR plus 3% per annum and is repayable on December 31, 2007.
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sterling). He is also eligible, under the remuneration agreement, to receive an incentive bonus of up to 50% of his annual remuneration
package in respect of each of two bonus cycles of 6 months each, over the duration of his appointment, on condition that he achieves
certain agreed key performance indicators. Mr. M.M. Wellesley-Wood’s agreements also provide that he will receive a total of up to
500,000 of our ordinary shares in two equal tranches at intervals of 6 months over the duration of his agreements of employment. In
terms of a JSE listing requirement, these allotments were subject to approval by shareholders. We have since decided, and
Mr. M.M. Wellesley-Wood has agreed, that we will not seek the consent of our shareholders and that he will not be issued these
shares. An alternate means of achieving the objective of the retention incentive has been implemented through the payment of a bonus.
This agreement has been assigned to DRD Offshore with effect from July 1, 2006. Mr. M.M. Wellesley-Wood became entitled to an
amount of R1.8 million ($0.3 million) on the expiry of his previous agreement on November 30, 2005 which was equal to half his
remuneration package calculated on the basis of the remuneration package on the date of termination of employment. This amount
was paid in fiscal 2006. On November 2, 2006, Mr. M.M. Wellesley-Wood has announced his retirement from DRDGOLD. The
effective date of Mr. M.M. Wellesley-Wood’s retirement will be December 31, 2006.
package in respect of each of four bonus cycles of 6 months each over the duration of his appointment, on condition that he achieves
certain key performance indicators.
Emperor’s Special General Meeting held in August 2006. The loan was approved by shareholders at this Special General Meeting. The
loan is repayable over 5 years, with 25% of any gross bonus paid to Mr. B. Gordon being directed as a loan repayment until such time
as the loan is repaid in full. The loan was entered into on an arm’s-length basis and on market related terms and bears interest at the ANZ
Bank’s published bank bill rate plus 1% per annum.
Corporate advisory services
Gold, which owns 20% of DRDGOLD SA. The agreement provides for a monthly retainer of R85,000 ($11,692), a success fee
payable on the successful completion of the Topstar Dump transaction of R275,000 ($37,826) and a success fee payable upon signing
of the 11% Khumo Gold option agreement of R475,000 ($65,336).
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8A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
balance sheet events.
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9A. OFFER AND LISTING DETAILS
since our listing on that market.
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Nature of Trading Markets
“DUR.” Our ordinary shares also trade on the LSE (symbol: DBNR), the Marche Libre on the Paris Bourse (symbol: DUR) and Brussels
Bourse (symbol: DUR) in the form of International Depository Receipts. The ordinary shares also trade on the over the counter markets in
Berlin, Stuttgart and the Regulated Unofficial Market on the Frankfurt Stock Exchange. The ADRs are issued by The Bank of New York,
as depositary. Each ADR represents one ADS. Each ADS represents one of our ordinary shares. Prior to February 2001, our ADSs traded
on the Nasdaq National Market.
subsidiaries, properties and mining operations). Effective July 28, 2006, as a consequence of the transfer of our assets into Emperor,
which was already listed on the Australian Stock Exchange, or ASX, we delisted from the ASX. We also delisted from the Port Moresby
Stock Exchange on July 28, 2006.
Nasdaq Exemption
the total shares outstanding on a pre-issuance basis. Included within those issuances, on December 12, 2003, the Company entered
into an agreement granting Investec the option to acquire 10.2 million ordinary shares. The Company requested an exemption from
Nasdaq Marketplace Rule 4350(i)(1)(D) in reliance upon Nasdaq Marketplace Rule 4350(a). Rule 4350(i)(1)(D) provides that
shareholder approval is required upon issuing 20% or more of the common stock or 20% or more of the voting power outstanding
before the issuance for less than the greater of book or market value of the stock. Nasdaq granted this exemption on the basis that the
shareholder approval requirements of Rule 4350(i)(1)(D) are contrary to generally accepted business practices of companies located in
South Africa.
resolution passed by shareholders in a general meeting. JSE Listing Requirements require 75% shareholder approval for any issuance
of shares for cash. JSE Listing Requirements do, however, permit an issuer to issue shares for cash under a general authority granted
by its shareholders, but not in excess of 15% of the company’s total issued share capital during any financial year under that authority,
or the general authority. In terms of the specific issuances for which the Company received the exemption from Nasdaq described
above, there was no JSE requirement that would mandate specific shareholder approval for these transactions. The JSE Listing
Requirements accept a general authority by our shareholders under certain circumstances. The shareholders had approved a ge neral
authority which covered the relevant transactions by resolutions passed at the Company's annual general meetings in November 2003.
In addition, included in the shares issued for cash were approximately 24.4 million shares to the value of R435.5 million
($63.1 million) which were used for the acquisition of the Porgera Joint Venture. Approval was obtained from the JSE to deem these
shares to be a vendor placing.
the issuer’s outstanding shares. Consistent with the practice of companies incorporated in South Africa, our articles of association only
require a quorum of three members. As a result, and in connection with the listing of our ADSs on the Nasdaq National Market in July
1996, we requested, and Nasdaq granted us in October 1996, an exemption from compliance with the Rule 4350(f) quorum requirement.
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Description of Our Memorandum and Articles of Association and Ordinary Shares
summary does not purport to be complete and is subject to and qualified in its entirety by reference to the full text of the Articles, the
Companies Act, and the requirements of the JSE.
Borrowing Powers
powers of control exercisable by us in relation to our subsidiary companies so that the aggregate principal amount outstanding in respect
of us and any of our subsidiary companies, as the case may be, exclusive of inter-company borrowings, shall not, except with the consent
of our shareholders at a general meeting, exceed R30.0 million or the aggregate from time to time of our issued and paid up capital,
together with the aggregate of the amounts standing to the credit of all distributable and non-distributable reserves, any of our share
premium accounts and our subsidiaries' share premium accounts certified by our auditors and which form part of our and our subsidiaries'
financial statements, whichever is higher.
Share Ownership Requirements
Voting by Directors
authorized.
resolution regarding his interest, in the quorum present at the meeting.
that our business should be conducted according to the highest legal and ethical standards. In accordance with the board practice, all
remuneration of directors is approved by the Remuneration and Nominations Committee.
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Election of Directors
our directors, on a rotating basis, are subject to re-election at each annual general shareholder’s meeting. Retiring directors usually make
themselves available for re-election.
General Meetings
convening a general meeting for a date not less than 21 days and not more than 35 days from the date of the notice. Directors may
convene general meetings at any time.
is required.
represented by proxy.
Voting Rights
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. However, they will obtain voting rights once the Argonaut Project becomes an operational gold
mine. 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 n ominal value of all
shares issued by us.
Dividends
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. Holders of cumulative preference shares are entitled to receive
cumulative preferential dividends in priority to the holders of our ordinary shares equal to the prescribed portion of 3% of our future
revenue generated by the exploitation or other application of the mineral rights represented by the Argonaut Project. On May 1, 2005, the
Argonaut mineral rights reverted to the South African State, in terms of the MPRD Act. On February 6, 2006, a prospecting right
covering an area of 969 hectares over part of the Argonaut Project was obtained. All unclaimed dividends are forfeited back to us after a
period of twelve years.
Ownership Limitations
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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 November 30, 2006, no such dividends have been declared.
Except for the preference dividend and as described in this paragraph our cumulative preference shares are not entitled to any other
participation in the distribution of our surplus assets on winding-up.
Reduction of Capital
distributions and buying back our shares.
Amendment of the Articles of Association
resolution was passed on a show of hands, at least 75% of those shareholders voted in favor of the resolution and, if a poll was demanded,
at least 75% of the total votes to which those shareholders are entitled were cast in favor of the resolution.
Consent of the Holders of Cumulative Preference Shares
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
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.
Facility B Loan Agreement between Investec Bank (Mauritius) Limited and DRD (Isle of Man) Limited, dated March 3, 2005.
repayment of the loan under the loan facility with our ordinary shares. In this regard, we allotted and issued 13,686,030 of our ordinary
shares, to the value of $19.3 million to Investec Bank (Mauritius) Limited to repay the drawn down amount.
dated April 5, 2005.
also offer the same shares to our existing shareholders in proportion to their shareholdings in terms of a claw-back offer, together with the
right to renounce this offer in favor of third parties, and that the number of shares not allotted and issued pursuant to the claw-back offer
will finally be allotted and issued to the underwriters. A commission of 6% was payable to each underwriter in proportion to the extent of
shares subscribed to. We raised $13.3 million (R86.9 million) from the claw-back offer.
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sum of $14.4 million (R93.5 million) being the subscription price due for the shares.
subsequently a KBH-led broad based black economic empowerment consortium will subscribe for a further 11% in DRDGOLD SA.
ranking charge over Emperor’s 100% interest in the Tuvatu Gold Prospect in Fiji. The facility is repayable upon either the receipt of
proceeds expected from the sale of Emperor’s interest in the Tuvatu Gold Prospect or by December 31, 2007. This facility is also
convertible at our election into ordinary fully paid shares of Emperor. On January 25, 2006, Emperor announced that it has not granted a
further extension for the sale of the Tuvatu Gold Prospect and the agreement was terminated.
Limited, Business Ventures Investment No. 750 (Pty) Limited and Business Ventures Investment No. 751 (Pty) Limited, or the BVI
Companies, dated July 13, 2005.
(R29.0 million), which have already been allotted and issued to the IDC.
Business Ventures Investment No. 750 (Pty) Limited, or BVI 1, and Business Ventures Investment No. 751 (Pty) Limited, or BVI 2,
dated July 13, 2005.
approximately $18.30 (R120.00).
Option Agreement entered into by and between DRDGOLD Limited and M5 Developments (Pty) Limited, dated July 21, 2005.
period initially expired on September 19, 2005, but was extended to November 19, 2005. If the option was exercised the option fee would
be deemed part payment of the purchase consideration. If not, the option fee was to be forfeited to us.
alleged pre-emptive right in respect of the property pursuant to an agreement dated December 1996, and demanding that the property be
sold to them on similar terms. We have since repudiated the agreement of sale with M5 and have also notified Rand Leases Properties
that we do not intend offering the property to them. Both parties have indicated that they intend to institute legal proceedings for the sale
and transfer of the property and we await service of legal process.
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for an incentive bonus of up to 50% of his annual remuneration package in respect of each of four bonus cycles of 6 months each over the
duration of his appointment, on condition that he achieves certain key performance indicators.
(Proprietary) Limited, or S&J Companies, dated August 31, 2005.
Companies and Buffelsfontein’s creditors in terms of Section 311 of the South African Companies Act, 1973. This agreement is
conditional upon the S&J Companies assuming all existing and future obligations relating to the pumping and management of
underground water in the Klerksdorp/Orkney/Stilfontein/Hartebeesfontein area and providing us with indemnity against all liability
arising in this regard.
Deed of Loan, Cession, Payment and Set-off entered between DRDGOLD Limited, East Rand Proprietary Mines Limited, Crown Gold
Recoveries (Pty) Limited and Blyvooruitzicht Gold Mining Company Limited, dated November 7, 2005.
claims against Crown.
Share Sale Agreement between Business Venture Investments 750 (Pty) Limited, or BVI 750, and DRDGOLD South African
Operations (Pty) Limited, dated November 8, 2005.
Share Sale Agreement between Business Venture Investments 751 (Pty) Limited, or BVI 751, and DRGOLD South African Operations
(Pty) Limited, dated November 8, 2005.
Subscription Agreement between DRDGOLD Limited and DRDGOLD South African Operations (Pty) Limited, dated
November 9 2005.
50 million ordinary shares in Blyvoor, all of which were held by us, to DRDGOLD SA in full and final discharge of the subscription price
of R130.0 million ($19.3 million).
Share Sale Agreement between Crown Consolidated Gold Recoveries Limited and DRDGOLD South African Operations (Pty)
Limited, dated November 14, 2005.
cash.
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November 18, 2005.
Subscription Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited, dated November 18, 2005.
discharged our obligation to subscribe for the Khumo Gold Class A preference shares by paying the issue price of R31.8 million
($4.8 million).
Cession Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited and Khumo Bathong Holdings (Pty) Limited,
dated November 18, 2005.
arising from and in respect of the loan owed by KBH to us resulting from a loan agreement dated June 12, 2002. Pursuant to the terms of
this loan agreement, as of November 9, 2005, KBH was indebted to us in an amount of R7.9 million ($1.2 million). Khumo Gold was
obliged to pay the purchase consideration of R7.9 million ($1.2 million) to us by no later than November 18, 2005 or upon fulfillment of
the suspensive condition, by procuring the transfer from the proceeds of the issuance of the Khumo Gold Preference shares an amount
equal to the purchase consideration, to us.
Cession Agreement between DRDGOLD Limited and The Industrial Development Corporation of South Africa Limited and Business
Venture Investment No 750 (Pty) Limited and Business Venture Investment No 751 (Pty) Limited, dated November 18, 2005.
Option Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited and DRDGOLD South African Operations (Pty)
Limited, dated November 18, 2005.
purchase 60,000 ordinary shares in DRDGOLD SA. The option expires on November 18, 2008. The parties agreed that Khumo Gold
shall pay R4.3 million ($0.6 million) for the purchase of the 50,000 ordinary shares and approximately R5.0 million ($0.8 million) for the
purchase of the 60,000 ordinary shares.
Offer of Class A Preference share between Khumo Gold SPV (Pty) Limited and East Rand Proprietary Mines Limited, dated
November 18, 2005.
Offer of Class A Preference between Khumo Gold SPV (Pty) Limited and Blyvooruitzicht Gold Mining Company Limited, dated
November 18, 2005.
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November 18, 2005.
Shareholders Agreement between DRDGOLD Limited and Khumo Gold SPV (Pty) Limited and DRDGOLD South African Operation
(Pty) Limited, dated November 24, 2005
managed and it sets out the terms governing their relationship as shareholders in DRDGOLD SA.
Sale and Subscription Agreement between DRDGOLD Limited and DRD (Offshore) Limited, dated January 4, 2006.
shares in DRD (Isle of Man) was $230.0 million (R1.5 billion) and DRD (Offshore) issued share certificates in favor of us which became
the 100% holding company of DRD (Offshore).
Share Sale Agreement between DRD (Isle of Man) Limited and DRD (Offshore) Limited, dated February 22, 2006.
of the shares, calculated by using the closing market price of Emperor shares on the Australian Stock Exchange and the Australian
Dollar/US Dollar exchange rate as at the close on the date of completion. The date of completion was the fifth business day after
shareholders’ approval and Investec’s approval on this share sale agreement. The parties agreed that DRD (Isle of Man) shall lend the
consideration referred to above to DRD (Offshore). The consideration was deemed to have been advanced to DRD (Offshore) on
January 1, 2006 and used by DRD (Offshore) to pay DRD (Isle of Man) for the shares. It was agreed that the loan shall be interest free.
Restructure Deed between DRD (Offshore) Limited and DRD (Isle of Man) Limited and Emperor Mines Limited and Em peror Gold
Mining Company Limited, or EGM, and Australia and New Zealand Banking Group Limited, or ANZ, dated February 24, 2006.
DRD (Isle of Man)’s right, title and interest in the loan agreement, or the loan interest, entered into among EGM, DRD (Isle of Man) and
Emperor on July 8, 2005. Property in, title to and risk associated with DRD (Isle of Man)’s right, title and interest in the said loan
agreement will accrue to DRD (Offshore) as if the restructure of that loan interest had occurred on January 1, 2006.
Facility Agreement between DRD (Porgera) Limited and Tolukuma Gold Mines Limited and Australia and New Zealand Banking
Group Limited, dated March 20, 2006.
Settlement of Loans Agreement between DRD (Isle of Man) Limited and DRD (Offshore) Limited, dated March 23, 2006.
subsequent to the DRD (Isle of Man) re-organization there shall be no amount due or payable as between the parties. The DRD (Isle of
Man) re-organization included the transfer of assets out of DRD (Isle of Man), assignment of some material contracts by DRD (Isle of
Man) to DRD (Offshore), termination of some material contracts, repayment or capitalization of inter-company loans, repayment and
termination or variation of the Investec Facility Agreement to remove any recourse to DRD (Offshore) or us and remain as an undrawn
facility available for DRD (Isle of Man) after completion.
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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.
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.
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.
these exchange control regulations.
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.
permitted to export capital from South Africa or hold foreign currency. In addition, South African companies are required to obtain the
approval of SARB prior to raising foreign funding on the strength of their South African balance sheets, which would permit recourse to
South Africa in the event of defaults. Where 75% or more of a South African company's capital, voting power, power of control or
earnings is directly or indirectly controlled by non-residents, such a corporation is designated an “affected person” by SARB, and certain
restrictions are placed on its ability to obtain local financial assistance. We are not, and have never been, designated an “affected person”
by SARB.
ability to utilize profits of one foreign business to finance operations of a different foreign business. South African companies establishing
subsidiaries, branches, offices or joint ventures abroad are generally required to submit financial statements on these operations as well as
progress reports to SARB on an annual basis. As a result, a South African Company's ability to raise and deploy capital outside the
Common Monetary Area is restricted.
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follows:
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;
finance approved investments abroad and up to R2.0 billion ($275.1 million) to finance approved new investments in African
countries. However, the approval of SARB is required in advance. On application to SARB, corporations are also allowed to use
part of their local cash holdings to finance up to 10% of approved new foreign investments where the cost of these investments
exceeds the current limits;
predetermined period of time, as a prerequisite to allowing the expatriation of funds. If these requirements are not met, SARB
may instruct that the equity be disposed of. In our experience SARB has taken a commercial view on this, and has on occasion
extended the period of time for compliance; and
authorized dealers, in terms of the Rulings.
may only be invested in:
authorized dealer and not released except temporarily for switching purposes, without the approval of SARB. Authorized dealers
must at all times be able to demonstrate that listed or quoted securities or financial instruments which are dematerialized or
immobilized in a central securities depository are being held subject to the control of the authorized dealer concerned; or
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
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
August 12, 1996, and as amended and restated, between the Company and The Bank of New York, as the depository. Subject to
exceptions provided in the deposit agreement, cash dividends paid in Rand will be converted by the depositary to Dollars and paid by the
depositary to holders of ADSs, net of conversion expenses of the depositary, in accordance with the deposit agreement. The depositary
will charge holders of ADSs, to the extent applicable, taxes and other governmental charges and specifies fees and other expenses.
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Material Income Tax Consequences
are urged to consult their own tax advisers with respect to their particular circumstances and the effect of US national, state or local tax
laws to which they may be subject.
South Africa
Income Tax
from a South African source but will be regarded as exempt from taxation in terms of Section 10(1)(hA) of the South African Income Tax
Act, 1962 (as amended), or the Income Tax Act. This exemption does not apply if:
event the non-resident shall be deemed to be a resident of South Africa;
during the year of assessment in which the interest was received or accrued.
dividends received by or accrued to non-resident shareholders of companies listed in South Africa and non-residents will receive the same
dividend as South African resident shareholders. Prior to payment of the dividend, the Company pays Secondary Tax on Companies at a
rate of 12.5% of the excess of dividends declared over dividends received in a dividend cycle but the full amount of the dividend declared
is paid to shareholders.
Capital Gains Tax
non-resident will have an interest in immovable property if it has a direct or indirect shareholding of at least 20% in a company,
where 80% or more of the net assets of that company (determined on a market value basis) are attributable directly or indirectly
to immovable property; or
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income, for companies that elected the STC exemption were 45% (2005 and 2004: 46%) and 37% (2005 and 2004: 38%),
respectively. During those same years the tax rates for companies that did not elect the STC exemption were 35% (2005 and 2004:
37%) and 29% (2005 and 2004: 30%), respectively. In 1993, the Company elected not to be exempt from STC, as this would have
meant that the Company would have been liable for normal taxation at the higher rates of 45% for mining income and 37% for non-
mining income. The Company, having chosen not to be subject to the STC exemption, is subject to 35% tax on mining income and
29% for non-mining income. However, with the exception of Blyvoor and ERPM, all of the Company’s South African subsidiaries
elected the STC exemption.
South Africa does not impose any withholding tax or any other form of tax on dividends paid to US holders with respect to
tax treaty between the United States and South Africa would limit the rate of this tax to 5 percent of the gross amount of the dividends if a
US holder holds directly at least 10 percent of our voting stock and 15 percent 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 US, carries on business in South Africa through
a permanent establishment situated in South Africa, or performs in South Africa independent personal services from a fixed base situated
in South Africa, and the dividends are attributable to such permanent establishment or fixed base.
United States
Material United States Federal Income Tax Consequences
for US federal income tax purposes. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, or
the Code, published rulings, judicial decisions and the Treasury regulations, all as currently in effect and all of which are subject to
change, possibly on a retroactive basis. This discussion has no binding effect or official status of any kind; we cannot assure holders that
the conclusions reached below would be sustained by a court if challenged by the Internal Revenue Service.
currencies, partnerships or other pass-through entities, financial institutions, life insurance companies, banks, tax-exempt organizations,
certain expatriates or former long-term residents of the United States, persons holding ordinary shares or ADSs as part of a “hedge,”
“conversion transaction,” “synthetic security,” “straddle,” “constructive sale” or other integrated investment, persons whose functional
currency in not the US dollar, or persons that actually or constructively own ten percent or more of our voting stock). This discussion
addresses only US federal income tax consequences and does not address the effect of any state, local, or foreign tax laws that may apply,
or the alternative minimum tax.
persons have the authority to control all substantial decisions of the trust or if the trust has made a valid election to be treated as a
US person.
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their tax advisors.
to them arising under the tax laws of any foreign, state or local taxing jurisdiction.
Ownership of Ordinary Shares or ADSs
US federal income tax.
to the extent that the distributions do not exceed our current and accumulated earnings and profits. For US federal income tax purposes,
the amount of any distribution received by a US holder will equal the Dollar value of the sum of the South African Rand payments made
(including the amount of South African income taxes, if any, withheld with respect to such payments), determined at the “spot rate” on
the date the dividend distribution is includable in such US holder's income, regardless of whether the payment is in fact converted into
Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date a US holder includes
the dividend payment in income to the date such holder converts the payment into Dollars will be treated as ordinary income or loss.
Distributions, if any, in excess of our current and accumulated earnings and profits will constitute a non-taxable return of capital and will
be applied against and reduce the holder's basis in the ordinary shares or ADSs. To the extent that these distributions exceed the US
holder's tax basis in the ordinary shares or ADSs, as applicable, the excess generally will be treated as capital gain, subject to the
discussion below under the heading “Passive Foreign Investment Company.” We do not intend to calculate our earnings or profits for US
federal income tax purposes.
time such dividends are paid, either (i) we are eligible for benefits under a qualifying income tax treaty with the US or (ii) our ordinary
shares or ADSs with respect to which such dividends were paid are readily tradable on an established securities market in the US.
However, this reduced rate is subject to certain important requirements and exceptions, including, without limitation, certain holding
period requirements and an exception applicable if we are treated as a passive foreign investment company as discussed under the
heading “Passive Foreign Investment Company.” US holders are urged to consult their own tax advisors regarding the US federal income
tax rate that will be applicable to their receipt of any dividends paid with respect to the ordinary sha res and ADSs.
or sell a currency on or before two business days following the date of the execution of the contract. If such a spot rate cannot be
demonstrated, the US Internal Revenue Service has the authority to determine the spot rate.
income” for purposes of the limitation on the deduction of investment interest expense. Such dividends will not be eligible for the
dividends received deduction generally allowed to a US corporation under Section 243 of the Code. Dividend income will be treated as
foreign source income for foreign tax credit and other purposes. In computing the separate foreign tax credit limitations, dividend income
should generally constitute “passive income,�� or in the case of certain US holders, “financial services income.”
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distributions, the tax treaty between the United States and South Africa would limit the rate of this tax to 5 percent of the gross amount of
the distributions if a US holder holds directly at least 10 percent of our voting stock and to 15 percent of the gross amount of the
distributions in all other cases. In addition, if South Africa decided in the future to impose a withholding tax on distributions with respect
to the ordinary shares or ADSs, a determination would need to be made at such time as to whether any South African income taxes
withheld would be treated as foreign income taxes eligible for credit against such US holder's US federal income tax liability, subject to
limitations and conditions generally applicable under the Code. Any such taxes may be eligible at the election of such US holder, for
deduction in computing such US holder's taxable income. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. The calculation of foreign tax credits and, in the case of a US holder that elects to deduct foreign
taxes, the availability of deductions is complex and involves the application of rules that depend on a US holder's particular
circumstances. US holders are urged to consult their own tax advisors regarding the availability to them of foreign tax credits or
deductions in respect of South African income taxes, if any, withheld.
Disposition of Ordinary Shares or ADSs
basis in the ordinary shares or ADSs. Subject to the application of the “passive foreign investment company” rules discussed below, such
gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the US holder has held the ordinary shares or
ADSs for more than one year. The deductibility of capital losses is subject to limitations. Gain or loss recognized by a US holder on the
taxable disposition of ordinary shares or ADSs generally will be treated as US-source gain or loss for US foreign tax credit purposes.
payment in Rand and converts Rand into US Dollars at a conversion rate other than the rate in effect on the settlement date may have a
foreign currency exchange gain or loss that would be treated as ordinary income or loss.
the consent of the Internal Revenue Service. In the event that an accrual basis holder does not elect to be treated as a cash basis taxpayer,
such US holder may have a foreign currency gain or loss for US federal income tax purposes because of the differences between the US
dollar value of the currency received prevailing on the trade date and the settlement date. Any such currency gain or loss will be treated as
ordinary income or loss and would be in addition to gain or loss, if any, recognized by such US holder on the disposition of such ordinary
shares or ADSs.
Passive Foreign Investment Company
income, including our pro rata share of the gross income of any company in which we are considered to own 25% or more of the shares
by value, were passive income or (ii) 50% or more of our average total assets (by value), including our pro rata share of the assets of any
company in which we are considered to own 25% or more of the shares by value, were assets that produced or were held for the
production of passive income. If we were a PFIC, US holders of the ordinary shares or ADSs would be subject to special rules with
respect to (i) any gain recognized upon the disposition of the ordinary shares or ADSs and (ii) any receipt of an excess distribution
(generally, any distributions to a US holder during a single taxable year that is greater than 125% of the average amount of d istributions
received by such US holder during the three preceding taxable years in respect of the ordinary shares or ADSs or, if shorter, such US
holder's holding period for the ordinary shares or ADSs). Under these rules:
applicable;
income;
year.
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such holder elects to recognize gain based on the unrealized appreciation in the ordinary shares or ADSs through the close of the tax year
in which we cease to be a PFIC. Additionally, if we are a PFIC, a US holder who acquires ordinary shares or ADSs from a decedent
would be denied the normally available step-up in tax basis for such notes, ordinary shares or ADSs to fair market value at the date of
death and instead would have a tax basis equal to the lower of the fair market value or the decedent's tax basis.
This form describes any distributions received with respect to such stock and any gain realized upon the disposition of such stock.
holder would include in ordinary income or loss for each taxable year an amount equal to the difference as of the close of the taxable year
between the fair market value of the ordinary shares or ADSs and the US holder's adjusted tax basis in such ordinary shares or ADSs.
Losses would be allowed only to the extent of net mark-to-market gain previously included by the US holder under the election for prior
taxable years. If a mark-to-market election with respect to ordinary shares or ADSs is in effect on the date of a US holder's death, the tax
basis of the ordinary shares or ADSs in the hands of a US holder who acquired them from a decedent will be the lesser of the decedent's
tax basis or the fair market value of the ordinary shares or ADSs. US holders desiring to make th e mark-to-market election are urged to
consult their tax advisors with respect to the application and effect of making the election for the ordinary shares or ADSs.
taxable year in which such holder owns the ordinary shares or ADSs and if we comply with certain reporting requirements. However, we
do not intend to supply US holders with the information needed to report income and gain pursuant to a “qualified electing fund” election
in the event that we are classified as a PFIC.
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.
Rules relating to a PFIC are very complex. US holders are urged to consult their own tax advisors regarding the application of
PFIC rules to their investments in our ordinary shares or ADSs.
Information Reporting and Backup Withholding
recipient of such payment is not an “exempt recipient” and fails to supply certain identifying information, such as an accurate taxpayer
identification number, in the required manner. Generally, individuals are not exempt recipients, whereas corporations and certain other
entities generally are exempt recipients. The backup withholding tax rate is currently 28%. For payments made after 2010, the backup
withholding rate will be increased to 31%. Payments made with respect to our ordinary shares or ADSs to a US holder must be reported
to the Internal Revenue Service, unless the US holder is an exempt recipient or establishes an exemption. Any amount withheld from a
payment to a US holder under the backup withholding rules is refundable or allowable as a credit a gainst the holder's US federal income
tax, provided that the required information is furnished to the Internal Revenue Service.
US Gift and Estate Tax
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219-8700. A copy of each report submitted in accordance with applicable United States law is available for public review at our principal
executive offices.
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General
instruments include interest rate swaps, forward sale commodity contracts and option contracts. The decision to use these types of
transactions is based on our hedging policy. Although most of these instruments are used as economic hedges, none of them qualify for
hedge accounting and, consequently, are marked-to-market through the statements of operations in accordance with our accounting
policies. We do not hold or issue derivative financial instruments for speculative purposes, nor do we normally hedge forward gold sales.
Commodity price risk
fluctuated widely and are affected by numerous industry factors over which we have no control. The aggregate effect of these factors on
the gold price is impossible for us to predict. The price of gold may not remain at a level allowing us to economically exploit our reserves.
It is not our policy to hedge this commodity price risk.
Consequently, our shareholders were exposed to opportunity loss as a result of an increase in the price of gold. During fiscal 2002, our
management reached the conclusion that our hedge book structure would make it difficult for us to accomplish our strategy of providing
our investors with exposure to increases in the price of gold, as gains would be offset against potential losses on the forward contracts. As
a result, our policy is normally not to hedge forward gold sales, however we do hedge specified projects, acquisitions and capital
expenditure. With the acquisition of Emperor, during fiscal 2006, their existing gold forward contracts have been brought to book. These
gold forward contracts require delivery of 145,695 ounces between fiscal 2007 and fiscal 2009.
Forwar d sale commodity contracts
relating to 41,526 ounces. The remaining fair value liability of A$24.8 million ($18.1 million) will be settled thereafter. Included in
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us with the right, but not the obligation, to buy a total of up to 46,426 ounces (reducing throughout the period) of gold at the various
strike prices. These gold call options were taken up to mitigate the deterioration in the gold forward contracts discussed above. The
settlement schedule for the gold call options is as follows:
including the 75 GWh per month specified in the contract. In addition, every 12 month-period starting in October we adjusted the
amounts paid in that period in accordance with an established formula based on the gold price. This contract expired in September 2005.
arithmetic average of London PM close for each business day in the calculation period.
characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (3) a separate, stand-alone
instrument with the same terms would qualify as a derivative instrument. Accordingly, the embedded derivative was separated from the
host contract and carried at fair value.
Furthermore, our accounts receivable and loans are regularly monitored and assessed for recoverability. Where it is appropriate to raise a
provision, an adequate level of provision is maintained.
within two days. Once the gold has been assayed by RRL, the risks and rewards of ownership have passed.
customer and the settlement of the proceeds within two days.
agent and their customers and the settlement of the proceeds within six days.
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South Africa, Papua New Guinea and Fiji predominantly in Rand, Kina and Fiji Dollar, respectively. Currently, foreign exchange
fluctuations affect the cash flow that we will realize from our operations as gold is sold in Dollars while production costs are incurred
primarily in Rands, Papua New Guinean Kina, Fiji Dollars and Australian Dollars. Our results are positively affected when the Dollar
strengthens against these foreign currencies and adversely affected when the Dollar weakens against these foreign currencies. Our cash
and cash equivalent balances are held in Dollars, Rands, Papua New Guinean Kina, Fiji Dollars and Australian Dollars; holdings
denominated in other currencies are relatively insignificant. Certain of our financial liabilities are denominated in a curre ncy other than
the Rand. We are thus mostly exposed to fluctuations in the Rand and Australian exchange rate with the relevant currency.
Interest rate risk
Interest rate swap agreement
coupon rate (in Dollars) of 6% per annum was swapped for a floating South African interest rate, calculated at the forward
JIBAR plus 200 basis points per annum. An amount of 60% of the coupon rate is subject to this swap agreement, based on the
requirements of the South African Reserve Bank, as this represents the amount of the funds raised utilized in South Africa. The maturity
date of this agreement was November 2006, however during fiscal 2006 this contract was closed out. Included in profit/(loss) on
derivative instruments is $nil for fiscal 2006.
contracts under which we are obliged to receive interest at variable rates and pay interest at a fixed rate of 4.34% until October 2008. As
discussed in Note 17 to our financial statements, the fair value of the interest rate swap agreement at June 30, 2006, is an asset of
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PROCEEDS
Evaluation of Disclosure Controls and Procedures
Changes in Internal Control over Financial Reporting
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However, we do not have an audit committee financial expert (as defined in Item 16A of the Form 20-F) as no member of the Audit
Committee currently has the required US GAAP experience.
operation as well as all other employees. The Code of Ethics and Conduct can be accessed on the Company’s website at
documents filed with the SEC.
Audit-Related Fees
assistance relating to the documentation of internal control procedures.
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.
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We have audited the accompanying consolidated balance sheets of DRDGOLD Limited and its subsidiaries as of June 30, 2006 and 2005,
and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period
ended June 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of DRDGOLD Limited and its subsidiaries at June 30, 2006 and 2005, and the results of their operations
and their cash flows for each of the years in the three-year period ended June 30, 2006, in conformity with US generally accepted
accounting principles.
As discussed in Note 3 to the consolidated financial statements, DRDGOLD Limited changed its method of accounting for share-based
payments effective July 1, 2005.
/s/ KPMG Inc.
KPMG Inc.
Registered Accountants and Auditors
Johannesburg, Republic of South Africa
December 19, 2006
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2004: $2.3 million))
ITEMS
COMMON STOCKHOLDERS
(CENTS)
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(2005: 5,000,0000) cumulative preference shares
(2005: 5,000,000) cumulative preference shares
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Consolidated Statements of Stockholders’ Equity
For the years ended June 30
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DRDGOLD Limited (“the Company”) was formed in 1895 and is a gold mining company engaged in underground and surface gold
mining including exploration, extraction, processing and smelting. The Group (being the Company and its subsidiaries and joint
venture) focuses its operations on the West Witwatersrand basin in South Africa, in Papua New Guinea and Fiji.
As at June 30, 2006, the South African operations consist of an 85% interest in each of Blyvooruitzicht Gold Mining Company
Limited, or Blyvoor, Crown Gold Recoveries (Pty) Limited, or Crown, and East Rand Proprietary Mines Limited, or ERPM. The
Australasian operations consist of a 78.72% interest in Emperor Mines Limited, or Emperor, which owns Vatukoula in Fiji, Tolukuma
in Papua New Guinea and a 20% interest in the Porgera Joint Venture in Papua New Guinea. The Company also has exploration
projects in South Africa, Papu a New Guinea, Fiji and Australia.
On July 30, 2004, the Company’s offer to the shareholders of Emperor closed with the Company having received acceptances from
Emperor’s shareholders representing approximately 25.55% of Emperor’s issued share capital, thereby increasing the Company’s
shareholding in Emperor from 19.78% to 45.33%. Accordingly, the Company issued 6,612,676 shares in exchange for the 29,097,269
Emperor shares to the value of $16.6 million, based on the market value of the Company’s shares on the date issued. Share issue and
transaction costs associated with the offer amounted to $1.7 million.
Due to its cumulative ownership of 45.33% at June 30, 2005, the Company accounted for its investment in Emperor under the equity
method of accounting. Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common
Stock”, or APB Opinio n No. 18, required the use of the equity method of accounting if the investment gave the Company the ability to
exercise significant influence over operating and financial policies, but not control, over an investee. As a result of the additional
equity ownership and change in relationship with Emperor, including representation on Emperor’s board of directors, the Company
had the ability to exercise significant influence over the operations of Emperor. Accordingly, the Company restated the prior year’s
financial statements, as if the equity method had been utilized from December 2002, the date of the initial acquisition of the investment
in Emperor.
As required by APB Opinion No. 18, the change to the equity method in accounting for the Emperor investment required restatement
of prior period financial statements. Beginning in August 2004, the Company recognized 45.33% of the loss of Emperor, adjusted for
amortization of the excess purchase price. The amount i ncluded for the year ended June 30, 2004, represented 19.78% of Emperor’s
losses, adjusted for the amortization of the excess purchase price.
The following is a summary of the effects of the restatement, for the change to the equity method in accounting for the investment in
Emperor, on the consolidated statements of operations for the year ended June 30, 2004.
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The following are accounting policies used by the Group which have been consistently applied as indicated below:
Basis of presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America. The Company presents its consolidated financial statements in United States Dollars.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires
the Group’s management to make assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. These estimates include the collectability of related party receivables, the valu ation of deferred tax assets, the impairment of
mining assets, and the estimation of environmental rehabilitation, reclamation and closure costs, among others. Actual results could
differ from those estimates.
Consolidation
The consolidated financial information includes the financial statements of the Company, its subsidiaries and investments in associates
and joint venture. A company which is more than 50% owned by the Group, which the Group controls directly or indirectly, through
other subsidiary interests, is classified as a subsidiary. The results of any subsidiary, associate or joint venture acquired or disposed of
during the year, are consolidated from the effective date of acquisition and up to the effective date of disposal.
Intra-company transactions and balances are eliminated on consolidation.
Investment in joint venture
Investments in unincorporated mining joint ventures in which the Group has joint control, under a contract ual agreement, are reported
using the proportionate consolidation method.
Investment in associates
Investments in associates are accounted for by the equity method of accounting. These are entities over which the Group has the ability
to exercise significant influence, but which it does not control. The ability to exercise significant influence is presumed where the
Group owns more than 20%, but less than 50%, of the voting stock of an investee. The Group’s investments in associates are carried in
the balance sheet at an amount that reflects its share of the net assets of the associates.
The recoverable amount of the associate, that is the Group’s proportionate share of the fair value of the associate, is compared to the
carrying value of the associate. If an impairment exists on this basis, a reduction in the carrying value of the associate is recorded to the
extent that the carrying value exceeds the fair value.
Equity accounting in volves recognizing, in the statement of operations, the Group’s share of the associates’ profit or loss for the year
after tax to the extent of the Group’s investment in and advances to its associates.
Goodwill on the acquisition of associates is included in the carrying value of the investment in associates.
Goodwill
Where the excess purchase price of a business acquisition cannot be attributed to assets acquired, including acquired properties and
mineral rights, it is included in goodwill and reviewed for impairment in accordance with the provisions of Statement of Financial
Accounting Standards, or SFAS No. 142, “Goodwill and Other Intangible Assets.”
Goodwill is stated at cost less impairment. Goodwill is tested for impairment at the reporting unit level on an annual basis, or more
frequently if the Group believes indicators of impairment exist. The performance of the test involves a two step process. The first s tep
of the impairment test involves comparing the fair value of the reporting unit with the reporting unit’s carrying amount, including
goodwill. The fair value of the reporting unit is determined based on estimated future discounted cash flows. If the carrying amount of
the reporting unit exceeds the reporting unit’s fair value, the second step of the goodwill impairment test is performed to determine the
amount of the impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the
reporting unit’s goodwill with the carrying amount of that goodwill. The impairment which is recognized in the statement of operations
is measured as the amount by which the carrying amount exceeds the implied fair value of the reporting unit’s goodwill.
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Foreign currency
The Group’s functional currency for the South African operations is the South African Rand, for the Papua New Guinean operations is
the Papua New Guinean Kina and for the Fiji operation is the Fiji Dollar. Transactions denominated in currencies other than the
functional currency are recorded at the rate of exchange ruling at the transaction date. Monetary assets and liabilities denominated in
such currencies are translated at the rates applicable at the balance sheet date and profits and losses arising as a result of translating
those assets and liabilities to the functional currency are recorded in the statement of operations.
For foreign subsidiaries, whose functional currency is a currency other than the Rand, assets and liabilities are translated using the
closing rates at year end, and the statement of operations is translated at average rates. Differences a rising on translation are included
as a component of other comprehensive loss.
The financial statements are translated by the Company into US Dollars, for the purpose of reporting, in accordance with SFAS No.
52, “Foreign Currency Translation,” whereby assets and liabilities are translated using the closing rates at year end, the statement of
operations is translated at average rates and equity at historical rates. The translation differences arising as a result of converting to US
Dollars, using the current exchange rate method, are included as a separate component of stockholders’ equity – other comprehensive
loss.
Receivables
Receivables consist of amounts owing by external and related parties and include amounts of a long- and short-term nature. Provisions
for uncollectible amounts are included in determining net income or loss where a decline in the value of the receivable has occurred.
Interest on balances owed to the Group accrues on a daily basis. Interest accrued on impaired balances owed to the Group is not
recorded as it is not considered to be recoverable.
Cash and cash equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less.
Due to the short maturity of the investments, the carrying amounts approximate their fair value.
Non-current unlisted investments
Non-current unlisted investments, in which the Group does not have significant influence or a controlling interest, are carried at
acquisition cost. Realized gains and losses are included in determining net income or loss. Impairment losses are included in
determining net income or loss where an other than temporary decline in the value of the investment has occurred.
Non-current listed investments
Non-current listed investments, are treated as ‘available for sale’, and are accounted for at fair value with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders’ equity. Realized gains and losses are included in
determining net income or loss.
Inventories
Inventories, comprising gold in process (being gold at the stage of production immediately prior to smelting) and supplies, are stated at
the lower of cost and market value. Costs are assigned to inventory on an average cost basis. Costs relating to gold in process comprise
all costs incurred to the stage immediately prior to smelting, including costs of extraction, depletion and processing, based on the
relevant stage of production. Selling, refining and general administration costs are excluded from inventory valuation.
Non-current inventory comprises ore in stockpiles. These in-process inventories are measured on the absorption cost method and
valued at the lower of average production cost and net realizable value, after a r easonable allowance for further processing costs. Costs
relating to ore in stockpiles comprise all costs incurred to the stage immediately prior to stockpiling, including costs of extraction and
crushing, as well as processing costs associated with ore stockpiles, based on the relevant stage of production.
Exploration costs
Mining exploration costs, including property acquisitions and mineral and surface rights relating to exploration stage properties are
expensed as incurred.
Development costs
Development costs relating to major programs at existing mines are capitalized. Development costs consist primarily of expenditures
to initially establish a mine and to expand the capacity of operating mines. Ordinary development costs to maintain production are
expensed as incurred.
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Mining assets
Land is recorded at cost and not depreciated. Buildings and other non-mining fixed assets are recorded at cost less accumulated
depreciation.
Actual expenditures incurred for mineral property interests, mine development costs, mine plant facilities and equipment are
capitalized to the specific mine to which the cost relates. Amortization is calculated on a mine-by-mine basis (i.e. the cost pools are the
individual mines) using the units of production method. Under the units of production method, the Group estimates the amortization
rate based on actual production over total proven and probable ore reserves of the particular mine. This rate is then applied to actual
costs incurred to arrive at the amortization expense for the period. Proven and probable ore reserves of a particular mine reflect
estimated quantities of economically recoverable reserves that can be reco vered in the future from known mineral deposits that are
presently accessible.
Impairment of mining assets
The impairment of long-lived assets is accounted for in terms of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets.”
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset or group of assets may not be recoverable. Recoverability of an asset or asset group is assessed by comparing the carrying amount
of an asset or group of assets to the estimated future undiscounted net cash flows of the asset or group of assets. Estimates of future
cash flows include estimates of future gold prices and foreign exchange rates. It is therefore reasonably possible that changes could
occur which may affect the recoverability of the Group’s mining assets. If an asset or asset group is considered to be impaired, the
impairment which is recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds the
discounted future cash flows expected to be derived from that asset or group of assets. The asset, or asset group, is the lowest level for
which there are identifiable cash flows that are largely independent of other cash flows. The lowest level for which there are
identifiable cash flows that are largely independent of other cash flows is on a mine-by-mine basis. Therefore the Company makes the
analysis on a mine-by-mine basis.
Leased assets
Assets subject to finance leases are capitalized at the lower of fair value or present value of minimum lease payments with the related
lease obligation recognized at the same amount. Capitalized leased assets are depreciated over the shorter of their estimated useful
lives and the lease term. Finance lease payments are allocated using the effective interest rate method, between the lease finance cost,
which i s included in finance costs, and the capital repayment, which reduces the liability to the lessor.
Operating lease rentals are charged against operating profits in a systematic manner related to the period the assets concerned will be
used.
Deferred stripping costs
Stripping costs incurred in open-pit operations during the production phase to remove additional waste are charged to operating costs
on the basis of the average life of mine stripping ratio and the average life of mine costs per ton. The average stripping ratio is
calculated as the number of tons of waste material expected to be removed during the life of mine per ton of ore mined. The average
life of mine cost per ton is calculated as the total expected costs to be incurred to mine the ore body divided by the number of tons
expected to be mined. The average life of mine stripping ratio and the average life of mine cost per ton are recalculated annually in
light of additional knowledge and ch anges in estimates.
The cost of the “excess stripping” is capitalized as mine development costs when the actual mining costs exceed the sum of the
adjusted ore tons mined, being the actual ore tons plus the product of the actual ore tones multiplied by the average life of mine
stripping ratio, multiplied by the life of mine cost per ton. When the actual mining costs are below the sum of the adjusted ore tons
mined, being the actual ore tons plus the product of the actual ore tons multiplied by the average life of mine stripping ratio, multiplied
by the life of mine cost per ton, previously capitalized costs are expensed to increase the cost up to the average. Thus, the cost of
stripping in any period will be reflective of the average stripping rates for the ore body as a whole. Deferred stripping costs of
$23.6 million (2005: $12.5 million), at Porgera, are classified as mining assets and the amounts amortized are included in the
depreciation and amortiz ation charge for all periods presented. During fiscal 2006, $12.9 million (2005: $11.1 million) of deferred
stripping costs were capitalized to mining assets.
The deferred stripping costs are included in the carrying values of mining assets used in the impairment tests performed in accordance
with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
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Borrowing costs
Interest on borrowings utilized to finance qualifying capital projects under construction is capitalized during the construction phase as
part of the cost of the project. Other borrowing costs are expensed as incurred. No borrowing costs were capitalized during the years
ended June 30, 2006, 2005 or 2004.
Environmental rehabilitation, reclamation and closure costs
The Group accounts for its obligations associated with the retirement of tangible long-term assets and the associated asset retirement
costs in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations,” or SFAS No. 143. The standard applies to
legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and
normal use of the asset.
SFAS No. 143 requires that the fair value of a liabilit y for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each
period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Group
will recognize a gain or loss on settlement.
Under SFAS No. 143, accounting for environmental rehabilitation and reclamation obligations requires management to make estimates
for each mining operation of the future costs the Group will incur to complete final reclamation work required to comply with existing
laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to
environmental laws and regulations could increase the e xtent of reclamation and remediation work required to be performed by the
Group. Any such increases in future costs could materially impact the amounts charged to operations for reclamation and remediation.
In South Africa, annual contributions are made to dedicated rehabilitation trust funds to fund the estimated cost of rehabilitation during
and at the end of the life of the relevant mine. The funds contributed to the trusts, including income earned thereon, are included under
non-current assets.
Revenue
Revenue consists of sales of gold bullion and is recognized when the product is delivered to the relevant refinery, Rand Refinery
Limited in South Africa, AGR Matthey in Papua New Guinea (for Tolukuma and Porgera) and AGR Matthey in Fiji (for Vatukoula), at
which stage title, including all risks and rewards of ownership, passes from the Group to the buyer.
Once the gold bars reach the refinery, they are assayed to determine the gold content of each bar before being sent for refining where it
is purified to 99.9% purity and cast into troy ounce bars of varying weights. The bullion is then sold by the refinery on the same day as
the delivery, and the proceeds are remitted to the Group within two to six days.
Derivative instruments
Under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, all derivative instruments are
recognized on the balance sheet at their fair value, unless they meet the criteria for the normal purchase normal sale exception. On the
date a derivative contract is entered into, the derivative can be designated as (1) a hedge of the fair value of a recognized asset or
liability (fair value hedge), (2) a hedge of a forecasted transaction (cash flow hedge), or (3) a hedge of a net investment in a foreign
entity. The Group’s derivative transactions, while designed to provide effective economic hedges under the Group’s risk mana gement
policies, do not qualify for hedge accounting. Therefore, any changes in the fair value of derivative instruments are recognized in the
statement of operations for each reporting period. Derivative instruments are not entered into for trading purposes.
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Pension plans and other employee benefits
Pension plans, which are multi-employer plans, in the nature of defined contribution plans, are funded through annual contributions,
which are expensed as incurred.
service with qualified gold mining companies. The obligation is accrued over the service life of the employees and is calculated using a
projected credit unit method.
determined contribution basis. No contributions are made for employees retiring after December 31, 1996. The contributions are
expensed as incurred.
medical benefits in respect of qualifying employees are recognized as an expense over the expected remaining service lives of relevant
employees. These liabilities are provided in full, calculated on an actuarial basis. Periodic valuation of these obligations is carried out
by independent actuaries using appropriate mortality tables, long-term estimates of increases in medical costs and appropriate discount
rates. Actuarial gains and losses are included in determining net income or loss.
Premium and debt costs
Discounts and underwriting, legal and other direct costs incurred in connection with the issuance of debt are deferred and are
amortized, over the period of the debt, to interest expense using the effective interest method.
Taxation
Deferred income and mining taxes
The Group follows the liability method of accounting for deferred income and mining tax whereby the Group recognizes the tax
consequences of temporary differences by applying current enacted statutory tax rates applicable to future years to differences between
financial statement amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the
impact of any tax rate changes enacted during the year.
A valuation allowance is raised against deferred tax assets which are not considered more likely than not to be realizable.
Secondary Taxation on Companies (STC)
STC is a tax levied by the South African Revenue Services on dividends declared and becomes payable on declaration of a dividend.
STC is expensed when the related dividend is declared.
(Loss)/profit per share
(Loss)/profit per share is calculated based on the net result divided by the weighted average number of shares in issue during the year.
Fully diluted (loss)/profit per share is based upon the inclusion of potential dilutive shares with a dilutive effect on (loss)/profit per
share. In fiscal 2006, the shares underlying the convertible notes and the shares underlying the staff options allocated in terms of the
Employee Share Option Scheme, or ESOS, along with their respective impact on the net (loss)/profit applicable to common
stockholders, of $5.9 million and $nil, were considered in determining the diluted (loss)/profit per share. In fiscal 2005 the shares
underlying the convertible notes and the shares underlying the staff options allocated in terms of ESOS, along with their respective
impact on the net (loss)/profit applicable to common stockholders, of $7.8 million and $nil, were considered in determining the diluted
loss per share. In fiscal 2004 the shares underlying the options allocated in terms of ESOS, and their respective impact on the net
(loss)/profit applicable to common stockholders, of $3.6 million and $nil, were considered in determining the diluted loss per share.
In fiscal 2006, 2005 and 2004, losses applicable to common stockholders of $23.8 million, $81.8 million and $58.9 million,
respectively, were recorded. As a result of the losses recorded in fiscal 2006, 2005 and 2004, the adjustments were anti-dilutive.
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Stock-based compensation plans
At June 30, 2006, the Company has in place an Employee Share Option Scheme, which is described more fully in Note 22. Effective
July 1, 2005, the Company adopted SFAS No. 123 (revised 2004), “Share Based Payment,” or SFAS No. 123(R). SFAS No. 123(R)
requires that the cost resulting from all share-based payment transactions be recognized in the financial statements over the employee
requisite service period (generally the vesting period of the equity grant) and determined on a fair value based measurement method.
The fair values for stock option awards issued to employees are estimated at the date of grant using the Black-Scholes option pricing
model.
The Company adopted SFAS No. 123(R) using the modified prospective method. Under this method, compensation cost is recognized
(a) based on the requirements of SFAS No. 123(R) for all sh are-based payments granted after the effective date and (b) based on the
requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remained
unvested on the effective date.
Previously, the Company accounted for stock option awards using the intrinsic value method in accordance with APB Opinion No. 25,
“Accounting for Stock Issued to Employees” and related interpretations and disclosure provisions of SFAS No. 123, “Accounting for
Stock-Based Compensation.” The difference between the option strike price and the prevailing market value of the share at grant date
was recorded as compensation expense over the vesting period.
The following table illustrates the effect on net (loss)/profit applicable to common stockholders if the Company had applied the fair
value recognition provisions of SFAS No. 123 to its employee based compensation plan in 2005 and 2004 (thousands except f or
earnings per share information):
Discontinued operation
The results of operations of discontinued Group components and gains or losses from their disposal are each presented separately net
of tax in the notes to the consolidated financial statements for all periods presented. A Group component is considered a discontinued
operation if its operations and cash flows have been or will be eliminated from the ongoing activities of the Group as a result of a
disposal transaction, the Group will not have any significant subsequent continuing involvement with the component, and the
component can be clearly distinguished, operationally and for financial reporting purposes. If not disposed of by the balance sheet
date, to qualify as discontinued operation, a component must also meet the conditions to be classified as held for sale. Net assets of a
discontinued Group component classified as held for sale are measured at the lower of i ts carrying amount or fair value less cost to sell.
Gains from the sale of a discontinued Group component are recognized in the period realized and reported separately.
Comparatives
Certain comparatives have been reclassified, where necessary to conform to the current year’s presentation.
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Recent pronouncements
EITF Issue 04-06, “Accounting For Stripping Costs Incurred During Production in the Mining Industry”
In March 2005, the EITF reached a consensus (ratified by the FASB) that stripping costs incurred during the production phase of a
mine are variable production costs that should be included in the costs of inventory produced during the period that the stripping costs
are incurred.
permitted. The Company is reviewing the guidance issued in Issue 04-06 and has not yet determined the impact of this on its
consolidated financial statements.
46(R) (FSP FIN 46(R)-6)”
In April 2006, the FASB issued FSP FIN 46(R)-6 to address how to determine the variability to be considered in applying FASB
Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” or FIN 46(R). The variability to be
considered in applying FIN 46(R) is based on an analysis of the design of the entity considering the nature of the risks in the entity,
determining the purpose for which the entity was created and determining the variability the entity is designed to create and pass along
to its interest holders.
impact of this statement and believes that it will not have a material impact on our results of operations, financial position or liquidity
In July 2006, the FASB issued FIN 48 which prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in
accordance with this interpretation firstly requires the determination whether it is more likely than not that a tax position will be
sustained upon examination, based on the technical merits of the position and secondly the position is measured to determine the
amount of benefit to be recognized in the financial statements. The Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of retained earnings. The
Group is in the process of evaluating the impact of this pronouncement and it is believed that it will not have a material impact on our
results of operations, financial position or liquidity.
impairment and its application to certain investments”
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1 providing guidance for the determination as to when an
investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The
guidance also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.
in the year ended June 30, 2007. The Group is in the process of evaluating the impact of this pronouncement and it is believed that it
will not have a material impact on our results of operations, financial position or liquidity.
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2006 acquisitions
Emperor Mines Limited
On November 16, 2005, the Company concluded a sale and purchase agreement with Emperor, who held a 100% stake in the Vatukoula
mine in Fiji, pursuant to which, on April 6, 2006, Emperor acquired the Company’s wholly owned subsidiary, DRD (Isle of Man) Limited,
or DRD (Isle of Man), which in turn holds the Company’s Papua New Guinea assets, comprising the 20% interest in the Porgera Joint
Venture, the 100% interest in Tolukuma Gold Mines Limited and all of the Company’s exploration tenements in Papua New Guinea. The
purchase consideration was subject to certain completion adjustments to reflect the change in the capital position of both Emperor and
DRD (Isle of Man) between October 1, 2005, which was the effective date, and April 6, 2006, the date that the transaction was completed.
The purchase consideration included 7 51,879,699 new Emperor shares issued to DRD (Offshore) Limited, or DRD (Offshore), and a cash
consideration of $37.3 million payable to DRD (Offshore). After the issue of the new Emperor shares, the Company held 88.27% of
Emperor. Subsequently, the Company’s shareholding was diluted to 78.72% by June 30, 2006, following a number of share issues in which
the Company did not participate.
This transaction was accounted for as a reverse acquisition of Emperor by DRD (Isle of Man). The transfer of DRD (Isle of Man) to
Emperor was negotiated in conjunction with the Company obtaining control of Emperor, therefore the sale and purchase transactions could
not be separated and are accounted for as one transaction. The transaction has been accounted for by the Company as a partial sale of DRD
(Isle of Man) and a partial acquisition of Emperor. Accordingly a profit has been recognized by the Company on the portion of DRD (Isle
of Man) sold to minority shareholders. The Co mpany has revalued the assets and liabilities of Emperor to the extent acquired and has
revalued the assets and liabilities of DRD (Isle of Man) to the extent that DRD (Isle of Man) was acquired by the minority shareholders at
the date of acquisition. The purchase consideration has been determined based on the fair value of the assets transferred to Emperor and the
fair value of the additional interest acquired in Emperor.
The estimated fair value of the assets and liabilities acquired as part of this transaction were as follows:
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Crown Gold Recoveries (Pty) Limited and East Rand Proprietary Mines Limited
In November 2005, the Company transferred its 100% interest in Blyvoor and its 40% interest in Crown and ERPM to a newly created
subsidiary, DRDGOLD SA. DRDGOLD SA acquired the remaining 60% interest in Crown and ERPM from KBH. DRDGOLD SA then
issued new shares to Khumo Gold, representing a 15% interest in DRDGOLD SA. The Company retained an 85% interest in DRDGOLD
SA. The transaction was financed by the issuance of $4.8 million (R31.8 million) new Khumo Gold preference shares, to which the
Company subscribed. The proceeds from these preference shares were used by Khumo Gold to settle an existing loan to KBH of
$1.2 million (R7.9 million), subscribe for $0.6 million (R4.1 million) new preference shares in ERPM, subscribe for $0.4 million
(R2.7 million) new preference shares in Crown, subscribe for $0.6 million (R3.9 million) new preference shares in Blyvoor and
subscribe for 15% of the issued ordinary shares in DRDGOLD SA for $2.0 million (R13.2 million). The net effect of these
transactions was that the Group acquired 60% of Crown and ERPM.
The estimated fair value of the assets and liabilities of Crown Gold Recoveries (Pty) Limited acquired as part of this transaction were
as follows:
The estimated fair value of the assets and liabilities of East Rand Proprietary Mines Limited acquired as part of this transaction were as
follows:
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For information purposes only, the following unaudited pro forma financial data reflects the consolidated results of operations of the
Company as if the above business combinations had taken place on July 1, 2005 and on July 1, 2004, respectively:
The pro forma information is not indicative of the results of operations that would have occurred had these business combinations been
consummated on July 1, 2005 and on July 1, 2004, respectively. The information is not indicative of the group’s future results of
operations.
2006 disposals
Stand 752 Parktown Extension (Pty) Limited
In September 2005, the Company sold Stand 752 Parktown Extension (Pty) Limited for R4.0 million ($0.6 million).
The aggregate carrying value of the assets and liabilities disposed of as part of this transaction were as follows:
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2005 acquisitions
Emperor Mines Limited
On July 30, 2004, the Company’s offer to the shareholders of Emperor Mines Limited, or Emperor, closed with the Company having
received acceptances from Emperor’s shareholders representing approximately 25.55% of Emperor’s issued share capital, thereby
increasing the Company’s shareholding in Emperor from 19.78% to 45.33%. Accordingly, the Company issued 6,612,676 shares in
exchange for the 29,097,269 Emperor shares to the value of $16.6 million, based on the market value of the Company’s shares on the
date issued. Share issue and transaction costs associated with the offer amounted to $1.7 million.
The estimated fair value of the assets and liabilities acquired as part of this transaction were as follows:
The fair value of the 6,612,676 no par value shares issued was $16.6 million, determined based on the prevailing market value of
DRDGOLD Limited shares on June 10, 2004 (refer Note 20), in final settlement of the purchase price determined on July 30, 2004.
The excess paid over the net asset value of Emperor relates to the fair value adjustment of the mining assets in Emperor.
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2005 disposals
North West Operations
On March 3, 2005, the Company entered into a 60-day review period at the North West Operations due to continuing losses at these
operations. The purpose of this 60-day review period was to assess whether these operations could be restored to break-even.
On March 9, 2005, the North West Operations suffered the effects of an earthquake of 5.3 on the Richter scale. As a consequence of
the extensive damage caused by the earthquake, the No. 5 Shaft of the North West Operations was closed. There was continuing
seismic activity in the area and on March 16, 2005, the Company closed the No. 2 Shaft because of concerns for the safety of the
employees.
On March 22, 2005, application was made to the High Court of South Africa for the provisional liquidation of Buffelsfontein Gold
Mines Limited (which owns the North West Operations), whi ch order was granted on the same day.
The aggregate carrying value of the assets and liabilities disposed of as part of this transaction were as follows:
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2004 acquisitions
Net-Gold Services Limited
With effect from April 28, 2004, the closing date, the Group acquired 50.25% of the shares of Net-Gold Services Limited, a
subsidiary of G.M. Network Limited. This entity brokers the payment of purchases made by subscribers, through settlement in gold.
The results of Net-Gold Services Limited’s operations have been included in the consolidated financial statements since that date.
Included in the acquisition is an option to exchange the Group’s shareholding in Net-Gold Services Limited for approximately 14.3%
of the shares in G.M. Network Limited, a non-public company that focuses on the development of patents and other intellectual
property specifically in connection with electronic trading on the Internet. This option is valid until December 31, 2007.
The estimated fair value of the assets and liabilities acquired as part of this transaction were as follows:
Porgera Joint Venture
With effect from October 14, 2003, the Group acquired the shares in Orogen Minerals (Porgera) Limited, or OMP, and Mineral
Resources Porgera Limited, or MRP. The transaction was affected through the amalgamation of OMP, MRP and the Company’s
wholly-owned subsidiary, Dome Resources (PNG) Limited. OMP changed its name to DRD (Porgera) Limited. This resulted in the
Company acquiring a 20% interest in the Porgera Joint Venture in Papua New Guinea. The Porgera mine’s main business focus is the
extraction of gold.
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Porgera Joint Venture (continued)
The estimated fair value of the assets and liabilities acquired as part of this transaction were as follows:
The fair value of the 6,643,902 no par value shares issued was $16.7 million, determined based on the prevailing market value of
DRDGOLD Limited shares on November 22, 2003 (refer Note 20), in final settlement of the purchase price determined on October 14,
2003.
Fortis Limited
With effect May 21, 2004, the Group acquired the shares in Fortis Limited, or Fortis, a company dealing with insurance and
reinsurance activities, in Papua New Guinea. Fortis was acquired for a consideration of $712,000, the only asset of Fortis being cash
and cash equivalents of $712,000.
2004 disposals
The Group made no disposals during the year.
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The Company has related party relationships with its affiliates and with its directors and senior management.
All contracts with related parties for the supply of goods and services are approved in accordance with the Company’s procurement
policies. The contract terms are compared to similar suppliers of goods and services to benchmark that the contract is on market related
terms.
Transactions with Directors
Dr. M. P. Ncholo, chairman of Khumo Bathong Holdings (Pty) Limited, or KBH, was also a Non-Executive Director of the Company
until October 25, 2005. Dr. M. P. Ncholo earned $52,851 in board and other fees from the Company during the year ended
June 30, 2006 (2005: $49,439).
During fiscal 2004, financial assistance was provided by ERPM, the Company’s then 40% associate company with KBH, to the family
of Dr. M. P. Ncholo, with regards to funeral expenses relating to the death of a family member who was a temporary employee of
ERPM. In terms of ERPM’s practice, the funds were advanced on compassionate grounds to assist the family with costs associated
with the funeral. This amounted to $12,441. In fiscal 2006, this amount was written off in the accounts of ERPM.
On June 26, 2006, the Emperor board approved a loan of A$0.4 million ($0.3 million) to Mr. B. Gordon, the Chief Executive Officer
of Emperor, to acquire 1,000,000 shares in Emperor. The approval of the loan was subject to approval by shareholders at Emperor’s
Special General Meeting held in August 2006. The loan was approved by shareholders at this Special General Meeting. The loan is
repayable over 5 years, with 25% of any gross bonus paid to Mr. B. Gordon being directed as a loan repayment until such time as the
loan is repaid in full. The loan was entered into on an arm’s-length basis and on market related terms and bears interest at the ANZ
Bank published bank bill rate plus 1% per annum.
Transactions with affiliates
During the year ended June 30, 2006, the Company earned $0.7 million (2005: $0.5 million and 2004: $1.0 million) in management
fees from Crown and $0.7 million (2005: $0.5 million and 2004: $2.0 million) in management fees from ERPM, $1.6 million (2005:
$1.9 million and 2004: $2.1 million), up to December 1, 2005 after which Crown and ERPM were consolidated as subsidiaries.
At June 30, 2006, KBH owed the Company $nil (2005: $1.2 million). Interest amounting to $0.1 million (2005: $0.1 million) was
payable to the Company on the loan to KBH for the year ended June 30, 2006. No interest income on the loan was recorded as it was
not considered to be recoverable. No dividends were received from associates in fiscal 2006, fiscal 2005 or fiscal 2004.
On July 11, 2005, Emperor finalized an A$10.0 million ($7.6 million) Convertible Loan facility with the Company. The Company
advanced these funds to Emperor in July 2005. The Convertible Loan facility carries an interest rate of 9% per annum and is repayable
by December 31, 2007. The facility is convertible, at any time, at the Company’s election into fully paid shares of Emperor at
conversion price equal to the lower of A$0.30 ($0.23) per share or the 45 day volume weighted average price of Emperor shares on
ASX prior to the date of conversion. The outstanding balance on this loan at June 30, 2006 is eliminated on consolidation.
Rand Refinery agreement
On October 12, 2001, the Group entered into an agreement with Rand Refinery Limited, or Rand Refinery, for the refining and sale of
all of its gold produced in South Africa. Under the agreement, Rand Refinery performs the final refining of the Group’s gold and casts
it into troy ounce bars. Then, Rand Refinery sells the gold on the same day as delivery, for the London afternoon fixed price on the day
the gold is sold. In exchange for this service, the Group pays Rand Refinery a variable refining fee plus fixed marketing, loan and
administration fees. Mr. D.J. Pretorius, the Group Legal Counsel, is also a Director of Rand Refinery and is a member of their Audit
Committee. Also, Mr. I.D. Graulich, the Group’s Strategic Development Officer, is Alternate Director to Mr. D.J. Pretorius. The
Group currently owns 4% (2005: 3%) of Rand Refinery (which is jointly owned by South African mining companies). During the year,
all gold produced in South Africa was refined by Rand Refinery and as at year-end no balances owed by or to this entity.
Mr. C. Press loan
During fiscal 2003, Mr. C. Press, a director of Net-Gold Services (Pty) Limited, or Net-Gold, a consolidated subsidiary, loaned an
amount of US$24,946 to Net-Gold. This loan is interest free, unsecured and has no fixed terms of repayment. The funds were used for
short-term working capital advances. As at June 30, 2006, t he full balance was still outstanding.
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Western Areas Limited
Western Areas Limited was also a related party because Mr. R.A.R Kebble, a director of Western Areas Limited, was also a director of
the Company.
On or about October 9, 2001, the Company concluded a contract of guarantee and cession as security for payment with Investec Bank
Limited, or Investec. Under the terms of this agreement, the Company agreed to guarantee Western Areas Limited’s, or WAL’s,
obligations to Investec up to the value of the Sale Shares (being ordinary shares of Randgold, JCI and CAM acquired by the Company
between December 14, 1999 and January 11, 2000). Also, the Company ceded the Sale Shares, as security, to and in favor of Investec
allowing Investec to sell the Sale Shares in the event that WAL defaulted.
On or about September 26, 2001, the Sale Shares were ceded to Investec and WAL granted the Company a put option in r espect of the
Sale Shares at a total price of at least R116.4 million ($13.3 million). CAM and JCI undertook to apply all dividends received from
WAL in respect of their shareholdings to the reduction of all amounts owed by them to the Company. The parties agreed that the
monthly option fee would be payable to exercise their rights under the call option for the duration of the Company’s guarantee and
cession and agreed that if Investec exercised its rights under that guarantee, the rights of CAM and JCI under the call option would
terminate.
The option fee payable to the Company by CAM and JCI for the period of November 2001 up to December 13, 2001 amounted to
R21.6 million ($2.0 million) plus VAT in the amount of R3.0 million ($0.3 million) plus interest in the amount of R1.7 million
($0.2 million) at the prescribed rate of 15.5% per annum from January 25, 2001 to the date of payment.
On December 13, 2001, the Company invoiced JCI on behalf of JCI and C AM in these amounts. On December 14, 2001, the Company
made a demand on CAM and JCI for the amount of R32.8 million ($3.0 million). On December 24, 2001, the Company’s attorney’s
made demands on CAM and JCI for the same amount. The Company instituted legal proceedings against JCI and CAM for the
recovery of these amounts. The matter was heard on August 30, 2004. At this date partial settlement of certain small claims related to
the larger JCI and CAM claim, to the value of R2.4 million ($0.4 million), was awarded by the High Court of South Africa, however
the Company had provided in full in the financial year ended June 30, 2002, for the balance outstanding by CAM against the probable
bad debt. Refer Note 10.
On October 21, 2004, the High Court of South Africa ordered JCI and CAM to pay the Company an amount of R35.7 million
($5.5 million), plus interest and costs, including the costs of two counsel. JCI’s and CAM’s counterclaim to recover the earl ier part-
payment was also dismissed with costs. JCI and CAM made an application to the High Court of South Africa for leave to appeal,
which was rejected. In March 2005, the Company received a payment of R37.3 million ($6.6 million) in settlement of all claims. Of
this amount R31.5 million ($5.1 million) was recorded as a reversal of the doubtful debt allowance in the statement of operations and
R5.8 million ($1.5 million) was recognized as interest income.
Laverton Gold NL
Laverton Gold NL was also a related party because Mr. J. Stratton, a director of CAM and Consolidated African Mines Jersey, or
CAMJ, was a corporate advisor to the Company.
In May 2000, the Company’s board appointed a special committee to investigate irregular related party transactions involving Mr. J.
Stratton from the Company’s office in Perth, Australia (which has now been closed). The related party transactions involved the
issuance of approximately 8.2 million Co mpany ordinary shares (the “Rawas Shares”) in exchange for assets of the Rawas group that
owned the Rawas gold mine in Indonesia, pursuant to agreements between the Company and Laverton Gold NL, an Australian listed
company.
During July and October 1999, the Company allotted and issued the Rawas Shares at the market value of $12.4 million to several
creditors of Laverton or its subsidiaries, including CAMJ, JCI and related companies, in anticipation of receiving shares of, and claims
against, the companies in the Rawas Group and the rights to the Rawas mine. The allocation of the Rawas Shares was based on each
creditor’s relative exposure. No proper valuation proceedings were conducted prior to the issuance.
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According to the evidence gathered during the course of the investigation, the Company’s board determined that, faced with pressure
from its creditors (i) Laverton arranged the issue by the Company of its ordinary shares to creditors in consideration for assets of no
value, for the benefit of Laverton and its creditors and not for the Company; (ii) to avoid the South African Companies Act
requirement for a special resolution, the Company had issued the Rawas Shares at an inflated issue price unrelated to the true value of
the consideration; (iii) as the special resolution was not obtained, the allotment and issue of ordinary shares for the Rawas transaction
was unlawful and invalid. Upon discovery by the board of the unlawful transactions, the board decided to rescind the agreements with
Laverton NL during fiscal 2001. At that time, the Company had received ownership of the claims against, but n ot the shares of, the
companies in the Rawas Group. As a result of this rescission the shares of the Rawas Group were never delivered to the Company.
Because of subsequent splits and consolidations resulting in validly issued ordinary shares being consolidated with invalid Rawas
Shares, it was not possible to distinguish the Rawas Shares from the other issued ordinary shares of the Company. None of the Rawas
Shares, and their holders at the time, could be identified and, therefore, none of the Rawas Shares could be removed from the
Company’s members’ register. In July 2002 the High Court of South Africa validated the Rawas shares.
The $12.4 million value of the Rawas shares was credited to stated capital in the financial statements. During fiscal 2000, the Company
wrote off the attributed $12.4 million value of the shares in the statement of operations as aborted acquisition costs and loans made by
the Company to members of the Rawas Group, amounting to $2.9 million, as no amounts have been recovered on these loans.
The Company has instituted various legal proceedings in South Africa and Australia in connection with these related party transactions
and these proceedings are still ongoing. Due to the uncertainty of the outcome of the legal proceedings, the Company has not recorded
any amounts in respect of this litigation.
Issue of shares to Khumo Bathong Holdings (Pty) Limited
KBH subscribed for 4,794,889 of the Company’s ordinary shares for a cash subscription price of $6.8 million during the year ended
June 30, 2003. These shares were sold by KBH in fiscal 2005.
(a) Vatukoula temporarily shut down in April 2006 for restructure and all employees except the essential service workers were stood
was completed at the end of June 2006, when all employees, except for 120 employees that were retrenched at a cost of $0.7
million, had been recalled. No balance was outstanding with regards to these payments as at June 30, 2006.
cost of $3.1 million. No balance was outstanding with regards to these payments as at June 30, 2005.
During fiscal 2004, voluntary retrenchments were offered to employees and approximately 220 employees accepted the offer. This
gave rise to an expense of $0.9 million for the year ended June 30, 2004. No balance was outstanding with regards to these
payments as at June 30, 2004.
In an effort to reduce corporate costs, retrenchments were made at the Company’s corporate head office during fiscal 2005.
Retrenchment costs for 20 employees amounted to $1.2 million. No balance was outstanding with regards to these payments as at
June 30, 2005.
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(a) Consistent with the Group’s black economic empowerment strategy, the West Wits Operations’ assets were sold during fiscal
Limited, or Mogale. During fiscal 2004, Mogale was placed under judicial management and the balance of the purchase price
owed of $1.2 million was therefore seen to be irrecoverable.
Also during fiscal 2004, funds advanced to Khumo Bathong Holdings (Pty) Limited of $0.8 million were determined to be
impaired as the most significant asset owned by this entity was its 60% interest in Crown and ERPM, which were experiencing
liquidity problems in fiscal 2004.
during those negotiations.
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Mining tax on mining income in South Africa is determined based on a formula which takes into account the profit and revenue from
mining operations during the year. Non-mining income, which consists primarily of interest, is taxed at a standard rate. The tax rates
applicable to the mining and non-mining income of a gold mining company depends on whether the company has elected to be exempt
from the Secondary Tax on Companies, or STC. STC is a tax on dividends declared, which is payable by the company declaring the
dividend, and, at present, the STC tax rate is equal to 12.5%. In 1993, all existing gold mining companies had the option to elect to be
exempt from STC.
If the election was made, a higher tax rate would apply for both mining and non-mining income. In fiscal 2006 the tax rates for taxable
mining and non-mining income, for companies that elected the STC e xemption were 45% (2005 and 2004: 46%) and 37% (2005 and
2004: 38%), respectively. During those same years the tax rates for companies that did not elect the STC exemption were 35% (2005
and 2004: 37%) and 29% (2005 and 2004: 30%), respectively. In 1993, the Company elected not to be exempt from STC, as this
would have meant that the Company would have been liable for normal taxation at the higher rates of 45% for mining income and 37%
for non-mining income. The Company, having chosen not to be subject to the STC exemption, is subject to 35% tax on mining income
and 29% for non-mining income. However, with the exception of Blyvoor and ERPM, all of the Company’s South African subsidiaries
elected the STC exemption.
The tax rate for all the Australasian operations is 30%.
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South African deferred taxation has been provided at the effective mining rate applicable in terms of the mining tax formula to the
relevant operations at either 35% or 45% (2005 and 2004: 37% or 46%), while the Australasian deferred tax has been provided at the
statutory tax rate of 30% (2005 and 2004: 30%). Material items causing the Group’s income tax provision from continuing operations
to differ from the estimated effective mining tax rates were as follows:
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The classification of deferred income and mining tax assets and liabilities is based on the related asset or liability creating the deferred
tax. Valuation allowances have been provided on deferred tax assets arising out of assessed losses and unredeemed capital expenditure
because it is more likely than not that these losses and unredeemed capital expenditures will not be utilized in the foreseeable future.
The valuation allowance was $82.2 million as of July 1, 2003. During the years ending June 30, 2006, 2005 and 2004, the valuation
allowance increased by $67.6 million, decreased by $65.9 million and increased by $14.2 million, respectively. These movements
include foreign exchange differences.
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As at June 30, 2006 and June 30, 2005 the Group had estimated tax losses carried forward consisting of:
The estimated tax losses of the Company and its subsidiaries have no expiry date. Should a subsidiary cease to trade, the estimated tax
losses would be forfeited.
Unremitted earnings of foreign subsidiaries and foreign joint ventures
No provision has been made for South African income tax or foreign tax that may result from future remittances of undistributed
earnings of foreign subsidiaries or the joint venture because it is expected that such earnings will be permanently reinvested in these
foreign entities.
The distribution of these undistributed earnings of $8.9 million at June 30, 2006, by DRD (Isle of Man), in Isle of Man, Porgera and
Tolukuma in Papua New Guinea and Vatukoula in Fiji, and other foreign entities would result in income and foreign withholding taxes
of approximately $2.7 million.
The results of Buffelsfontein Gold Mines Limited from July 1, 2004 to March 22, 2005 and the gain on disposal are reported as a
discontinued operation. The Group’s consolidated statement of operations for the year ending June 30, 2004 has been adjusted to
reflect this presentation (refer to Note 4 for a more detailed discussion on the discontinued operation).
The operating results for the discontinued operation are as follows:
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(a) Amounts owing by related parties comprise amounts due from CAM for the option over the Sale Shares, which were fully
claims.
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Certain assets, with a net book value of $99.8 million, have been pledged as security for long-term borrowings. Refer to Note 19.
Included in mining assets are deferred stripping costs as follows:
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(a) These investments are classified as available for sale, and are accounted for at fair value with unrealized gains and losses related
Realized gains of $0.1 million, $0.5 million and $0.1 million were recorded in fiscal 2006, fiscal 2005 and fiscal 2004,
respectively.
than temporary decline in the value of the investments has not occurred.
The unincorporated mining joint venture for which the statement of operations and balance sheet has been proportionately
consolidated is as follows:
Together with Barrick Gold Corporation and Mineral Resources Enga, DRD (Porgera) Limited, is a participant in the Porgera Joint
Venture. Each joint venture partner has an undivided holding in the mineral tenements forming part of the mine, and in a proportionate
share of the mine’s production and costs, through a joint venture agreement. Each joint venture partner is responsible for the sale of
their proportionate share of production.
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The summarized financial statements of DRD (Porgera) Limited reflect the revenue received for their 20% share of production at the
mine, as well as administrative costs, including depreciation and amortization, and taxation incurred by DRD (Porgera) Limited, in
addition to their proportionate share of the costs incurred by the joint venture.
The Group acquired its 20% interest in the Porgera Joint Venture in Papua New Guinea on October 14, 2003.
Summarized financial statements of DRD (Porgera) Limited, including the joint venture which has been proportionately consolidated,
are as follows:
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On July 30, 2004, the Company’s shareholding in Emperor increased from 19.78% to 45.33% (refer to Note 4). The Company restated
the prior year’s financial statements as if the equity method had been utilized from December 2002, the date of the initial acquisition
of the investment in Emperor (refer to Note 2). The amounts included for the years ended June 30, 2005 and June 30, 2004 represent
45.33%, from August 2004, and 19.78% of Emperor’s losses or profits respectively, adjusted for the amortization of the excess
purchase price. As a result of losses incurred by Emperor, the investment in Emperor was impaired, by $13.3 million, to fair value
during fiscal 2005.
At June 30, 2005 the proportionate share of the Company’s investment in the net assets of Emperor, as well as the unamortized excess
purchase price of Emperor, was as follows:
price at June 30, 2005)
On April 6, 2006 a transaction was concluded between Emperor and the Company, whereby the Company’s offshore assets were sold
to Emperor, resulting in the Company’s shareholding in Emperor increasing to 88.27% with effect from the above date (refer Note 4).
As a result, Emperor became a subsidiary with effect from that date and its results are accordingly now consolidated.
From July 1, 2002, the Company’s 40% interest in Crown has been treated as an investment in an associate and equity accounted. As
at June 30, 2005, the investment in Crown was carried at $nil. In November 2005, the Group acquired an additional 60% of the shares of
Crown from Khumo Bathong Holdings (Pty) Limited (refer Note 4). As a result, Crown became a subsidiary with effect from that date
and its results are accordingly now consolidated.
On July 1, 2005, an agreement was entered into between the Com pany and the Industrial Development Corporation of South Africa, or
IDC, in terms of which the Company acquired all the IDC loans, including the rights securing payment of such loans, payable by
Crown and ERPM to the IDC for a purchase consideration of $4.5 million. As uncertainty over the repayment of the loans existed
subsequent to their acquisition, an allowance of $4.5 million was raised.
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Aggregated summarized financial information in respect of our associates is as follows:
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Unrealized and realized profits/(losses) related to derivative instruments that are included in the statement of operations are as follows:
(a) The amount in fiscal 2006 reflects the fair value of the interest rate swap contracts that were entered into to manage the interest rate
of 7.76% per annum. The fair value of the interest rate swap contracts at the date of acquisition of Emperor was $0.1 million. In order
to minimize fluctuations in interest rates, 64% of the loan has been covered by entering into interest rate swap contracts, under which
the Group is obliged to receive interest at variable rates and pay interest at fixed rates until October 2008. The fixed interest rate
payable was 4.34% per annum.
In fiscal 2005, this amount reflects the fair value of the interest rate swap agreement that was entered into to manage the interest rate
and currency risk on the bi-annual interest payments of the Senior Convertible Notes which were issued in fiscal 2003. The fair value
represents the differen ce between the fixed coupon rate of 6% per annum and the forward Johannesburg Inter-bank Acceptance Rate,
or JIBAR, plus 200 interest basis points together with the spot and forward US$ exchange rate with reference to the coupon amount
payable bi-annually. At June 30, 2005, the six month JIBAR rate was 6.929% per annum. On November 12, 2005 this contract was closed out.
The interest rate swap agreements have not been accounted for as hedges. Changes in fair value have been recorded as profit/(loss) on
derivative instruments in the statement of operations. During fiscals 2006, 2005 and 2004, the realized and unrealized gain/(loss)
included in (loss)/profit on the interest rate swap amounted to a gain of $nil, a gain of $0.2 million and a loss of $1.7 million,
respectively.
April 6, 2006. The fair value of the gold forward contracts at the date of acquisition of Emperor was $34.5 million. These gold
forward contracts have not been accounted for as hedges. The total ounces to be delivered under the gold forward contracts for the
Group is 145,695 ounces and the delivery into these derivative instruments will be in accordance with the maturity schedule agreed with
the corresponding bank as follows:
The fair value of the derivative financial instruments that is expected to mature within the coming year is $7.2 million (A$9.9 million)
relating to 41,526 ounces. The remaining fair value of $18.1 million (A$24.8 million) is to be settled after June 30, 2007.
Changes in fair value have been recorded as profit/(loss) on derivative instruments in the statement of operations. During fiscal 2006,
the unrealized gain/(loss) included in (loss)/profit on gold forward contracts amounted to a gain of $4.4 million.
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(c) This amount represents the positive mark-to-market on gold call options in DRD (Isle of Man). European Style call options were
2006 to December 2008. The call options provide the group with the right but not the obligation to buy in total up to 46,426 ounces
(reducing throughout the period) of gold at the various strike prices. The gold call options were taken up by the Company to mitigate
the deterioration in the forward sale commodity contracts referred to above. The settlement schedule for the gold call options is as
follows:
Changes in fair value have been recorded as profit/(loss) on derivative instruments in the statement of operations. During fiscal 2006,
the unrealized gain included in profit on derivative instruments was $1.0 million.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the Group has estimated that the total future
costs for the mines, in current monetary terms, will be $82.0 million at June 30, 2006 (2005: $25.8 million). The estimates are
prepared on an annual basis by the Group's Environmental Manager in accordance with the Company's rehabilitation plans. The
relevant rehabilitation plan is submitted to local authorities for approval and the provision is adjusted accordingly to reflect changes
therein.
Amounts have been contributed to irrevocable trusts (refer Note 13) under the Group's control. The monies in the trusts are invested
primarily in interest bearing debt securities and may be used only for environmental rehabilitation purposes. The Group intends to
finance the ultimate rehabilitation costs from the money invested with the trust funds, as well as, at t he time of mine closure, the
proceeds on sale of remaining assets and gold from plant clean-up.
Included in the net book value of the mining asset balance are asset retirement obligation costs, relating to the following mines:
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The above loans include accrued interest. The terms and conditions, including interest rates, attaching to the above loans are given in
the narrative below:
(a) On July 18, 2002, Blyvooruitzicht Gold Mining Company Limited, or Blyvoor, entered into a loan agreement with the Industrial
Blyvoor in completing the Blyvoor expansion project. The loan bears interest at 1% below the prime rate of First National Bank of
Southern Africa Limited on overdraft. As of June 30, 2006, the interest rate on this loan was 10.0% per annum. The loan is due in July
2007.
The loan is secured over the Blyvoor metallurgical plant, with a net book value of $3.1 million at June 30, 2006. The loan
agreement prohibits the Company from disposing of or further encumbering the assets covered by the special notarial bond and
places restrictions over its ability to change the business of Blyvoor.
or rights offers by companies in which the Company wishes to acquire shares, or with prior written consent of Investec (Mauritius), it
could be used for any other purpose. The facility bore interest at the three-month London Inter-bank Offered Rate, or LIBOR, plus
300 basis points. Funds advanced and interest on this facility had to be repaid in cash in equal installments every three months from
the date of the relevant advance so that the amount of the advance was paid in full to Investec (Mauritius) on or before November 12,
2007.
The facility was secured by DRD (Isle of Man)’s shares in Emperor Mines Limited, DRD (Porgera) Limited and Tolukuma Gold
Mines Limited. This loan was repaid on March 16, 2006.
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facility, project loan facilities, a property loan and a gold call option facility.
The Vatukoula loan facility is secured by Emperor Gold Mining Company Limited (Fiji) as follows:
(3) a first registered mortgage over Special Site Rights 6, 7, 8 and Special Mining Leases 54, 55 and 56; and
(4) a first registered Bill of Sale over its motor vehicles.
Agreement was reached with ANZ Bank prior to June 30, 2006 to restructure this loan facility with the first loan repayment due on
April 30, 2007 to the value of $1.9 million. Further biannual repayments are to be made of this amount beginning on
October 31, 2007 with a final payment of $0.9 million due on October 31, 2009. The loan bears interest at LIBOR plus 2.5% per
annum. The balance on this loan at June 30, 2006 is $9.8 million.
On March 21, 2006 Emperor announced the signing of documentation with ANZ Bank for project loan facilities totaling $42.0
million. These facilities comprise a $35.0 million senior facility with a 59 month tenor and a $7.0 million revolving working capital
facility. The security in relation to this facility is as follows:
(2) fixed and floating charges over the assets of the Porgera Joint Venture, other than which require the consent of the
(4) tripartite agreements with key suppliers and contract counterparties;
(5) mortgage over the Tolukuma Tenements; and
(6) fixed and floating charge over the assets of DRD (Isle of Man) Limited.
The loan bears interest at LIBOR plus 2% per annum. The balance on this loan at June 30, 2006 is $43.1 million.
The property loan represents a mortgage over a property purchased in Brisbane during May 2006. The loan attracts interest
payments only for the first five years of the mortgage. A First Registered Mortgage by Emperor over the property situated at 45
Milman St, Clayfield, Queensland, Australia will be held by ANZ Bank as security for this loan. The loan bears interest at 6.79%
per annum. The balance on this loan at June 30, 2006 is $1.1 million.
The gold call option facility was implemented to purchase gold call options from ANZ Bank. The term of the facility is 12 months
from April 6, 2006 and the loan bears interest at LIBOR plus 2.1% per annum. The original drawdown in relation to this facility
was $4.0 million of which $2.0 million has been repaid. The settlement of this facility will coincide with closing out the call
options for which the facility was implemented. The balance on this loan at June 30, 2006 is $2.0 million.
The carrying amount of assets pledged as security for these facilities is as follows:
(2) Non-current inventories, $30.2 million
(3) Cash and cash equivalents, $12.3 million
(4) Receivables, $6.1 million
(5) Current inventories, $23.9 million
(6) Current derivative instruments, $2.9 million
Cash and cash equivalents pledged as security is recorded as restricted cash and cash equivalents in the accompanying balance
sheet.
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the notes at a purchase price of 100% of the principal amount thereof. If not converted, or previously redeemed, the notes will be
repaid at 102.5% of their principal amount plus accrued interest on the fifth business day following their maturity date in
November 2006.
Shares, or ADSs, at a conversion price of $3.75 per share or ADS, subject to adjustment in certain events if the cumulative
adjustments amount to 1% or more of the conversion rate.
100% of the principal amount of the notes to be redeemed, plus accrued original issue discount, plus accrued and unpaid interest,
if any, to but excluding, the date of redemption on giving not less than 30 nor more than 60 days notice if (1) the closing price of
its ADSs on the NASDAQ SmallCap Market or substitute national securities exchange has exceeded 150% of the conversion
price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day
immediately before the date of mailing of the provisional redemption notice and (2) the shelf registration statement covering the
resale of the notes and the ordinary shares and ordinary shares underlying the ADSs issuable upon conversion of the notes is
effective and available for use a nd is expected to remain effective and available for use for 30 days following the provisional
redemption date, unless registration in no longer required.
of the principal amount of the notes.
the notes. This agreement obligated the Company to file with the SEC a shelf registration statement with respect to the offer and
sale of the notes and the ordinary shares or the ordinary shares underlying the ADSs issuable upon conversion of the notes. On
September 30, 2003, the SEC declared effective the Company's registration statement of Form F-3 pertaining to the notes. The
notes were redeemed, in full, on November 15, 2006.
value, such fair value being determined on the residual cash flow method, with changes in fair value included in the
statement of operations in the period in which the change occurs and classified as loss/(profit) on derivative instruments.
2006, 2005 and 2004, respectively, relating to foreign exchange movements on the Senior Convertible Notes.
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Long-term loans are scheduled for repayment in the 12 months to:
The Group has undrawn committed borrowing facilities of $nil (June 30, 2005: $nil) from the Industrial Development Corporation and
bank overdraft facilities of $0.3 million (June 30, 2005: $1.4 million) of which $0.3 million (June 30, 2005: $1.4 million) had been
utilized at year-end.
Ordinary shares:
June 30, 2006
During the year ended June 30, 2006, the Company issued 18,444,954 no par value shares at market value to certain institutional
investors and employees, in exchange for gross cash proceeds of $25.9 million. In addition, 4,451,291 no par value shares, with a
value of $4.5 million, were issued for the acquisition of loans and 932,857 no par value shares, with a value of $1.2 million,
were issued in exchange for services rendered.
June 30, 2005
During the year ended June 30, 2005, the Company issued 56,230,705 no par value shares at market value to certain institutional
investors, in exchange for gross cash proceeds of $65.9 million. In addition, 6,612,676 no par value shares, with a value of $16.6
million, were issued in exchange for 29,097,269 Emperor Mines Limited shares (refer Note 4).
June 30, 2004
During the year ended June 30, 2004, the Company issued 41,463,639 no par value shares at market value to certain institutional
investors, in exchange for gross cash proceeds of $107.4 million. In addition, 6,643,902 no par value shares, with a value of $16.7
million, were issued to Oil Search Limited in final settlement of the Porgera Joint Venture acquisition price (refer Note 4).
Cumulative preference shares:
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 exploration or the disposal of the Argonaut mineral rights
acquired from Randgold & Exploration Company Limited in September 1997. During fiscal 2005, the Argonaut mineral rights
reverted to the South African Government after no application for conversion was lodged within the stipulated period of one year,
under the provisions of the MPRD Act. On February 6, 2006, a prospecting right covering an area of 969 hectares over part of the
Argonaut Project was obtained.
Durban Deep “C” options:
The Company has authorized but not issued 10,000,000 Durban Deep “C” options on ordinary shares at an exercise price of R15 per
ordinary share which are exercisable at any time during the period from the date on which the option is issued to a date not later than
five years from the date of issue. These options are to be used as consideration for acquisitions by the Company.
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(Loss)/profit per share is calculated based on the (loss)/profit divided by the weighted average number of shares in issue during the
year. Fully diluted (loss)/profit per share is based upon the inclusion of potential common shares with a dilutive effect on (loss)/profit
per share.
been anti-dilutive as the Company recorded a loss for the year.
been anti-dilutive as the Company recorded a loss for the year.
There is no dilution in loss per share for the fiscal year ended June 30, 2004, as the effect of dilutive securities in issue would have
been anti-dilutive as the Company recorded a loss for the year.
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Pension and provident funds
In South Africa, the Group participates in a number of multi-employer industry-based retirement plans. All plans are governed by the
Pension Funds Act, 1956. The provident funds are funded on the “money accumulative basis” with the members' and Group's
contributions having been fixed in the constitutions of the funds. In Papua New Guinea retirement fund contributions are regulated by
the Superannuation Act. According to the Act, the Group has to contribute 7% of the employee's earnings to a local superfund
(NASFUND), whilst the employee contributes 5% of their gross salaries and wages. Payments are made to the fund on a monthly
basis.
The majority of the Group's employees are covered by one of the above-mentioned funds. Fund contributions by the Group for the
year ended June 30, 2006 amounted to $4.3 million (2005: $7.4 million; 2004: $8.7 million).
Post-retirement benefits other than pensions
Prior to the Company's acquisition of Blyvoor, skilled workers (clerical workers and mine management) at that operation participated
in multi-employer health plans, which paid certain medical costs. Employer contributions were determined on an annual basis by these
health funds. Qualifying dependants received the same benefits as active employees. Blyvoor voluntarily accepted liability for post-
retirement medical benefits of employees who were members of these multi-employer health plans prior to the acquisition. The fixed
amount, which was determined based on negotiations between Blyvoor and the various medical schemes, was settled during fiscal
2004.
Crown has an obligation to fund a portion of the medical aid contributions of certain of its employees after they have retired. At June
30, 2006 a provision of $2.3 million for post-retirement medical benefits has been raised. This provision is based on the latest
calculations using a projected unit credit method, of independent actuaries performed as at June 30, 2006. Post-retirement medical
benefits are actuarially valued every three years. The obligation is unfunded. During fiscal 2006, the Company expensed $0.5 million
relating to the post-retirement medical benefits.
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Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage-point
change in assumed health care cost trend rates would have the following effect:
The Company expects to contribute $0.3 million to the post-retirement medical plan in fiscal 2007.
Long-service awards
The Group participates in the Chamber of Mines of South Africa Long-Service Awards Scheme, or the Scheme. The Scheme does not
confer on any employee or other persons any right of payment of any award. In terms of the Scheme, bonus payments may be made to
certain employees, usually semi-skilled, upon reaching the age of 55, who have completed 15 years of continuous service in South
African gold mining companies which are members of the Chamber of Mines of South Africa and The Employment Bureau of Africa,
provided such service is not pensionable service. The Scheme lays down the rules under which an employee may be eligible for the
award. The award is paid by the company for which the employee works upon becoming eligible for the award and electing to receive
payment. All awards must be confirmed by the Chamber of Mines of South Africa before payment. The amount of the award is based
on both the employee's skill level and years of service with qualified gold mining companies.
The liability at June 30, 2006 was $0.5 million (June 30, 2005: $nil). During fiscal 2006, the Company expensed $0.6 million
(2005: $0.3 million; 2004: $0.2 million) relating to the long-service awards.
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Share option plan
The Company has an Employee Share Option Scheme, or ESOS, under which all employees may be granted options to purchase
shares in the Company's authorized, but unissued ordinary shares. Unissued shares that have been reserved for the ESOS may not
exceed 15% of the number of issued ordinary and preferred ordinary shares.
The number of issued and exercisable share options is approximately 4.6% of the issued ordinary share capital. The participants in the
ESOS are fully taxed on any gains realized on the exercise of their options.
On October 24, 1997, the terms of the ESOS were amended. The amended terms applied to options outstanding at the date of the
amendment and options to be issued thereafter. The exercise price of options, which is determined at grant date, is the lowest seven
day trailing average of the closing market prices of an ordinary share on t he JSE Limited (South Africa), or JSE, as confirmed by the
Company's directors, during the three months proceeding the day on which the employee is granted the option. Prior to the
amendment, the exercise price was the closing JSE market price on the day preceding the grant date of the option. The vesting period
for options is determined by the directors.
All options expire ten years after grant date.
During the fiscal years 1998 to 2006, the Company issued options, one quarter of which were exercisable six months after grant date, a
further quarter of which are exercisable twelve months after grant date and a further quarter of which are exercisable annually
thereafter. Share options activity in respect of these options was as follows:
Average price per share is disclosed in South African Rand as the options are on ordinary shares and the option price is stated in South
African Rand. As of June 30, 2006, the average price per share for outstanding options is $1.84 and average price per share for
exercisable options is $2.15.
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The weighted average grant date fair value of the above options granted in fiscal 2006 was R3.86 (2005: R1.87 and 2004: R7.41).
The grant date fair value of these options was determined using a Black-Scholes pricing option model, applying the following
weighted average assumptions:
During fiscal 2002, the Company issued certain options, 25% which were exercisable immediately and the remaining 75% in equal
tranches after 6, 12, 24 and 36 months. Share options activity in respect of these options was as follows:
Average price per share is disclosed in South African Rand as the options are on ordinary shares and the option price is stated in South
African Rand. As of June 30, 2006, the average price per share for outstanding options is $2.17 and average price per share for
exercisable options is $2.17.
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Cash and cash equivalents
The carrying value of cash and cash equivalents approximates their fair value due to the short-term maturity of these deposits. The
Group attempts to minimize its credit risk by placing cash and cash equivalents with major banks and financial institutions located in
South Africa, Australia Papua New Guinea and Fiji, after evaluating the credit ratings of the respective financial institutions. The
Group believes that no concentration of credit risk exists in respect of cash and cash equivalents.
Derivative instruments
In the normal course of its operations, the Group is exposed to market risks, including commodity price, foreign currency and interest
rate risks. The Company has entered into transactions, which make use of derivative instruments, to economically hedge certain
exposures. These instruments incl ude interest rate swaps, gold forward contracts, gold call options and gold lease rate swaps. The
decision to use these types of transactions is based on the Company's hedging policy, which precludes the forward selling of gold,
however with the recent acquisition of Emperor the Company acquired the gold forward contracts held by Emperor. Although most of
these instruments are used as economic hedges, none of them qualify for hedge accounting and, consequently, are marked-to-market
through the statement of operations in accordance SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
Eskom gold for electricity contract
In October 2000, the Company entered into a contract to buy electricity from Eskom. Under the terms of the Company's agreement,
the Company paid Eskom the standard electricity tariff for all energy it consumes, including the 75 GWh per month specified in the
contract. In addition, every 12 month-period starting in October the Company adjusted the amounts paid in that period in accordance
with an established formula based on the gold price. This contract expired in September 2005.
The gold price adjustment was based on the notional amount of 15,000 ounces of gold multiplied by the difference between the
contracted gold price, which is the price that was agreed on the date of the transaction for a determined period, and the arithmetic
average of London PM fix for each business day in the calculation period.
The Company concluded that (1) the contract in its entirety did not meet the definition of a derivative instrument and therefore it did
not have to be carried on the balance sheet at fair value; (2) the embedded gold for electricity forward contract possessed economic
characteristics that were not clearly and closely related to the economic characteristics of the host contract; and (3) a separate,
stand-alone instrument with the same terms would qualify as a de rivative instrument. Accordingly, the embedded derivative was
separated from the host contract and carried at fair value.
The contract was closed out on April 28, 2005, at a cost of $3.6 million.
Gold forward contracts
Gold forward contracts were entered into by Emperor with ANZ Banking Group Limited. A total of 145,695 ounces is to be delivered
under these gold forward contracts. The fair value of the gold forward contracts that is expected to mature in fiscal 2007 is a liability of
$7.2 million relating to 41,526 ounces. The remaining liability with a fair value of $18.1 million relates to the 104,169 ounces which are to be
delivered after June 30, 2007.
Gold call options
European Style call options were purchased in January 2006 with strike prices ranging from $634 to $653 per ounce. Expiry dates of the
options range from September 2006 to December 2008. The call options provide the Group with the right but not the obligation to buy in
total up to 46,426 ounces (reducing throughout the period) of gold at the various strike prices. The gold call options were taken up by the
Group to mitigate the deterioration in the gold forward contracts. The fair value of the gold call options at June 30, 2006 was an asset of
$2.9 million.
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Other positions
The Company had entered into a gold rate lease swap and call position transactions which had been accounted for in the financial
statements on a mark-to-market basis in prior fiscal years, and which matured or were closed out in fiscal 2004.
During fiscal 2004, a gold lease rate swap for 109,875 ounces, at a rate of 0.20% matured. A gold lease rate swap is a contract
whereby the Company and a counterparty select a notional amount of gold, and thereafter over the life of the contract one party pays a
fixed lease rate based on that amount of gold and the other party pays a floating lease rate based on the same amount of gold. The
Company had exposure to increases in the three-month lease rate up to June 2004. The volume the swap was based on decreases every
quarter until it reached zero (by June 2004). Every quarter the Company received a fixed cash flow equal to 0.2% per annum of the
volume at $280 per ounce, and paid the three-month floating lease rate converted at the then market spot rate.
During fiscal 2003, the Company bought call options as a risk management tool to protect the maximum exposure on the gold for
electricity contract. Options covering a total of 272,110 ounces were purchased for $14.9 million. These contracts expired by
September 2005. During fiscal 2004, the Company took advantage of the lower rand gold price and closed out 265,000 ounces of the
Eskom gold for electricity contract in line with its policy of not hedging gold production. Accordingly the exposure for which the call
options were bought as a risk management tool had been significantly reduced and the remaining call options were closed out during
fiscal 2004, recording a gain of $0.1 million.
Included in profit/(loss) on derivative instruments is $nil for fiscal 2006, $nil for fiscal 2005 and a loss of $3.2 million for fiscal 2004,
relating to these instruments.
Concentration of credit risk
The Group's South African operations all deliver their gold to Rand Refinery Limited, or Rand Refinery, which refines the gold to
saleable purity levels and then sells the gold, on behalf of the Group, on the bullion market. The gold is sold by Rand Refinery on the
same day as it is delivered and settlement is made within two days. Once the gold has been delivered to Rand Refinery, the risks and
rewards of ownership have passed.
The gold produced in Papua New Guinea by Tolukuma is sold directly to AGR Matthey and proceeds for gold sold are received within
two days of sale. The selling price is determined by the London Bullion Market Association spot price and the Company is paid in US
Dollars. We do not have an interest in AGR Matthey.
The gold produced by Porgera in Papua New Guinea is sold directly to Australia and New Zealand Investment Bank, or ANZ Invest ment
Bank. Proceeds for gold sold are received within two days from the swap confirmation report released by the refiners, AGR Matthey. The
selling price is determined by the spot price at the time of sale and the Company is paid in US Dollars. The concentration of credit risk in
Papua New Guinea is mitigated by the reputable nature of the customer and the settlement of the proceeds within two days.
selling price is determined by Reuters quoted “London Spot Bid Price” which means the London bid price as published by Reuters for two
day settlement and the Company is paid in US Dollars.
the Papua New Guinea Kina and for the Fiji operation is the Fiji Dollar. Although gold is sold in US Dollars, the Company is obliged
to convert these into Rands for its South African operations in terms of South African Reserve Bank, or SARB, regulations. The
Company is thus exposed to fluctuations in the Dollar / South African Rand exchange rate. The Company conducts its operations in
South Africa, Papua New Guinea and Fiji. Currently, foreign exchange fluctuations affect the cash flow that it will realize from its
operations as gold is sold in US Dollars while production costs are incurred primarily in Rands, Kina and Fiji Dollars.
when the US Dollar weakens against the foreign currencies. The Company's cash and cash equivalent balances are held in US Dollars,
Rands and Australian Dollars; holdings denominated in other currencies are relatively insignificant. Certain of the Company's
financial liabilities are denominated in a currency other than the Rand (refer Note 19). The Company is thus exposed to fluctuations in
the Rand with the relevant currency. The Company has not entered into any foreign exchange hedging contracts to attempt to mitigate
its foreign currency risk.
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Interest rate and liquidity risk
Fluctuations in interest rates impact the value of short-term cash investments and financing activities, giving rise to interest rate risks.
Interest rate swap agreements
An interest rate swap agreement was entered into in November 2002 to manage the exposure to changes in interest rates with regard to
the interest payable on the Senior Convertible Notes (refer Note 19). The fixed interest rate (in US Dollars) was swapped for a floating
South African interest rate, calculated at the Johannesburg Inter Bank Acceptance Rate, or JIBAR, plus 200 basis points per annum.
An amount of 60% of the coupon rate is subject to this swap agreement, based on the requirements of the SARB, as this represents the
amount of the funds raised in South Africa. The maturity date of this agreement was November 2006. As discussed i n Note 17, the
interest rate swap agreement was closed out on November 12, 2005.
Interest rate swap agreements were entered into by Emperor to manage the interest rate risk on the interest payments of the Vatukoula loan
facility, which currently bears interest at an average variable rate of 7.76%. In order to minimize fluctuation in interest rates, 64% of the
loan has been covered by entering into interest rate swap agreements under which the Group is obliged to receive interest at variable rates
and pay interest at fixed rates until October 2008. The fixed interest rate payable was 4.34% per annum.
Fair value of financial instruments
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
The following table represents the carrying amounts and fair values of the Group's financial instruments o utstanding:
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities and short-term loans
approximates their fair values due to the short-term maturities of these assets and liabilities.
The fair value of listed investments has been determined by reference to the market value of the underlying investments. The
investment in the environmental trusts is invested primarily in interest bearing securities and equity-limited unit trusts, the cost of
which approximates their fair value.
The fair value of the fixed interest rate long-term debt instruments is subject to changes in market interest rates. The fair values are
calculated based on a credit adjusted US Treasury rate, with comparable terms of maturity.
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Litigation
The Group is subject to litigation in the normal course of business. The Group believes that any adverse outcome from litigation would not
have a material effect on its financial position, results of operations or liquidity.
Securities class action
On June 13, 2005, a securities class action was filed in the United States District Court for the Southern District of New York against the
Company and two of its officers. Since then, four nearly identical securities class action complaints have been filed against the Company
and the same officers. The cases have been consolidated and a consolidated amended complaint has been filed. To date, neither the
Company, nor the individual defendants have been formally served with any complaint regarding these matters.
and misleading public statements regarding, among other things:
dismiss the plaintiffs’ case. The Company is currently awaiting direction from court on a date to present argument on the application, if the
judge decides to hear oral argument, or for a ruling on the application, should he decide not to hear argument.
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Based on risks and returns, the Directors consider that the primary reporting format is by business segment. The Group operates in one industry segment, being the extraction and
production of gold and related by-products. Therefore the disclosures for the primary segment have already been given in these financial statements.
The chief operating decision-maker is the Board of Directors, who evaluate the business based on the following geographical operational segments, based on revenue generated
from the location of the seller:
Mine
Mine
Mine
African
operations
Mine
Mine
Mine
Australasian
operations
operations
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Mine
West Mine
Mine
Mine
Mine
operations
operation
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Mine
West Mine
Mine
Mine
Mine
operations
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In fiscal 2006, as a result of the transactions entered into by the Company as part of the restructuring of its South African
Operations, the Company identified Khumo Gold as a Variable Interest Entity, or VIE, due to certain capital and debt structures.
Khumo Gold was established as an investment holding company to provide previously disadvantaged persons in South Africa
access to investment opportunities within the mining industry. Khumo Gold has a 15% interest in DRDGOLD SA at June 30, 2006
and holds investments in preference shares issued by Crown, ERPM and Blyvoor. These investments were funded by the
Company through the Company acquiring preference shares issued by Khumo Gold of $4.8 million (R31.8 million). The Company
does not hold any of the ordinary shares in Khumo Gold. Accordingly the Company began to consolidate the VIE from
December 1, 2005, in accordance with the requirements of FI N 46(R). On consolidation, the investments held by Khumo Gold in
DRDGOLD SA and the preference shares in Crown, ERPM and Blyvoor were eliminated against the preference shares issued by
Khumo Gold to the Company. Khumo Gold has no other assets and liabilities at June 30, 2006 nor did it earn any income or incur
any expenses during the period to June 30, 2006.
Purchase of Top Star Dump
On August 28, 2006, the Company concluded an agreement with AngloGold Ashanti Limited to purchase the remaining extent of
Erf 1 Park Central Township, better known as “The Top Star dump” in central Johannesburg for an amount of $1.1 million
(R8.0 million). In addition, a further $1.7 million (R12.0 million) is expected to be spent on infrastructure that will enable the
Company to process the dump. In November 2006, the Provincial Heritage Resources Authority of Gauteng initiated a protection
order against the removal of the dump. The Company is currently contesting the protection order.
6% Senior Convertible Notes repaid in full
On November 15, 2006, the Company repaid, in full, its outstanding 6% Senior Convertible Notes which matured on November
12, 2006. The Company paid a total of $69.6 million to the holders of the Senio r Convertible Notes, which included the aggregate
principal amount of the Senior Convertible Notes of $66.0 million, plus all accrued original issue discount and interest. The
repayment was funded from available cash resources and borrowing facilities. The Company’s obligations under the Senior
Convertible Notes have now been satisfied and discharged.
Funding from Investec (Mauritius)
On September 13, 2006, the Company arranged a $35.0 million loan facility with Investec (Mauritius) to fund a portion of the
repayment of the Senior Convertible Notes on November 15, 2006. As at November 30, 2006, $33.0 million had been drawn and
$2.0 million is available under this facility.
Funding of Emperor
In October 2006, the Company committed to a $10.0 million working capital facility for Emperor. The Company has advanced
funds to Emperor under this facility of $2.0 million on October 5, 2006, $5.0 million on November 6, 2006 and $3.0 million on
November 27, 2006. The loan bears interest at LIBOR plus 3% per annum and is repayable on December 31, 2007. A
commitment fee of $0.2 million has also been charged to Emperor under the terms of this facility.
Subsequent to the end of the financial year, the board of DRD (Offshore) has agreed to convert the purchase price adjustment loan
of $5.0 million (refer to Note 4) into shares in Emperor, representing approximately a 3.4% interest in Emperor.
Shares issued by DRDGOLD South African Operations (Pty) Limited, or DRDGOLD SA
On December 11, 2006, Khumo Gold SPV (Pty) Limited, or Khumo Gold, exercised the option granted by the Company in terms
of the option agreement concluded between the parties in October 2005. Khumo Gold acquired from the Company a further
50,000 ordinary shares in DRDGOLD SA for $0.6 million (R4.3 million). After exercising the option, Khumo Gold's shareholding
in DRDGOLD SA increased by 5% to 20%.
I n addition, Khumo Gold, as promoter for an employee trust, exercised the option for an employee trust to acquire from the
Company 60,000 ordinary shares in DRDGOLD SA for a consideration of $0.7 million (R5.1 million). After exercising the
option, the trust's shareholding in DRDGOLD SA is 6%.
The Company will finance the transaction, on condition that the terms of the finance are determined by independent experts to be
fair and reasonable to the shareholders of the Company. It is proposed that the Company will subscribe for preference shares in
Khumo Gold and extend a loan to the trustees of the trust.
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Vatukoula placed on care and maintenance
On December 5, 2006, after an extensive three-month review of Vatukoula, the Company determined that continued mining
operations at Vatukoula were no longer economically viable and that the mine would therefore cease production. Pending
completion of a strategic review to optimize the value of Vatukoula and other Fijian land holdings, the mine will be placed on a
care and maintenance program. This will result in an impairment of Vatukoula’s mining assets in the second quarter of fiscal 2007.
Vatukoula’s mining assets had a carrying value of $101.8 million at June 30, 2006. The amount of the impairment will be
determined on completion of the strategic review of Vatukoula in January 2007.
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2002.
144A of the Securities Act of 1933, as amended.
S under the Securities Act of 1933, as amended.
Rand Leases in respect of purchase of assets of First Wesgold by Rand Leases.
Affairs – Republic of South Africa to DRDGOLD Limited.
American Depositary Receipts, dated as of August 12, 1996, as amended and restated as of October 2, 1996, as further
amended and restated as of August 11, 1998.
Buffels and West Wits.
and DRDGOLD Limited.
Sons (Singapore) Limited, NM Rothschild & Sons (Australia) Limited, as agent in its own capacity, and Rothschild
Nominees (Pty) Limited.
Rothschild & Sons (Australia) Limited.
Participants.
Limited.
BOE Merchant Bank, and Buffels.
Financial Services (Proprietary) Limited, West Wits, Crown and BOE Bank Limited, through its division BOE
Merchant Bank.
Buffels.
DRDGOLD Limited.
Limited, Consolidated Main Reef Mines and Estate Limited, Crown Mines Limited, RMP Properties SA Limited and
Industrial Zone Limited.
Proprietary Limited, Clayfield Proprietary Limited and Dome Resources N.L.
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Resources N.L. and Mineral Resources Development Company Proprietary Limited.
Resources N.L. and Tolukuma Gold Mines Pty Limited.
Consolidated Gold Recoveries Limited, dated August 28, 2000.
(Proprietary) Limited and Mine Waste Solutions (Proprietary) Limited.
Limited.
Limited.
Limited, dated April 25, 2001.
Limited and JCI Gold Limited, dated August 31, 2001.
Limited and JCI Gold Limited, dated September 26, 2001.
dated October 9, 2001.
Mineral Resources Development Company Limited, dated June 28, 2001.
Agreement between Newmont Second Capital Corporation, Tolukuma Gold Mines (Pty.) Limited, Dome Resources
(PNG) Pty. Limited, Dome Resources NL and DRDGOLD Limited, dated July 16, 2001.
2000.
Corporation of South Africa Ltd, Khumo Bathong Holdings (Pty) Ltd and DRDGOLD Limited, dated June 12, 2002.
Holdings (Pty) Ltd, Crown Consolidated Gold Recoveries Ltd, Crown Gold Recoveries (Pty) Ltd. And DRDGOLD
Limited, dated June 12, 2002.
Khumo Bathong Holdings (Pty) Ltd, Crown Consolidated Gold Recoveries Ltd, Crown Gold Recoveries (Pty) Ltd. And
DRDGOLD Limited, dated June 14, 2002.
2002.
dated June 12, 2002.
June 12, 2002.
Recoveries (Pty) Ltd, dated June 12, 2002.
Company Ltd, dated July 18, 2002.
September 12, 2002.
Recoveries (Pty) Ltd, dated October 1, 2002.
dated June 12, 2002.
Corporate and Merchant Bank Division, dated October 7, 2002.
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Ltd, Claas Edmond Daun, Paul Cornelis Thomas Schouten, Moltin Paseka Ncholo, Michelle Patience Baird, Derek
Sean Webbstock, as sellers, and Crown Gold Recoveries (Pty) Ltd, as purchaser, dated October 10, 2002.
10, 2002.
10, 2002.
Limited, dated December 13, 2002.
Limited.
Porgera Limited and Dome Resources (PNG) Limited, dated October 14, 2003.
Limited, dated October 14, 2003.
Man) Limited and Tolukuma Gold Mines Limited, dated November 21, 2003.
Limited, Mogale Gold (Proprietary) Limited and Luipaards Vlei Estates (Proprietary) Limited dated June 6, 2003.
Limited and PGC (Papua New Guinea) Pty Limited, dated November 2, 1988.
Limited, dated November 14, 2003.
2003.
2003.
and G.M. Network Limited, dated January 26, 2004.
dated February 4, 2004, February 6, 2004, February 10, 2004, February 11, 2004 and February 12, 2004.
Limited, dated June 24, 2004.
Limited, dated June 24, 2004.
and The National Union of Mineworkers, The United Association of South Africa, The Mine Workers Union
(Solidarity) and The South African Electrical Workers Association regarding retrenchments associated with No. 9,
10 and 12 Shafts of Buffelsfontein Division, dated August 6, 2004.
United Association of South Africa, South African Equity Workers’ Association, Solidarity and The National Union
of Mineworkers regarding the retrenchment of up to 2,000 employees of the Blyvooruitzicht Gold Mining Company,
dated September 2, 2004.
2004.
September 21, 2004.
(Mauritius) Limited, dated October 14, 2004.
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Limited, dated October 14, 2004.
2004.
2005.
underwriters, dated April 5, 2005.
Investments (Proprietary) Limited (S&J Companies), dated August 31, 2005.
DRDGOLD Limited, Business Ventures Investment No. 750 (Pty) Ltd and Business Ventures Investment No. 751 (Pty)
Ltd (the BVI Companies), dated July 13, 2005.
DRDGOLD Limited, Business Ventures Investment No. 750 (Pty) Ltd (BVI 1) and Business Ventures Investment No.
751 (Pty) Ltd (BVI 2), dated July 13, 2005.
July 6, 2005.
Limited (DRDIOM), dated March 3, 2005.
8, 2005.
21, 2005.
November 16, 2005.
Limited, Crown Gold Recoveries (Pty) Limited and Blyvooruitzicht Gold Mining Company, dated
November 7, 2005.
African Operations (Pty) Limited, dated November 8, 2005.
dated November 9, 2005.
Operations (Pty) Limited, dated November 14, 2005.
Limited, dated November 18, 2005.
November 18, 2005.
Holdings (Pty) Limited, dated November 18, 2005.
Limited and Business Venture Investment No 750 (Pty) Limited and Business Venture Investment No 751 (Pty)
Limited, dated November 18, 2005.
African Operations (Pty) Limited, dated November 18, 2005.
Limited, dated November 18, 2005.
Limited, dated November 18, 2005.
dated November 18, 2005.
African Operation (Pty) Limited, dated November 24, 2005.
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and Emperor Gold Mining Company Limited and Australia and New Zealand Banking Group Limited, dated
February 24, 2006.
Zealand Group Limited, dated March 20, 2006.
2006.
*
†
† † † † Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended June 30, 2003.
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Chief Executive Officer
Chief Financial Officer