EXHIBIT 3
A communication to shareholders regarding steps taken or to be taken by DRD to:
o recover from the responsible parties the substantial losses and damages
sustained by the company and its shareholders as a consequence of certain
irregularities and breaches; and
o account for and clean up the company's past governance performance.
1. PURPOSE OF THIS COMMUNICATION
As shareholders will be aware, DRD has been the victim of substantial
irregularities and breaches of duties by former officers. The relevant events
occurred or originated before the end of the 2000 financial year.
The purpose of this communication is to explain to shareholders the steps DRD
has taken and proposes to take in the future to:
- - recover from the responsible parties the substantial losses and damages
sustained by DRD and its shareholders as a consequence of those
irregularities and breaches; and
- - account for and clean up DRD'S past governance performance.
DRD's pursuit of those objectives has required the company to take difficult and
contentious actions against those responsible, including former directors and
other officers.
As a consequence of pursuing these issues, DRD and its Chairman and CEO, Mark
Wellesley-Wood have been subjected to a concerted and carefully constructed
defensive campaign. The board of DRD believes that campaign is an attempt to
cloud the issues and divert attention and analysis from the actions for which
DRD is seeking redress.
DRD does not believe it is appropriate to conduct the prosecution of these
issues in the media. DRD has no intention of engaging in a public slanging match
with the responsible parties. DRD is prosecuting these matters in the courts of
South Africa and Australia. DRD has, as a good corporate citizen, also provided
assistance to the authorities in relation to certain issues. DRD will continue
to provide assistance to the authorities in any investigations they may make
into these issues.
2. BACKGROUND
In May 2000, Mark Wellesley-Wood was appointed as DRD's non-executive Chairman.
Shortly after his appointment, he received information regarding possible
irregularities in DRD of a very serious nature and at a high level of
management. Those irregularities arose largely in connection with DRD's recent
investments in Australasia, made from mid-1998 to mid-2000, and its business
there.
On the basis of the information received, DRD appointed a well-known
international firm of investigators, Control Risks Group, to investigate the
relevant matters. On 15 August 2000, DRD appointed a local firm of forensic
auditors (the forensic arm of Deloitte & Touche) to assist in the investigation.
Following the initial investigations, DRD then Chief Financial Officer, Mr
Charles Mostert, resigned with effect from 31 July 2000.
By the end of the 2000 financial year, the investigations had identified serious
irregularities causing significant loss to DRD.
The seriousness of the irregularities compelled DRD's auditors, in August 2000,
to deliver a notice to DRD in terms of ss.20(5) of the Public Accountants and
Auditors Act, 1991. The
auditors' notice outlined some of the material irregularities and put DRD on
notice to take the necessary steps to remedy those irregularities.
On 14 August 2000, DRD received the auditors' notice and was given the statutory
period of 30 days in which to take the necessary action. DRD immediately formed
a special committee charged with responsibility for the investigations and any
ensuing recovery process.
Separately from the special committee's investigation, DRD's auditors were
conducting the normal annual audit of DRD for the 2000 financial year. Following
discussions with its auditors, DRD made a ZAR590 million write-off in its
audited annual financial statements as a provision for the impairment of its
assets.
A significant part of that write-off was attributable to the identified
irregularities. In addition to the write-off, DRD incurred additional losses in
relation to a series of irregular payments, which are discussed below.
3. THE RESULTS OF THE INVESTIGATIONS
By the end of June 2002, the special committee, assisted by the outside
consultants, had substantially completed its work. By that time, the special
committee had uncovered a number of transactions that were clearly irregular and
others that, on the available evidence, were questionable.
The more significant and clear cut of these transactions were:
3.1 THE RAWAS TRANSACTION
On 2 May 2002, DRD issued a circular to ordinary shareholders that described in
detail:
- - the Rawas transaction;
- - the circumstances under which DRD purportedly entered into the
transaction; and
- - the transaction's consequences for DRD and shareholders.
DRD issued the circular in connection with the validation of DRD's 1999 invalid
issue of 8 282 056 ordinary shares, in two tranches, pursuant to the purported
Rawas transaction.
In brief, the Rawas transaction involved DRD:
- - acquiring from Laverton Gold NL (an Australian public company listed on the
Australian Stock Exchange) the assets comprising the Rawas mine in
Indonesia at an attributed value of ZAR122.6 million; and
- - invalidly allotting and issuing 8 282 056 ordinary shares directly to
Laverton's creditors in consideration of the acquisition.
DRD's investigations revealed that the value of Rawas at the time of the
purported transaction was far less than the attributed value of ZAR122.6
million. Indeed, in the 2 May 2002 circular, DRD's directors considered that
Rawas had no value at that time and none on the date when DRD issued the
relevant shares.
In addition, DRD's investigations revealed that the ostensible issue price of
the shares and the consequent attributed value of ZAR122.6 million were not
properly determined and could not be viewed as genuine amounts. Consequently,
the invalid issue of shares diluted pre-Rawas DRD shareholders.
DRD's investigations also revealed that:
- - Consolidated African Mines Limited (since renamed JCI Ltd) indirectly
owned approximately 19.5% of Laverton;
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- - JCI, other JCI group companies and an associate had funded Laverton to the
extent of approximately US$11.5 million (ZAR70.3 million);
- - Laverton was accordingly indebted to those companies for that amount, all
of which was unsecured;
- - Laverton was insolvent and was being hard pressed by its other creditors;
and
- - the trading of Laverton's shares on the Australian Stock Exchange had been
suspended at its request, with effect from 6 October 1998, because of the
uncertainty of its financial position.
When DRD issued the first and major tranche of the 8 282 056 shares, Laverton's
board included:
- - Mr Roger Kebble, who was then DRD's Executive Chairman; and
- - Mr John Stratton, whom DRD had retained to advise it on its Australasian
acquisitions and business, of which the acquisition of Rawas was one.
At the time of the Rawas transaction:
- - Messrs Kebble and Stratton were also directors of JCI and other companies
in the JCI Group;
- - the Kebble family held a substantial shareholding in JCI and DRD believes
them to have been in effective control of JCI.
In addition, DRD's investigation revealed that:
- - DRD issued slightly less than half of the 8 282 056 shares to companies in
the JCI Group and an associate, which were creditors of Laverton; and
- - those shares were later realized on behalf of the JCI group companies and
the cash proceeds paid to those companies to settle Laverton's
indebtedness.
The evidence indicates that, but for the Rawas transaction, the JCI Group and
its associate would have had to write off the sum of about US$11.5 million
(ZAR70.3 million). Accordingly, DRD believes that its resources were used
unscrupulously to benefit the JCI Group and its associates at the expense of DRD
and its shareholders.
DRD wrote off its ZARI22.6 million `investment' in the Rawas Mine, which amount
was included in the ZAR590 million charge for the impairment of assets.
DRD has also been further compelled to discharge debts relating to Rawas to the
extent of A$6 million (ZAR28.7 million).
3.2 THE CONTINENTAL GOLDFIELDS TRANSACTION
DRD's investigations uncovered evidence that DRD had purchased, in terms of an
agreement dated 7 December 1999, 11 150 000 shares in Continental Goldfields
Limited (an Australian public company listed on the Australian Stock Exchange).
DRD purportedly purchased those shares from three Australian companies
controlled by Mr Tim Lebbon.
According to the agreement, the total consideration payable by DRD was A$7 025
000, which sum comprised two amounts:
- - a purchase price of A$11 115 000 for the shares, which was equivalent to
the then prevailing market price for Continental shares, which was A$0.10
per share; and
- - a separate "facilitation" fee of A$5 910 000 payable to one of the three
vendor companies.
The total consideration paid represented nearly seven times the then market
value of the shares. (The current market value at 25/04/2003 is A$0.025 per
share.)
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Further investigation revealed that DRD had effectively been substituted as the
purchaser for JCI Gold Limited. JCI Gold was then, and still is, controlled by
JCI. The evidence indicates that the agreement benefited companies in the JCI
Group without any discernible benefit for DRD.
When DRD entered into the agreement, Mr Roger Kebble was:
- - a director of JCI and of JCI Gold;
- - the holder of a significant number of shares in JCI; and
- - DRD's Executive Chairman.
It appears from the evidence that, as early as 14 December 1998, JCI Gold had
entered into an agreement to acquire the same shares from the same vendors.
However, JCI Gold failed to complete its purchase.
Lavender Overseas SA (a British Virgin Islands- registered company) was
substituted for JCI Gold and was obliged to pay the contract consideration by 23
December 1999.
However, on 7 December 1999, the vendors released Lavender from its obligations
on condition that DRD replaced it on exactly the same terms and conditions. The
condition was duly fulfilled when DRD signed an identical agreement,
substituting itself for Lavender as the acquirer of the Continental shares.
At 30 June 2000 Continental owned shares in JCI which represented 75% of
Continental's then net assets.
3.3 IRREGULAR PAYMENTS BY THE COMPANY
DRD wrongfully made payments amounting to ZAR22.8 million (converted from US$
and A$ at the then current rates of exchange) to, or for the benefit of, certain
of its officers and others. Those payments were generally for services
purportedly rendered and investments purportedly made. DRD believes the services
and investments in question were fictitious and supported by false invoices or
agreements. The payments were made to offshore accounts from which they were
distributed to the officers and others concerned.
Following settlements with some of the parties involved, those parties have
agreed to refund a sum of approximately ZAR12.6 million to DRD. Some of those
repayments are to be made over a period. DRD has already received approximately
ZAR1 million of that sum.
DRD's investigation also discovered that an officer of DRD misappropriated three
gold bars produced for a promotional road show in the US. The then value of the
gold bars was ZAR60 000 each. DRD has subsequently recovered only one of the
gold bars.
3.4 WRITE-OFFS
All of those transactions involved write-offs by DRD, against its profits, of
more than ZAR200 million.
4. POST INVESTIGATION ACTIONS
4.1 ATTEMPTS AT COMMERCIAL SETTLEMENTS
After completing its investigations, DRD attempted to settle its claims for
losses with the various responsible parties. DRD achieved some settlements,
which resulted in limited recoveries. However, DRD's attempts to settle the
larger claims failed. Accordingly, DRD was left with no option but to pursue
feasible and appropriate legal action.
4.2 LEGAL PROCEEDINGS
To date, DRD has instituted the following legal proceedings:
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- - Validation of the Rawas share issue
An application to the Witwatersrand Local Division of the High Court of South
Africa to validate the 8 282 056 ordinary shares invalidly issued pursuant to
the Rawas transaction. The Court subsequently validated the share issue.
- - The Continental Goldfields Transaction
An action which has been instituted in the Supreme Court of Western Australia
against Messrs C P Mostert, J Stratton, T O Lebbon, Noble Investments Pty Ltd,
Leadenhall Australia Limited and Advent Investors Pty Ltd for various forms of
relief including breaches of directors' duties and dishonest involvement in
those breaches, arising out of the losses sustained by DRD in the CNF
transaction.
- - The irregular payments
An action in the Supreme Court of Western Australia against J Stratton for
various forms of relief including dishonest involvement in breaches of
directors' duties and restitution, in respect of some of the irregular payments
referred to above.
Two actions in the Supreme Court of Western Australia against C Mostert for
breaches of directors' duties, in respect of some of the irregular payments
referred to above.
4.3 CLAIMS AGAINST DRD
In addition the following actions, which arise out of the irregularities that
were committed in Australasia, have been instituted against DRD:
- - an action against Dome Resources NL and DRD in the Supreme Court of New
South Wales, Australia, by Mr M Silver and an associated company, seeking
to enforce a contract by which Dome agreed to pay, and DRD agreed to
guarantee, a benefit upon Silver's retirement from the board of Dome. Dome
and DRD say that this contract is unenforceable because it was not
authorized by their directors or shareholders and was entered into in
breach of duty by the directors who signed it on Dome and DRD's behalf.
- - an action against DRD in the District Court of Western Australia by
Newshore Nominees Pty Ltd claiming payment pursuant to an invoice that DRD
believes to be false. Further, DRD intends to counterclaim against
Newshore for a number of earlier payments that had been made by DRD to
Newshore totalling A$374,000 and US$22,500, based on invoices that DRD
believes to be false or which relate to the provision of services which
DRD believes were not provided for DRD's benefit
4.4 FURTHER LEGAL PROCEEDINGS
Apart from those proceedings in progress, DRD proposes to institute further
actions against the persons responsible for the losses described in this
circular.
5. THE CAMPAIGN AGAINST DRD
After DRD launched its investigations and evidence of irregularities was
uncovered, it became clear that certain DRD officers were seriously implicated
and were vulnerable to legal proceedings. Since that time, a series of events
has occurred that appear to form part of a concerted campaign against DRD.
5.1 SECURITY ISSUES
In a number of incidents, DRD's security was breached and certain senior
employees of DRD felt themselves physically threatened.
At least two break-ins occurred at DRD's Parktown, Johannesburg head office.
During those break-ins, confidential documents were removed.
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A number of incidents occurred at DRD mining operations, which suggested some
form of industrial sabotage.
These events necessitated improved and tighter security both for DRD's assets
and for its personnel. DRD has since put in place appropriate security measures.
5.2 MR WELLESLEY-WOOD'S WORK PERMIT
On 4 March 2002, the Department of Home Affairs wrote to DRD informing it that
Mr Wellesley-Wood had been "declared a prohibited person" and his visa exemption
as a British citizen had also been revoked. At the time, Mr Wellesley-Wood was
in the United Kingdom.
The previous day, a Sunday, a report appeared in the press that appeared to have
anticipated the Department's letter. The media report stated that
MrWellesley-Wood had that week been "served with deportation orders and ordered
out of the country".
The Department's letter was not sent to DRD or Mr Wellesley-Wood. Instead, it
was sent to a non- executive director of DRD who was a close associate of Mr
Roger Kebble.
The Department appears to have issued its letter quite suddenly and
unexpectedly, as Mr Wellesley-Wood had lodged a formal application for an
appropriate work permit. That application was pending and DRD had every
expectation that it would be granted in the ordinary way. There were no special
or other circumstances that would have justified a refusal.
On the day the non-executive director in question received the Department's
letter, another DRD non-executive director called an urgent meeting of DRD's
board with a proposal to remove Mr Wellesley-Wood from the board on the grounds
that he was now prevented from entering the country to perform his duties. The
non-executive director in question was also closely allied to Mr Roger Kebble.
The non-executive director called the meeting before DRD or Mr Wellesley-Wood
had received the Department's letter.
Before the board meeting took place, the Minister of Home Affairs, the
Honourable Mangosutho Buthelezi, had intervened and made clear in public
statements that he regarded as grossly irregular the actions of his Department
against Mr Wellesley-Wood.
The attempt to remove Mr Wellesley-Wood was defeated. DRD's board formally
censured the non-executive director for the irregular manner in which he called
the meeting and for the unprofessional manner in which he had conducted himself.
He resigned shortly afterwards.
The issue of the permit was resolved shortly afterwards when the Department
formally granted Mr Wellesley-Wood's application.
5.3 MR VIC HOOPS' RESIGNATION
Following the revocation of Mr Wellesley-Wood's visa exemption, DRD commenced an
internal investigation to determine how and why the Department of Home Affairs
had acted counter to all expectations.
DRD's senior human resources executive, Mr Vic Hoops, had been responsible for
the management of Mr Wellesley-Wood's emigration status. In the course of the
discussions pursuant to the investigations, Mr Hoops quite suddenly and
unexpectedly resigned, claiming that he had been constructively dismissed.
Mr Hoops' letter of resignation dated 12 March 2002, which was addressed to
DRD's directors, was released to the media before the directors themselves
received it. Mr Hoops' letter contained a number of manifestly untrue
allegations apparently aimed at influencing Mr Wellesley-Wood's pending
application for a work permit.
Mr Hoops' letter also contained a number of gratuitous and demonstrably untrue
allegations against DRD and Mr Wellesley-Wood. Those allegations resulted in
litigation between DRD and
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Mr Hoops, which was eventually settled. During the litigation, it emerged that
Mr Hoops was funding his legal fees with a loan of approximately ZAR500 000
which he received from Mr Roger Kebble.
Whilst the terms of the settlement are by agreement confidential, Mr Hoops
furnished a written apology (which is not confidential) in the following terms:
"I, VICTOR HOOPS, make reference to the letter signed by me on 12 March 2002 and
addressed to the board of directors of Durban Roodepoort Deep Limited.
I acknowledge that the letter contains comments and observations which are
disparaging of Mark Wellesley-Wood. I now accept that these comments and
observations are incorrect and do not fairly reflect the true position. I regret
the harm that the unintended publication of these comments has caused to the
Company and Mark Wellesley-Wood and I apologize unreservedly therefore.
I record that the parties have amicably settled the dispute arising out of the
termination of my employment."
Mr Roger Kebble was suspended as a director of DRD with effect from 4 March 2002
and resigned from the board with effect from 30 June 2002.
5.4 SKILLED LABOUR BROKERS
Prior to Mr Wellesley-Wood's appointment to the board, DRD had been making
substantial regular monthly payments to a close corporation named Skilled Labour
Brokers CC (SLB).
Those payments appear to have commenced in 1996. According to DRD's records,
which only go back to July 1998, these monthly payments ranged between ZAR125
000 and ZAR148 000, with one additional exceptional payment for September 1999
of ZAR1 140 000. The total amount paid over that period amounted to ZAR6 327
000, including VAT.
Prior to June 2001, DRD believed that SLB was owned by Mr Ronnie Watson and had
provided bona fide services in consideration for bona fide payments in the
ordinary course of DRD's business. However, DRD subsequently discovered that the
sole member of SLB was Mr Roger Kebble.
DRD was previously unaware of Mr Roger Kebble's control of SLB and had no record
of any disclosure by Mr Roger Kebble of his interest in SLB.
DRD pursued the matter with Mr Roger Kebble and directed questions to him
seeking more details regarding SLB and, particularly, the beneficiaries of the
payments. Mr Roger Kebble failed to provide any satisfactory explanation. The
matter was handed over to the South African Police Services for investigation.
It took its normal course through the criminal justice system and led to charges
being preferred by the State against Mr Roger Kebble. These charges are still
pending before the Court.
DRD has also instituted a civil action in the High Court of South Africa
(Witwatersrand Local Division) against Mr Roger Kebble and SLB for recovery of
the payments.
5.5 MEDIA CAMPAIGN
From the time of the incident regarding Mr Wellesley-Wood's work permit and the
SLB mailer, DRD and Mr Wellesley-Wood have been the subject of a concerted and
sustained media campaign.
As stated above, DRD does not intend to engage in a public slanging match with
Mr Roger Kebble and his associates. DRD intends to pursue its recovery actions
in the Courts and to assist the authorities with any criminal investigations.
5.6 THE ANTON PILLER APPLICATION
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Most recently, Mr Roger Kebble, Mr Brett Kebble, Mr Ronnie Watson and JCI
applied to the High Court for an Anton Piller order against DRD, Mr
Wellesley-Wood and other defendants.
An Anton Piller order is a form of extraordinary provisional relief for the
attachment and, if the application is eventually successful, examination of a
defendant's documents for the purposes of proposed litigation. Courts grant
Anton Piller orders in limited circumstances, as a provisional order is required
to be made in the first instance without any notice to or the knowledge of the
defendant. Effectively, when making the provisional order, the Court has to rely
on the integrity of the one evidence placed before it by the applicants. The
defendants only receive an opportunity to oppose the application after the Court
has granted the provisional order.
The basis for the application was a claim that DRD, at the instance of Mr
Wellesley-Wood, has carried out unlawful investigations into the personal
affairs of Mr Roger Kebble and the other applicants in breach of their rights to
privacy, as well as of their constitutional rights.
A provisional order was granted to the applicants on the evidence they chose to
place before the Court. But after the evidence of the defendants, the
application was dismissed out of hand with costs. A special punitive order for
the costs of DRD and Mr Wellesley-Wood was made by the Court as a mark of its
disapproval of the applicant's conduct in making their application.
5.7 RESIGNATION OF MR N GOODWIN
The documents filed by Mr Roger Kebble ET AL in the Anton Piller application
included copies of confidential documents that were presented to the members of
DRD's audit committee at a meeting held on 21 October 2002. DRD discovered in
February 2003 that immediately after that meeting, copies of the documents in
question were handed to Mr Roger Kebble by Mr N Goodwin, at Mr Roger Kebble's
request. Mr N Goodwin was a non-executive director at the time and a member of
the audit committee. Mr Goodwin resigned as a non-executive director on 29
January in order to take up an appointment as a consultant of DRD. When,
afterwards, his disclosure to Mr Roger Kebble of DRD's confidential documents
was discovered, his consultancy was terminated on 26 February 2003.
5.8 RESIGNATION OF DRD GROUP SECRETARY AND IN-HOUSE LEGAL ADVISER
Shortly after the Court granted the Anton Piller orders, DRD's group secretary,
Ms Maryna Eloff, and its in-house group legal adviser, Ms Benita Morton,
suddenly and unexpectedly terminated their employment. Both Ms Eloff and Ms
Morton claimed that they had been constructively dismissed.
Ms Eloff terminated her employment by means of a letter dated 13 March 2003. Ms
Eloff's letter contained malicious and untruthful allegations in a similar style
to those contained in Mr Hoops' letter of resignation some 12 months earlier. Ms
Eloff's letter echoed the allegations in the Anton Piller application referred
to above: that DRD had engaged in unlawful investigations into her personal
affairs that violated her rights to privacy as well as her constitutional
rights.
Ms Eloff also made gratuitous and unfounded allegations of insider trading by
the executive management and certain non-executive directors of DRD. There is no
truth in these allegations.
As with Mr Hoops' letter, Ms Eloff's letter was released to the media before
reaching its addressee, Mr Wellesley-Wood. The media gave the letter
considerable publicity, causing further damage to DRD and Mr Wellesley-Wood. DRD
has denied Ms Eloff's claims and will resist them if they are pressed further.
Following all the publicity, DRD met with the JSE about Ms Eloff's allegations
of insider trading and has given all the assurances required by the JSE. At the
request of the JSE it also made a public announcement to allay any concerns
caused by the allegations.
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The manner of Ms Eloff's departure and her attack on DRD and Mr Wellesley-Wood
was as surprising as it was sudden. DRD regarded Ms Eloff as a dedicated
employee who had played a significant role in DRD's investigations into the
irregularities and other activities described above.
Ms Morton's letter of termination, delivered five days later, relied on the same
grounds of termination as that of Ms Eloff (ie., an unlawful investigation into
her personal affairs) but was couched in more temperate and responsible language
than Ms Eloff's letter. DRD has denied Ms Morton's claim and will resist it,
too, if pressed further.
6. CONCLUSION
DRD is determined to account for the past violations of good governance
practices and maintain proper, effective governance in the future.
Despite the ongoing campaign against DRD and Mr Wellesley-Wood, DRD is committed
to pursuing the recovery actions currently in progress for the losses it
sustained as a consequence of the irregular transactions described above.
In addition, DRD intends to issue further proceedings in relation to the Rawas
transaction in both South Africa and Australia.
DRD will keep shareholders informed of the progress of its recovery actions in
the coming months.
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