Company Quick10K Filing
DRDGOLD
20-F 2019-10-31 Filed 2019-10-31
20-F 2018-06-30 Filed 2018-10-31
20-F 2017-10-31 Filed 2017-10-31
20-F 2016-10-31 Filed 2016-10-31
20-F 2015-10-30 Filed 2015-10-30
20-F 2014-10-31 Filed 2014-10-31
20-F 2013-10-25 Filed 2013-10-25
20-F 2012-10-26 Filed 2012-10-26
20-F 2011-10-28 Filed 2011-10-28
20-F 2009-10-29 Filed 2010-10-29

DRD 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosures
Part III
Item 17. Financial Statements
Note 4 Acquisition of Assets and Liabilities
Note 10 Property, Plant and Equipment
Note 11 Provision for Environmental Rehabilitation
Note 18 Income Tax
Note 25.1 Payments Made Under Protest
Note 4 Acquisition of Assets and Liabilities
Note 10 Property, Plant and Equipment
Note 25.1 Payments Made Under Protest
Note 26 Contingent Assets and Liabilities
Note 12 Investment in Environmental Rehabilitation Obligation Funds
Note 13 Cash and Cash Equivalents
Note 15 Trade and Other Receivables
Note 25.2 Investment in Other Entities
Note 27 Financial Instruments
Note 5 Revenue
Note 23 Operating Segments
Note 12 Investments in Rehabilitation Obligation Funds
Note 13 Cash and Cash Equivalents
Note 15 Trade and Other Receivables
Note 5 Revenue
Note 25.2 Investments in Other Entities
Note 12 Investments in Rehabilitation Obligation Funds
Note 13 Cash and Cash Equivalents
Note 15 Trade and Other Receivables
Note 16 Trade and Other Payables
Note 20 Capital Management
Note 6 Cost of Sales
Note 16 Trade and Other Payables
Note 19.2 Transactions with Key Management Personnel
Note 21 Equity
Note 24 Interest in Subsidiaries
Item 19. Exhibits
EX-8 exhibit8.htm
EX-12 exhibit12.htm
EX-13 exhibit13.htm
EX-10 exhibit10007.htm
EX-10 exhibit10008.htm
EX-12 exhibit12002.htm
EX-13 exhibit13002.htm

DRDGOLD Earnings 2019-10-31

Balance SheetIncome StatementCash Flow

20-F 1 drdgold201920f.htm  

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

Commission file number 0-28800

 

DRDGOLD LIMITED

(Exact name of Registrant as specified in its charter and translation of Registrant's name into English)

REPUBLIC OF SOUTH AFRICA

(Jurisdiction of incorporation or organization)

 

1 Sixty Jan Smuts Building, 2nd Floor - North Tower, 160 Jan Smuts Avenue, Rosebank, 2196, South Africa

 (Address of principal executive offices)

Riaan Davel, Chief Financial Officer, Tel. no. +27 11 470 2600, Email riaan.davel@drdgold.com

Francois Bouwer, Group Financial Accountant, Tel. no. +27 11 470 2600, Email francois.bouwer@drdgold.com 

1 Sixty Jan Smuts Building, 2nd Floor - North Tower, 160 Jan Smuts Avenue, Rosebank, 2196, South Africa

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

 

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act

Title of each class:

Trading symbol

Name of each exchange on which registered:

Ordinary shares (traded in the form of American Depositary Shares, each American Depositary Share representing ten underlying ordinary shares.)

DRD

The New York Stock Exchange, Inc.

Securities registered or to be registered pursuant to Section 12(g) of the Act None 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act None 

                Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.                             696,429,767 ordinary shares of no par value outstanding as of June 30, 2019.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ☑ 

If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   Yes ☐    No ☑ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑    No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§  232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑             No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐    Accelerated filer ☑    Non-accelerated filer ☐  Emerging growth company ☐ 

If any emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐ 

 The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing. U.S. GAAP ☐    International Financial Reporting Standards as issued by the International Accounting Standards Board ☑    Other  ☐ 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.   Item 17 ☐    Item 18 ☐ 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐    No ☑ 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ☑    No ☐ 

  


 

TABLE OF CONTENTS

 

 

Page

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

5

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

5

ITEM 3.

KEY INFORMATION

5

3A.

Selected Financial Data

5

3B.

Capitalization And Indebtedness

7

3C.

Reasons For The Offer And Use Of Proceeds

7

3D.

Risk Factors

7

ITEM 4.

INFORMATION ON THE COMPANY

19

4A.

History And Development Of The Company

19

4B.

Business Overview

20

4C.

Organizational Structure

28

4D.

Property, Plant And Equipment

29

ITEM 4A.

UNRESOLVED STAFF COMMENTS

36

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

36

5A.

Operating Results 

36

5B.

Liquidity And Capital Resources

48

5C.

Research And Development, Patents And Licenses, Etc

49

5D.

Trend Information

49

5E.

Off-Balance Sheet Arrangements

50

5F.

Tabular Disclosure Of Contractual Obligations

50

5G.

Safe Harbor

50

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

50

6A.

Directors And Senior Management

50

6B.

Compensation

52

6C.

Board Practices

54

6E.

Share Ownership

58

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

62

7A.

Major Shareholders

62

7B.

Related Party Transactions

63

7C.

Interests Of Experts And Counsel

63

ITEM 8.

FINANCIAL INFORMATION

63

8A.

Consolidated statements And Other Financial Information

63

8B.

Significant Changes

63

ITEM 9.

THE OFFER AND LISTING

64

9A.

Offer And Listing Details

64

9B.

Plan Of Distribution

64

9C.

Markets

64

9D.

Selling Shareholders

64

9E.

Dilution

64

9F.

Expenses Of The Issue

64

ITEM 10.

ADDITIONAL INFORMATION

64

10A.

Share Capital

64

10B.

Memorandum of Incorporation

64

10C.

Material Contracts

68

10D.

Exchange Controls

70

10E.

Taxation

72

10F.

Dividends And Paying Agents

75

10G.

Statement By Experts

75

10H.

Documents On Display

75

10I.

Subsidiary Information

75

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

75

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

77

12A.

Debt Securities

77

12B.

Warrants and Rights

77

12C.

Other Securities

77

12D

American Depositary Shares

77

 

 

 

  


 

TABLE OF CONTENTS

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

78

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

78

ITEM 15.

CONTROLS AND PROCEDURES

78

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

79

ITEM 16B.

CODE OF ETHICS

79

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

79

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

80

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

80

ITEM 16F

CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

80

ITEM 16G.

CORPORATE GOVERNANCE

80

ITEM 16H.

MINE SAFETY DISCLOSURES

80

 

 

 

PART III

ITEM 17.

FINANCIAL STATEMENTS

81

ITEM 18.

FINANCIAL STATEMENTS

81

ITEM 19.

EXHIBITS

82

 

 

 

 

SIGNATURES

85

  


 

Preparation of Financial Information

 

                We are a South African company and currently all our operations are located in South Africa. Accordingly, our books of account are maintained in South African Rand. Our financial statements included in our corporate filings are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).  

 

                Our consolidated financial statements included in this Annual Report are prepared in accordance with IFRS as issued by the IASB. All financial information, except as otherwise noted is prepared in accordance with IFRS as issued by the IASB.

 

                We present our financial information in rand, which is our presentation and reporting currency. All references to “dollars” or “$” herein are to United States Dollars and references to “rand” or “R” are to South African rands. Solely for your convenience, this Annual Report contains translations of certain rand amounts into dollars at specified rates. These rand amounts do not represent actual dollar amounts, nor could they necessarily have been converted into dollars at the rates indicated. Unless otherwise indicated, rand amounts have been translated into dollars at the rate of R14.07 per $1.00, the year end exchange rate on June 30, 2019.

 

                In this Annual Report, we present certain non-IFRS financial measures such as the financial items “cash operating costs per kilogram”, “all-in sustaining costs per kilogram” and “all-in costs per kilogram” which have been determined using industry guidelines promulgated by the World Gold Council, which we use to determine costs associated with producing gold, cash generating capacities of the mines and to monitor performance of our mining operations. An investor should not consider these items in isolation or as alternatives to, operating costs, profit/(loss) for the year or any other measure of financial performance presented in accordance with IFRS or as an indicator of our performance. While the World Gold Council has provided definitions for the calculation of cash operating costs, the calculation of cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram may vary significantly among gold mining companies, and these definitions by themselves do not necessarily provide a basis for comparison with other gold mining companies. See Glossary of Terms and Explanations and Item 5A. Operating Results – “Cash operating costs, all-in sustaining costs and all-in costs” and “Reconciliation of cash operating costs per kilogram, all-in sustaining costs per kilogram, all-in costs per kilogram”.

 

DRDGOLD Limited

 

                When used in this Annual Report, the term the “Company” refers to DRDGOLD Limited and the terms “we,” “our,” “us” or “the Group” refer to the Company and its subsidiaries, associates and joint ventures, as appropriate in the context.

 

Acquisition of gold assets from Sibanye-Stillwater and subsequent development and commissioning of FWGR Phase 1

 

                On July 31, 2018, we completed the acquisition of the gold assets associated with Sibanye Gold Limited, trading as Sibanye-Stillwater’s (“Sibanye-Stillwater”) West Rand Tailings Retreatment Project (“WRTRP”), subsequently renamed Far West Gold Recoveries Proprietary Limited (“FWGR”).  This acquisition significantly increased our assets and revenues and added 2.72 million ounces to our Ore Reserves.  In connection with the acquisition, we issued to Sibanye-Stillwater new shares in the Company equal to 38.05% of outstanding shares, and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the acquisition at a 10% discount to the prevailing market value (the “Sibanye-Stillwater option”).

 

Construction of Phase 1 of FWGR commenced during August 2018 with R330.7 million spent on, inter alia, the reconfiguration of the Driefontein 2 plant (“DP2”) and relevant infrastructure to process tailings from the Driefontein 5 slimes dam and deposit residues on the Driefontein 4 Tailings Storage Facility. During this construction phase, gold was produced at the adjacent Driefontein 3 plant (“DP3”). Early-stage commissioning of the reconfigured DP2 plant commenced in December, 2018 with the pumping of reclaimed tailings into the carbon in leach (“CIL”) circuit. Testing of the reconfigured plant and ramp-up of production continued during the third quarter of the fiscal year ended June 30, 2019. Management considered, inter alia, the design capacity of the plant, recoveries and the ability to sustain production in determining the date of commercial production. The date of commercial production for Phase 1 (excluding the milling section), which is the date when preproduction costs, borrowing costs and revenue recognized during the construction phase cease to be capitalised and depreciation commenced, was determined to be April 1, 2019.

 

Special Note Regarding Forward-Looking Statements

 

                This Annual Report contains certain “forward-looking” statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, regarding expected future events or other expected future financial performance and information relating to us that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Some of these forward-looking statements include phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” or “will continue,” or similar expressions or the negatives thereof or other variations on these expressions, or similar terminology, or discussions of strategy, plans or intentions, including statements in connection with, or relating to, among other things:

·          our reserve calculations and underlying assumptions;

·          the trend information discussed in Item 5D.- Trend Information, including target gold production and cash operating costs;

·          estimated future throughput capacity and production;

·          expected trends in our gold production as well as the demand for and the price of gold;

·          our anticipated labor, electricity, water, crude oil and steel costs;

·          our expectation that existing cash will be sufficient to fund our operations in the next 12 months including our anticipated commitments;

1  


 

·          estimated production costs, cash operating costs per ounce, all-in sustaining costs per ounce and all-in costs per ounce;

·         expectations on future gold price, supply and pricing trends including expected impact of the global environment on gold prices;

·         expected gold production and cash operating costs expected in fiscal year 2020;

·         our prospects in litigation and disputes;

·          statements with respect to WRTRP assets acquired from Sibanye-Stillwater and the option granted to Sibanye-Stillwater;

·          statements with respect to the legal review for increasing the deposition capacity of the Brakpan/Withok TDF, and expected potential increase in capacity and life of mine; and

·          expected effective gold mining tax rate.  

 

        Such statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others:

·          adverse changes or uncertainties in general economic conditions in South Africa;

·          regulatory developments adverse to us or difficulties in maintaining necessary licenses or other governmental approvals;

·          changes in our competitive position;

·          changes in, or that affect our business strategy;

·          adverse changes in our gold production as well as the demand for and the price of gold;

·          any major disruption in production at our key facilities;

·          adverse changes in foreign exchange rates;

·          adverse environmental changes;

·          adverse changes in ore grades and recoveries, and to the quality or quantity of reserves;

·          unforeseen technical production issues, industrial accidents and theft;

·          anticipated or unanticipated capital expenditure on property, plant and equipment;

·          future performance relating to the WRTRP assets and whether or not the Sibanye-Stillwater option is exercised; and

·          various other factors, including those set forth in Item 3D. Risk Factors.

 

                For a discussion of such risks, see Item 3D. Risk Factors. The risk factors described in Item 3D. could affect our future results, causing these results to differ materially from those expressed in any forward-looking statements. These factors are not necessarily all of the important factors that could cause our results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.

 

                Investors are cautioned not to place undue reliance on these forward‑looking statements, which speak only as of the date thereof. We do not undertake any obligation to update publicly or release any revisions to these forward‑looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.

 

Special Note Regarding Links to External, or Third-party Websites

 

                Links to external, or third-party websites, are provided solely for convenience. We take no responsibility whatsoever for any third-party information contained in such third-party websites, and we specifically disclaim adoption or incorporation by reference of such information into this report.

 

Imperial units of measure and metric equivalents

 

                The table below sets forth units stated in this document, which are measured in Imperial and Metric.  

 

Metric

Imperial

Imperial

Metric

1 metric tonne

1.10229 short tons

1 short ton

0.9072 metric tonnes

1 kilogram

2.20458 pounds

1 pound

0.4536 kilograms

1 gram

0.03215 troy ounces

1 troy ounce

31.10353 grams

1 kilometer

0.62150 miles

1 mile

1.609 kilometers

1 meter

3.28084 feet

1 foot

0.3048 meters

1 liter

0.26420 gallons

1 gallon

3.785 liters

1 hectare

2.47097 acres

1 acre

0.4047 hectares

1 centimeter

0.39370 inches

1 inch

2.54 centimeters

1 gram/tonne

0.0292 ounces/ton

1 ounce/ton

34.28 grams/tonnes

0 degree Celsius

32 degrees Fahrenheit

0 degrees Fahrenheit

- 18 degrees Celsius

2  


 

 

 

Glossary of Terms and Explanations

 

 

The table below sets forth a glossary of terms used in this Annual Report:

 

 

Adjusted EBITDA

Adjusted EBITDA means earnings before interest, tax, depreciation, amortisation, share-based payment expense, change in estimate of environmental rehabilitation recognised in profit or loss, gain/(loss) on disposal of property, plant and equipment, gain/(loss) on financial instruments and retrenchment costs. This is a non-IFRS financial measure and should not be considered a substitute measure of net income reported by us in accordance with IFRS.

Administration expenses and other costs excluding non-recurring items

Administration expenses and other costs excluding loss on disposal of property, plant and equipment and transaction costs.

All-in sustaining costs per kilogram

All-in sustaining costs is a measure on which guidance is provided by the World Gold Council and include cash operating costs of production, plus movement in gold in process on a sales basis, corporate administration expenses and other (costs)/income, the accretion of rehabilitation costs and sustaining capital expenditure. Costs other than those listed above are excluded. All-in sustaining costs per kilogram are calculated by dividing total all-in sustaining costs by kilograms of gold produced. This is a non‑IFRS financial measure and should not be considered a substitute measure of costs and expenses reported by us in accordance with IFRS.

All-in costs per kilogram

All-in costs is a measure on which guidance is provided by the World Gold Council and include all-in sustaining costs, retrenchment costs, care and maintenance costs, ongoing rehabilitation expenditure, growth capital expenditure and capital recoupments. Costs other than those listed above are excluded. All-in costs per kilogram are calculated by dividing total all-in costs by kilograms of gold produced. This is a non‑IFRS financial measure and should not be considered a substitute measure of costs and expenses reported by us in accordance with IFRS.

Assaying

The chemical testing process of rock samples to determine mineral content.

$/oz

US dollar per ounce.

Called gold content

The theoretical gold content of material processed.

Capital expenditure

Purchases of property, plant and equipment paid in cash.

Care and maintenance

Costs to ensure that the Ore Reserves are open, serviceable and legally compliant after active mining activity at a shaft has ceased.

Cash operating costs of production

Cash operating costs of production are operating costs less ongoing rehabilitation expenses, care and maintenance costs and net other operating costs/(income). This is a non‑IFRS financial measure and should not be considered a substitute measure of costs and expenses reported by us in accordance with IFRS.

Cash operating costs per kilogram

Cash operating costs are operating costs incurred directly in the production of gold and include labor costs, contractor and other related costs, inventory costs and electricity costs. Cash operating costs per kilogram are calculated by dividing cash operating costs by kilograms of gold produced. This is a non‑IFRS financial measure and should not be considered a substitute measure of costs and expenses reported by us in accordance with IFRS.

Cut‑off grade

The minimum in-situ grade of ore blocks for which the cash operating costs per ounce, excluding overhead costs, are equal to a projected gold price per ounce.

CIL Circuit

Carbon-in-leach circuit.

Depletion

The decrease in the quantity of ore in a deposit or property resulting from extraction or production.

Deposition

Deposition is the geological process by which material is added to a landform or land mass. Fluids such as wind and water, as well as sediment flowing via gravity, transport previously eroded sediment, which, at the loss of enough kinetic energy in the fluid, is deposited, building up layers of sediment. Deposition occurs when the forces responsible for sediment transportation are no longer sufficient to overcome the forces of particle weight and friction, creating a resistance to motion.

Doré

Unrefined gold and silver bullion bars consisting of approximately 90% precious metals which will be further refined to almost pure metal.

Grade

The amount of gold contained within auriferous material generally expressed in ounces per ton or grams per tonne of ore.

Growth capital expenditure

Capital expenditures that are not sustaining capital expenditure. This is a non‑IFRS financial measure and should not be considered a substitute measure of costs and expenses reported by us in accordance with IFRS.

g/t

Grams per tonne.

Metallurgical plant

A processing plant (mill) erected to treat ore and extract the contained gold.

Mine call factor

The gold content recovered expressed as a percentage of the called gold content.

Mt

Million tons.

Ore

A mixture of valuable and worthless materials from which the extraction of at least one mineral is technically and economically viable.

Other operating costs / (income)

Expenses incurred, and income generated in the course of operating activities, which are not directly attributable to production activities.

Pay-limit

The minimum in-situ grade of ore blocks or sites for which cash operating costs, including all overhead costs, are equal to a projected gold price per ounce.

Operating costs

Operating costs are cost of sales less depreciation, change in estimate of rehabilitation provision, movement in gold in process and retrenchment costs.

Proven Ore Reserves

Reserves for which (a) the quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of Ore Reserves are well established.

Probable Ore Reserves

Reserves for which quantity and grade and/or quality are computed from information similar to that used for Proven Ore Reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for Proven Ore Reserves, is high enough to assume continuity between points of observation.

oz/t

Ounces per ton.

Refining

The final purification process of a metal or mineral.

Rehabilitation

The process of restoring mined land to a condition approximating its original state.

Reserves

That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.

Sediment

The deposition of solid fragmental material that originated from weathering of rocks and was transported from a source to a site of deposition.

Slimes

The tailings discharged from a processing plant after the valuable minerals have been recovered.

Sustaining capital expenditure

Sustaining capital expenditure are those capital expenditures that are necessary to maintain current gold production. This is a non‑IFRS financial measure and should not be considered a substitute measure of costs and expenses reported by us in accordance with IFRS.

t’000

Tonnes in thousands.

Tailings

Finely ground rock from which valuable minerals have been extracted by milling, or any waste rock, slimes or residue derived from any mining operation or processing of any minerals.

Tailings dam

A dam created from waste material of processed ore after the economically recoverable gold has been extracted.

Tonnage/Tonne

Quantities where the metric tonne is an appropriate unit of measure. Typically used to measure reserves of gold‑bearing material in‑situ or quantities of ore and waste material mined, transported or milled.

Tpm

Tonne per month.

Yield

The amount of recovered gold from production generally expressed in ounces or grams per ton or tonne of ore.

3  


 

4  


 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

                Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

                Not applicable.

 

ITEM 3. KEY INFORMATION

 

3A. SELECTED FINANCIAL DATA

 

                The following selected consolidated financial data as at June 30, 2019 and 2018 and for the years ended June 30, 2019, 2018 and 2017 is derived from our consolidated financial statements set forth elsewhere in this Annual Report, which have been prepared in accordance with IFRS, as issued by the IASB. These consolidated financial statements have been audited by KPMG Inc.  The selected consolidated financial data as at June 30, 2017, 2016 and 2015, and for the years ended June 30, 2016 and 2015 is derived from audited consolidated financial statements not appearing in this Annual Report which have been prepared in accordance with IFRS,  as issued by the IASB. The selected consolidated financial data set forth below should be read in conjunction with Item 5. Operating and Financial Review and Prospects and with the consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report.

5  


 

 

Selected Consolidated Financial Data

 

(in millions, except share, per share and ounce data)

 

 

 

 

 

 

 

 

Year ended June 30,

 

20191

2019

2018

2017

2016

2015

 

$’m

R'm

R'm

R'm

R'm

R'm

Profit or loss Data

 

 

 

 

 

 

Revenue

196.3

2,762.1

2,490.4

2,339.9

2,433.1

2,105.3

Results from operating activities

8.9

125.2

52.0

(24.6)

119.6

94.9

Profit/(loss) for the year attributable to equity owners of the parent

5.6

78.5

6.5

13.7

61.9

67.8

Adjusted EBITDA2

18.1

254.1

-2

-2

-2

-2

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

Basic earnings/(loss) per share (cents)

0.8

11.8

1.5

3.2

14.7

17.4

Diluted earnings/(loss) per share (cents)

0.8

11.5

1.5

3.2

14.7

17.4

 

 

 

 

 

 

 

Dividends proposed per share for the year (ZAR cents)

 

20.0

5.0

5.0

62.0

10.0

Dividends proposed per American Depositary Shares for the year         (USD cents)

 

16.7

3.6

3.8

45.2

6.5

Exchange rate (USD1:ZAR)1

 

14.07

13.72

13.05

14.68

13.82

Intraday high (USD1:ZAR)

 

15.69

14.57

14.75

16.87

12.58

Intraday low (USD1:ZAR)

 

13.07

11.50

12.42

12.24

10.50

Number of shares issued as at June 30

696,429,767

696,429,767

431,429,767

431,429,767

431,429,767

430,883,767

 

 

 

 

 

 

 

Statement of financial position data

 

 

 

 

 

 

Total assets

288.5

4,059.9

2,360.5

2,287.4

2,419.1

2,503.0

Equity (Net assets)

191.0

2,688.5

1,267.2

1,302.4

1,339.6

1,529.9

Ordinary share capital3

360.4

5,072.3

4,177.2

4,177.2

4,177.2

4,180.9

 

 

 

 

 

 

 

 

2019

2019

2019

2019

2019

2019

 

September

August

July

June

May

April

Exchange Rate Data

 

 

 

 

 

 

Intraday high (USD1:ZAR)

15.29

15.50

14.38

15.17

14.89

14.55

Intraday low (USD1:ZAR)

14.49

14.32

13.80

14.06

14.12

13.86

 

 

 

 

 

 

 

1Translations into Dollars in this table are for the purpose of convenience only and are computed at the closing exchange rate at June 30, 2019 of R14.07 per $1.00, or the annual average as noted. You should not view such translations as a representation that such amounts represent actual Dollar amounts. All other translations in this Annual Report are based on exchanges rates quoted by local financial institutions.  This line item has been prepared in accordance with Item 3.A(3) of Form 20-F.

2Adjusted EBITDA is a non-IFRS financial measure. For a definition of Adjusted EBITDA see Glossary of Terms and Explanations. Adjusted EBITDA (that was included from the current reporting period following the Revolving Credit Facility ("RCF") agreement) may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is not a measure of performance under IFRS and should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity.

The Group considers adjusted EBITDA for the purpose of evaluating compliance with the covenants imposed by the Company’s RCF agreements entered into on August 1, 2019 to finance the development of Phase 1 of FWGR and working capital requirements of the Group and subsequently partially used as a facility to provide a performance guarantee to Ekurhuleni Metropolitan Municipality (refer to Item 18: Financial Statements - Note 13 Cash and cash equivalents). The Group considers the presentation of Adjusted EBITDA provides useful information to investors. Adjusted EBITDA was not presented or considered previously by the Company.  For a reconciliation of Adjusted EBITDA to profit for the year, see Item 5.A. Operating and Financial Review and Prospects—Adjusted earnings before interest, interest, depreciation and amortization

3Ordinary share capital as of June 30, 2019 is stated after the deduction of R51.0 million (2018 and 2017: R50.7 million) share capital relating to treasury shares held by the Group.

6  


 

3B. CAPITALIZATION AND INDEBTEDNESS

                Not applicable.

 

3C. REASONS FOR THE OFFER AND USE OF PROCEEDS

                Not applicable.

 

3D. RISK FACTORS

                In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks relate to our operational processes, while others relate to our business environment. It is important to understand the nature of these risks and the impact they may have on our business, financial condition and operating results. Some of these risks are summarized below and have been organized into the following categories:

·          Risks related to our business and operations;

·          Risks related to the gold mining industry;

·          Risks related to doing business in South Africa; and

·          Risks related to ownership in our ordinary shares or American Depositary Shares (ADSs).

 

Risks related to our business and operations

 

Changes in the market price for gold, which in the past has fluctuated widely, and exchange rate fluctuations affect the profitability of our operations and the cash flows generated by those operations.

 

                Due to the marginal nature of our operations any sustained decline in the market price of gold would adversely affect us, and any decline in the price of gold below the cost of production could result in the closure of some or all of our operations which would result in significant costs and expenditure, such as, incurring retrenchment costs earlier than expected which could lead to a decline in profits, or losses. In addition, as most of our production costs are in rands, while gold is sold in dollars and then converted to rands, our results of operation and financial condition have been and could be in the future materially affected by an appreciation in the value of the rand. Accordingly, any sustained decline in the price of gold and/or the strengthening of the South African rand against the dollar would negatively and adversely affect our business, operating results and financial condition.

                 

                Although we entered into a gold price hedge in fiscal 2019, we typically do not enter into forward contracts to reduce our exposure to market fluctuations in the dollar gold price or the exchange rate movements of the rand. We sell gold at spot prices based on the afternoon London Bullion Market fixing price on the day when Rand Refinery, acting as an agent for the sale of all gold produced by the Group, delivers the Gold to the buyer. We sell our foreign currency at the spot price in the market on the date of trade. If the dollar gold price should fall and/or the rand should strengthen against the dollar, this would adversely affect us, and we may experience losses, and if these changes result in revenue below our cost of production and remain at such levels for any sustained period, we may be forced to curtail or suspend some or all our operations. We might not be able to recover any losses we may incur during that period or maintain adequate gold reserves for future exploitation.

 

                Exchange rates are influenced by global economic trends. The closing exchange rate of the rand against the dollar at June 30, 2019 weakened by 3% compared to June 30, 2018. The closing price of the rand against the dollar at June 30, 2018 weakened by 5% compared to June 30, 2017. At September 30, 2019 the rand traded at R15.13 = $1.00 (based on closing rates), a 8% weakening of the rand against the Dollar from June 30, 2019.

 

                A decrease in the dollar gold price and/or a strengthening of the rand against the dollar results in a decrease in our profitability. For all periods presented, all of our production was from South Africa. If the rand was to appreciate against the dollar for a continued time, our operations could experience a reduction in cash flow and profitability and this would adversely affect our business, operating results and financial condition.  

 

A failure to acquire new Ore Reserves could negatively affect our future cash flow, results of operations and financial condition.

 

New or ongoing exploration programs may not result in new mineral producing operations that will sustain or increase our Ore Reserves. A failure to acquire new Ore Reserves in sufficient quantities and quality to maintain or grow the current level and quality of our reserves will negatively affect our future cash flow, results of operations and financial condition. In addition, if we are unable to identify Ore Reserves that have reasonable prospects for economic extraction while maintaining sufficient controls on production and other costs, this will have a material effect on the future viability of our operations.

 

                While we have been able to increase reserves in the prior three fiscal years—See Item 4B. “Business Overview—Ore Reserves”—such increases were dependent upon acquisitions and  successful drilling programs, and such increases were offset by depletions  Accordingly, we may not be successful in increasing reserves in future years and our reserves could decrease. 

 

                We may be unable to make desirable acquisitions or to integrate successfully any businesses we acquire, including the acquisition of the FWGR assets         

 

                Our future success may depend in part on the acquisition of businesses or technologies intended to complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. The ability to complete such transactions may be hindered by a number of factors, including identifying acquisition targets, obtaining necessary financing and potential difficulties in obtaining government approvals. Any acquisitions we make, such as our acquisition of the FWGR assets from Sibanye-Stillwater effective from July 31, 2018, could fail to achieve our financial or strategic objectives, disrupt our ongoing business and adversely impact our results of operations.

7  


 

 

                Any acquisition that we do make would pose risks related to the integration of the new business or technology with our business and organization. We cannot be certain that we will be able to achieve the benefits we expect from a particular acquisition or investment. Acquisitions may also strain our managerial and operational resources, as the challenge of managing new operations may divert our management from day-to-day operations of our existing business. Furthermore, we may have difficulty integrating employees, business systems, and technology. The controls, processes and procedures of acquired businesses may also not adequately ensure compliance with laws and regulations and we may fail to identify compliance issues or liabilities. Our business, financial condition and results of operations may be materially and adversely affected if we fail to coordinate our resources effectively to manage both our existing operations and any businesses we acquire.  Acquisitions can also result in unforeseen liabilities.

 

                Moreover, our resources are limited and our decision to pursue a transaction has opportunity costs; accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactions that could help us achieve our financial or strategic objectives.

 

                Our large projects, most notably the development of FWGR, are subject to schedule delays and cost overruns, and we may face constraints in financing our existing projects or new business opportunities, which could render our projects unviable or less profitable than planned

 

                The development of our projects are capital intensive processes carried out over long durations and requires us to commit significant capital expenditure and allocate considerable management resources in utilising our existing experience and know-how.

 

                Projects like the development of FWGR is subject to the risk of delays and cost overruns which are inherent in any large construction project including, inter alia

•  shortages or unforeseen increases in the cost of equipment, labor and raw materials;

•  unforeseen design and engineering problems;

•  unforeseen construction problems;

•  unforeseen delays commissioning sections of the project. For example: FWGR Phase 1 date achieved commercial production on April 1, 2019 and the mills were commissioned in September 2019 (both initially planned for January 1, 2019);

•  inadequate phasing of activities;

•  labor disputes;

•  inadequate workforce planning or productivity of workforce;

•  inadequate management practices;

•  natural disasters and adverse weather conditions;

•  failure or delay of third-party service providers; and

•  changes to regulations, such as environmental regulations.

 

                In addition, if the assumptions we make in assessing the viability of our projects, including those relating to commodity prices, exchange rates, interest rates, inflation rates and discount rates, prove to be incorrect or need to be significantly revised, this may adversely affect the profitability or even the viability of our projects.

 

                As the development of FWGR is particularly material to DRDGOLD, significant cost overruns or adverse changes in assumptions affecting the viability of the project could have a material adverse effect on our business, cash flows, financial condition and prospects. The uncertainty and volatility in the gold market makes it more difficult to accurately evaluate the project economics and increases the risk that the assumptions underlying our assessment of the viability of the project may prove incorrect.

 

                Our operating cash flow and banking facilities may be insufficient to meet our capital expenditure plans and requirements, depending on the timing and cost of development of our existing projects and any further projects we may pursue, as well as our operating performance and the utilisation of our banking facilities. As a result, new sources of capital may be needed to meet the funding requirements of these projects and to fund ongoing business activities. Our ability to raise and service significant new sources of capital will be a function of macroeconomic conditions, our credit rating, our gearing and other risk metrics, the condition of the financial markets, future gold prices, the prospects for our industry, our operational performance and operating cash flow and debt position, among other factors.

 

                In the event of operating or financial challenges, any dislocation in financial markets or new funding limitations, our ability to pursue new business opportunities, invest in existing and new projects, fund our ongoing business activities and pay dividends, could be constrained, any of which could have a material adverse effect on our business, operating results cash flows and financial condition.

 

                We may not be able to meet our cash requirements because of a number of factors, many of which are beyond our control.

 

                Management’s estimates on future cash flows are subject to risks and uncertainties, such as the rand gold price, production volumes, recovered grades and costs. If we are unable to meet our cash requirements out of cash flows generated from our operations, we would need to fund our cash requirements from financing and any such financing may be permitted under the terms of our financing arrangements, or may not be available on acceptable terms, or at all. If we do not generate sufficient cash flows or have access to adequate financing, our ability to respond to changing business and economic conditions, make future acquisitions, react to adverse operating results, meet our debt service obligations and fund required capital expenditures or meet our working capital requirements may be adversely affected.

 

                Any interruption in gold production at any of our two mining operations generating cash flows, will have an adverse effect on the Company.

 

8  


 

                As at June 30, 2019 and September 30, 2019 respectively, we have two mining operations generating cash flows, namely Ergo and FWGR.

 

                Ergo’s reclamation sites, processing plants, pump stations and the Brakpan/Withok Tailings Storage Facility ("Brakpan/Withok TSF") are linked through pipeline infrastructure. The Ergo plant is currently our major processing plant.

                 

                FWGR’s reclamation site, processing plant, pump stations and the Driefontein 4 Tailings Storage Facility are linked through pipeline infrastructure. DP 2 plant is currently our processing plant and FWGR.

                 

                Our reclamation sites, plants, pipelines infrastructure and the deposition/storage facilities are exposed to numerous risks, including operational down time due to planned or unplanned maintenance, destruction of infrastructure, spillages, higher than expected operating costs, or lower than expected production as a result of decreases in extraction efficiencies due to imbalances in the metallurgical process as well as inconsistent volume throughput or other factors.

 

                Our operations are also exposed to severe weather events that could interrupt production. It is believed that the long-term upward trend in global temperature is directly correlated with the increase in global severe weather events both in terms of magnitude and frequency.

 

                For example, dry weather conditions and a recent spate of heatwaves in the Johannesburg area in October 2019 has prompted level 2 water restrictions on residential water users.

 

                Severe thunderstorms and high winds, especially during the summer rainy season, may also cause damage to operation infrastructure that may in turn cause an interruption in the production of gold.  Such incidents and other weather events may damage the facility and cause the interruption of deposition and gold production until the facility is repaired or alternative deposition is brought on line.    

                 

                Each of these or other weather conditions or other interruptions could have a material adverse effect on our business, operating results and financial condition.

 

An increase in production costs could have an adverse effect on our results of operations.

                 

                An increase in our production costs will impact our results of operations. Production costs are affected by, inter alia:  

•  labor stability, productivity and increases in labor costs;

•  increases in electricity and water prices;

•  increases in crude oil and steel prices;

•  changes in regulation;

•  unforeseen changes in ore grades and recoveries;

•  unexpected changes in the quality or quantity of reserves;

•  technical production issues;

•  availability and cost of smelting and refining arrangements;

•  environmental and industrial accidents;

•  gold theft;

•  environmental factors; and

•  pollution.

 

Our production costs consist mainly of materials including reagents and steel, labor, electricity, specialized service providers, water, fuels, lubricants and other oil and petroleum based products. Production costs have in the past, and could in the future, increase at rates in excess of our annual inflation rate and impact our results of operation and can result in the restructuring of these operations at substantial cost.

                 

                On September 16, 2019, Ergo signed a two-year wage agreement with the Majority Unions for an average increase of 5.9% per annum across our workforce with individual increases ranging from 5.5% to 7% per annum, with the intention to extend this agreement to a third year.

 

                As part of the transitional arrangements at FWGR, a three-year wage agreement is in place and is scheduled to conclude in June 2021.

 

                Increases in production costs, if material, will adversely impact our results of operations.  In addition, any initiatives that we pursue to reduce costs, such as reducing our labor force, a reduction of the corporate overhead, negotiating lower price increases for consumables and cost controls may not be successful or sufficient to offset the increases affecting our operations and could adversely affect our business, operating results and financial condition.

 

                Flooding at our discontinued underground operations may cause us to incur liabilities for environmental damage.

 

                If the rate of rise of water is not controlled, water from our abandoned underground mining areas could potentially rise and come into contact with naturally occurring underground water or decant into surrounding underground mining areas and could ultimately also rise to surface. Progressive flooding of these abandoned underground mining areas and surrounding underground mining areas could eventually cause the discharge of polluted water to the surface and to local water sources.

 

                Should underground water levels not reach a natural subterranean equilibrium, and if underground water rises to the surface, we, together with all other mining companies in those areas, may face claims relating to environmental damage.  Any such claims may have a material adverse effect on our business, operating results and financial condition.

9  


 

 

                Our operations are subject to extensive environmental regulations which could impose significant costs and liabilities.

 

                Our operations are subject to increasingly extensive laws and regulations governing the protection of the environment under various state, provincial and local laws, which regulate air and water quality, hazardous waste management and environmental rehabilitation and reclamation. Our mining and related activities have the potential to impact the environment, including land, habitat, streams and environment near the mining sites. Failure to comply with environmental laws or delays in obtaining, or failures to obtain government permits and approvals may adversely impact our operations. In addition, the regulatory environment in which we operate could change in ways that could substantially increase costs of compliance, resulting in a material adverse effect on our profitability.

 

                We have incurred, and expect to incur in the future, expenditures to comply with these environmental laws and regulations. We have estimated our aggregate group Provision for Environmental Rehabilitation at a net present value of R682.6 million which is included in our statement of financial position as at June 30, 2019 (Refer to Item 18. ‘‘Financial Statements - Note 11 – Provision for environmental rehabilitation”). However, the ultimate amount of rehabilitation costs may in the future exceed the current estimates due to factors beyond our control, such as changing legislation, higher than expected cost increases, or unidentified rehabilitation costs. We fund these environmental rehabilitation costs by making contributions over the life of the mine to environmental trust funds or funds held in insurance instruments established for our operations. If any of our operations are prematurely closed, the rehabilitation funds may be insufficient to meet all the rehabilitation obligations of those operations. The closure of mining operations, without sufficient financial provision for the funding of rehabilitation liabilities, or unacceptable damage to the environment, including pollution or environmental degradation, may expose us and our directors to prosecution, litigation and potentially significant liabilities.

 

                Damage to tailings dams and excessive maintenance and rehabilitation costs could result in lower production and health, safety and environmental liabilities.

 

Our tailings facilities are exposed to numerous risks and events, the occurrence of which may result in the failure, breach or damage of such a facility. These may include sabotage, failure by our employees to adhere to the codes of practice and natural disasters such as excessive rainfall and seismic events, any of which could force us to stop or limit operations. In addition, the dams could overflow or a side wall could collapse and the health and safety of our employees and communities living around these dams could be jeopardized. In the event of damage to our tailings facilities, our operations will be adversely affected and this in turn could have a material adverse effect on our business, operating results and financial condition.

 

Due to the nature of our business, our operations face extensive health and safety risks.

 

Gold mining is exposed to numerous risks and events, the occurrence of which may result in the death of, or personal injury, to employees. According to section 54 of the Mine, Health and Safety Act of 1996, if an inspector believes that any occurrence, practice or condition at a mine endangers or may endanger the health or safety of any person at the mine, the inspector may give any instruction necessary to protect the health or safety of persons at the mine. These instructions could include the suspension of operations at the whole or part of the mine. Health and safety incidents could lead to mine operations being halted and that will increase our unit production costs, which could have a material adverse effect on our business, operating results and financial condition.

 

                Events may occur for which we are not insured which could affect our cash flows and profitability.

 

                Because of the nature of our business, we may become subject to liability for pollution or other hazards against which we are unable to insure or are not insured, including those in respect of past mining activities. Our existing property, business interruption and other insurance contains certain exclusions and limitations on coverage. The insured value for property and loss of profits due to business interruption is R11.35 billion, with a total loss limit of R650 million for the 2020 fiscal year. Business interruption is only covered from the time the loss occurs and is subject to time and amount deductibles that vary between categories. To cover legal liability to third parties for damage, injury, illness or death a total of R1.5 billion insurance cover is in place for the 2020 fiscal year, subject to certain exclusions and limitations on coverage.

                 

                Insurance coverage may not cover the extent of claims brought against us, including claims for environmental, industrial or pollution related accidents, for which coverage is not available. If we are required to meet the costs of claims, which exceed our insurance coverage, this could have a material adverse effect on our business, operating results and financial condition.

 

If we are unable to attract and retain key personnel our business may be harmed.

 

                The success of our business will depend, in large part, upon the skills and efforts of a small group of management and technical personnel including the positions of Chief Executive Officer and Chief Financial Officer. In addition, we compete with mining and other companies on a global basis to attract and retain key human resources at all levels with appropriate technical skills and operating and managerial experience necessary to operate the business. Factors critical to retaining our present staff and attracting additional highly qualified personnel include our ability to provide these individuals with competitive compensation arrangements, and other benefits. If we are not successful in retaining or attracting highly qualified individuals in key management positions, our business may be harmed. We do not maintain “key man” life insurance policies on any members of our executive team. The loss of any of our key personnel could delay the execution of our business plans, which may result in decreased production, increased costs and decreased profitability.

 

We are subject to operational risks associated with our flotation and fine-grind (FFG) project.

 

                Our flotation and fine-grind project, implemented in fiscal year 2014, is designed to improve extraction efficiencies. 

10  


 

 

                Production was temporarily suspended in April, 2014 due to unsatisfactory gold recoveries and low carbon absorption efficiencies. The established Low-Grade Section was brought back to steady state and gold production stabilized during the last quarter of fiscal year 2014 and became fully operational in February 2015, treating the remainder of the Ergo plant throughput through the FFG from this date.

 

                The FFG project remains exposed to numerous risks associated with similar projects, including operational down time due to unplanned maintenance, destruction of infrastructure, spillages, higher than expected operating costs, or lower than expected production which could have a material adverse effect on our business, operating results and financial condition.

 

                The operation of the FFG circuit was temporarily halted in the first quarter of fiscal 2020 to perform an evaluation and compare the additional revenues earned from extracting additional gold from the most recently integrated reclamation sites compared to the cost incurred to operate the FFG circuit. The evaluation also includes considering alternative configurations of the FFG circuit and alternative means of extracting gold using the FFG circuit. At the date of this report, the evaluation is ongoing.

 

A disruption in our information technology systems, including incidents related to cyber security, could adversely affect our business operations.

 

We rely on the accuracy, availability and security of our information technology systems. Despite the measures that we have implemented, including those related to cyber security, our systems could be breached or damaged by computer viruses and systems attacks, natural or man-made incidents, disasters or unauthorized physical or electronic access.

 

                Any system failure, accident or security breach could result in business disruption, theft of our intellectual property, trade secrets (including our proprietary technology), unauthorized access to, or disclosure of, personnel or supplier information, corruption of our data or of our systems, reputational damage or litigation. We may also be required to incur significant cost to protect against or repair the damage caused by these disruptions or security breaches in the future, including, for example, rebuilding internal systems, implementing additional threat protection measures, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties.

 

                These threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures and we remain subject to additional known or unknown threats. We are subject to cybersecurity attacks from time to time, and have been subject to phishing. In some instances, we may be unaware of an incident or its magnitude and effects. We may be susceptible to new and emerging risks, including cyber-attacks and phishing, in the evolving landscape of cybersecurity threats.

 

                In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or shutdown our information technology systems. Information technology system disruptions, if not appropriately mitigated, could have a material adverse effect on our operations.

 

Risks related to the gold mining industry

 

                A change in the dollar price of gold, which in the past has fluctuated widely, is beyond our control.

 

Historically, the gold price has fluctuated widely and is affected by numerous industry factors over which we have no control including:

•  a significant amount of above-ground gold in the world that is used for trading by investors;

•  the physical supply of gold from world-wide production and scrap sales, and the purchase, sale or divestment by central banks of their gold holdings;

•  the demand for gold for investment purposes, industrial and commercial use, and in the manufacturing of jewelry;

•  speculative trading activities in gold;

•  the overall level of forward sales by other gold producers;

•  the overall level and cost of production of other gold producers;

•  international or regional political and economic events or trends;

•  the strength of the dollar (the currency in which gold prices generally are quoted) and of other currencies;

•  financial market expectations regarding the rate of inflation;

•  interest rates;

•  gold hedging and de-hedging by gold producers; and

•  actual or expected gold sales by central banks and the International Monetary Fund.

 

                During fiscal year 2019 the gold price reached a high of U$1,439 per ounce and a low of U$1,160. Our profitability may be negatively impacted by a decline in the gold price as we incur losses when revenue from gold sales drops below the cost of production for an extended period.

 

                The exploration of mineral properties is highly speculative in nature, involves substantial expenditures, and is frequently unproductive.

                 

                Exploration is highly speculative in nature and requires substantial expenditure for drilling, sampling and analysis of ore bodies to quantify the extent of the gold reserve. Many gold exploration programs, including some of ours, do not result in the discovery of mineralization and any mineralization discovered may not be of sufficient quantity or quality to be mined profitably. If we discover a viable deposit, it usually takes several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of production may change.

11  


 

 

                Moreover, we rely on the evaluations of professional geologists, geophysicists, and engineers for estimates in determining whether to commence or continue mining. These estimates generally rely on scientific and economic assumptions, which in some instances may not be correct, and could result in the expenditure of substantial amounts of money on a deposit before it can be determined with any degree of accuracy whether the deposit contains economically recoverable mineralization. Uncertainties as to the metallurgical recovery of any gold discovered may not warrant mining based on available technology.

 

                Our future growth and profitability will depend, in part, on our ability to identify and acquire additional mineral rights, and on the costs and results of our continued exploration and development programs. Our business focuses mainly on the extraction of gold from tailings, which is a volume driven exercise. Only significant deposits within proximity of services and infrastructure that contain adequate gold content to justify the significant capital investment associated with plant, reclamation and deposition infrastructure are suitable for exploitation in terms of our model. There is a limited supply of these deposits which may inhibit exploration and developments, especially in a declining gold price environment.

 

                Because of these uncertainties, we may not successfully acquire additional mineral rights, or identify new Proven and Probable Ore Reserves in sufficient quantities to justify commercial operations in any of our operations. The costs incurred on exploration activities that do not identify commercially exploitable reserves of gold are not likely to be recovered and therefore are likely to be impaired.

                 

There is inherent uncertainty in Ore Reserve estimates.

 

                Our Ore Reserve figures described in this document are the best estimates of our current management as of the dates stated and are reported in accordance with the requirements of Industry Guide 7 of the SEC. These estimates may not reflect actual reserves or future production.

 

                Should we encounter mineralization or formations different from those predicted by past drilling, sampling and similar examinations, reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might ultimately cause our reserve estimates to decline. Moreover, if the rand price of gold declines, or stabilizes at a price that is lower than recent levels, or those assumed in our mining plans, or if our labor, water, steel, electricity and other production costs increase or recovery rates decrease, it may become uneconomical to recover Ore Reserves, particularly those containing relatively lower grades of mineralization. Under these circumstances, we would be required to re-evaluate our Ore Reserves. Short-term operating factors relating to the ability to reclaim our Ore Reserves, at the required rate, such as an interruption or reduction in the supply of electricity or a shortage of water may have the effect that we are unable to achieve critical mass, which may render the recovery of Ore Reserve, or parts of the Ore Reserve no longer feasible, which could negatively affect production rate and costs and decrease our profitability during any given period. Estimates of reserves are based on drilling results and because unforeseen conditions may occur in these mine dumps that may not have been identified by the drilling results, the actual results may vary from the initial estimates. These factors have and could result in reductions in our Ore Reserve estimates and as a result, our production, which could in turn adversely impact the total value of our mining asset base and our business, operating results and financial condition.

                 

                Gold mining is susceptible to numerous events that could have an adverse impact on a gold mining business.

 

                The business of gold mining is exposed to numerous risks and events, the occurrence of which may result in the death of or personal injury to employees, the loss of mining and reclamation equipment, damage to or destruction of mineral properties or production facilities, monetary losses, delays in production, environmental damage, loss of the license to mine and potential legal claims. The risks and events associated with the business of gold mining include:

 

·          environmental hazards and pollution, including dust generation, toxic chemicals, discharge of metals, pollutants, radioactive materials and other hazardous material into the air and water;

·          flooding, landslides, sinkhole formation, ground subsidence, ground and surface water pollution and waterway contamination;

·          a decrease in labor productivity due to labor disruptions, work stoppages, disease, slowdowns or labor strikes;

·          unexpected decline of ore grade;

·          metallurgical conditions or lower than expected gold recovery;

·          failure of unproven or evolving technologies;

·          mechanical failure or breakdowns and ageing infrastructure;

·          energy and electrical power supply interruptions;

·          availability of water;

·          injuries to employees or fatalities resulting from falls from heights and accidents relating to mobile machinery or electrocution or other causes;

·          activities of illegal or artisanal miners;

·          material and equipment availability;

·          legal and regulatory restrictions and changes to such restrictions;

·          social or community disputes or interventions;

·          accidents caused from the collapse of tailings dams;

·          pipeline failures and spillages;

·          safety-related stoppages; and

·         corruption, fraud and theft including gold bullion theft.

 

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The occurrence of any of these hazards could delay production, increase production costs and may result in significant legal claims and adversely impact our business results of operations and financial condition.

 

Risks related to doing business in South Africa

 

                Political or economic instability in South Africa may reduce our production and profitability.

 

                We are incorporated in South Africa and all our operations are currently in South Africa. As a result, political and economic risks relating to South Africa could have a significant effect on our production and profitability. Large parts of the South African population are unemployed and do not have access to adequate education, health care, housing and other services, including water and electricity. Government policies aimed at alleviating and redressing the disadvantages suffered by most citizens under previous governments may increase our costs and reduce our profitability. In recent years, South Africa has experienced high levels of crime. These problems may impede fixed inward investment into South Africa and increase emigration of skilled workers and as a result, we may have difficulties retaining qualified employees.

 

                Inflation can adversely affect us.

 

                The inflation rate in South Africa is relatively high compared to developed, industrialized countries. As of June 2019, the annual Consumer Price Inflation Index, or CPI, stood at 4.5% compared to 4.6% in June 2018 and 5.1% in June 2017. Annual CPI was 4.1%% as at September 30, 2019. Inflation in South Africa generally results in an increase in our operational costs in rand, unless such inflation is accompanied by a concurrent devaluation of the rand against the dollar or an increase in the dollar price of gold. Higher and sustained inflation in the future, with a consequent increase in operational costs could have a material adverse effect on our results of operations and our financial condition and could result in operations being discontinued or reduced or rationalized, which could reduce our profitability.

 

 The treatment of occupational health diseases and the potential liabilities related to occupational health diseases may have an adverse effect on the results of our operations and our financial condition.

 

We may be subject to claims relating to occupational health diseases and we are currently subject to a claim as described below.

 

In January 2013, DRDGOLD, East Rand Proprietary Mines Limited  (DRDGOLD Respondents) and 23 other mining companies (Other Respondents) (collectively referred to as "Respondents") were served with a court application issued in the High Court of South Africa for a class certification on behalf of former mineworkers and dependents of deceased mineworkers (Applicants). In the application the Applicants allege that the Respondents conducted underground mining operations in a negligent and complicit manner causing the former mineworkers to contract occupational lung diseases. [The Applicants have as yet not quantified the amounts which they are demanding from the Respondents in damages.

 

 On May 03, 2018, the Applicants and Anglo American South Africa Limited, AngloGold Ashanti Limited, Sibanye Gold Limited trading as Sibanye-Stillwater, Harmony Gold Mining Company Limited, African Rainbow Minerals Limited and certain of their affiliates (“Settling Companies”) settled the class certification application in which the Applicants in each sought to certify class actions against gold mining houses cited therein on behalf of mineworkers who had worked for any of the particular respondents and who suffer from any occupational lung disease, including silicosis or tuberculosis.

 

The DRDGOLD Respondents, comprising DRDGOLD Limited and East Rand Proprietary Mines Limited, are not a party to the settlement between the Applicants and Settling Companies.

 

In December 2018, the Applicants and Settling Companies approached the Gauteng Local Division of the High Court, Johannesburg on an ex parte basis to make the settlement agreement an order of court.

 

The application was heard on 29 May 2019 and on 26 July 2019, the Gauteng Local Division of the High Court, Johannesburg approved the settlement agreement.

 

The Settling Companies together with the Applicants have established a settlement trust (named the Tshiamiso Trust) to administer the benefits which have been estimated to be in the amount of R5 billion. There are ten classes of claimants who, once properly certified, will be eligible for a benefit.

 

The settlement agreement is not binding on the DRDGOLD Respondents. The dispute, insofar as the class certification application and appeal thereof is concerned, still stands and has not terminated in light of the settlement agreement.

 

An adverse judgment in the claim described above or any other claim could have an adverse impact on us.

                 

                We have experienced an increase in organised crime activities which has started to target gold plants.

 

                Recently, a number of companies, including our Knights and Ergo plants, were subject to armed attacks targeting the gold in the plants or high-grade gold bearing material. These incidents were very well organised and in all the incidents the thieves were armed. In some of the incidents employees of companies were also held hostage until the targeted material was obtained. In the most recent incident a security officer was fatally injured.

 

                Any such incidents have and may still result in losses of gold or other damage which could impact our business, financial results or

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condition.

 

                Theft at our sites, particularly of copper, may result in greater risks to employees or interruptions in production.

 

                Crime statistics in South Africa indicate an increase in theft. This together with price increases for copper has resulted in theft of copper cable. Our operations experience high incidents of copper cable theft despite the implementation of security measures. In addition to the general risk to employees’ lives in an area where theft occurs, we may suffer production losses and incur additional costs as a result of power interruptions caused by cable theft and theft of bolts used for the pipeline

 

                Power stoppages or shortages or increases in the cost of power could negatively affect our results and financial condition.

 

                Our mining operations are dependent on electrical power supplied by Eskom, South Africa’s state-owned utility company. As a result of insufficient generating capacity, owing to poor maintenance and lagging capital infrastructure investment, South Africa has faced significant disruptions in electricity supply in the past and Eskom has warned that the country could continue to face disruptions in electrical power supply in the foreseeable future. During the first half of fiscal 2019, approximately 49kg of gold production was lost due to power supply disruptions.

 

Eskom is currently experiencing financial difficulties which include, inter alia, the chairman of the board citing serious concerns around the power utility’s long-term viability and status as a going concern as disclosed in its 2018 Integrated Report, a decrease in the demand for its electricity from consumers and its growing outstanding debt owing from local municipalities, who are both Eskom’s distribution agents and its largest customer. Accordingly, the security of future power supply as well as the cost thereof, remains a risk and may have major implications for our operational process, which may result in significant production losses.

 

The country’s current reserve capacity may be insufficient and the risk of electricity stoppages is expected to continue for the foreseeable future. Supply interruptions because of this as well as an aging and poorly maintained distribution grid may pose a significant risk to the operations.

 

                The group has a load-curtailment agreement in place with Eskom in terms of which we reduce power consumption by between 10% and 20% when the grid is under pressure, but Eskom maintains uninterrupted power supply to the operations.

 

The group has installed auxiliary emergency power generation units at its Brakpan plant to prevent the tripping of thickeners and to drive certain key installations associated with the disposal of tailings. The option to purchase these auxiliary emergency power generation units has become exercisable but has not been exercised to date as management is evaluating alternatives to structure the use of these auxiliary emergency power generation units.

 

There is, however, no assurance that the measures will be sufficient to completely mitigate the risk of power stoppages.

 

                Electricity tariffs increased as follows: from April 1, 2017 an average tariff increase of 13.9% and from April 1, 2018 an average tariff increase of 9.4% and from April 1, 2019 an average tariff increase of 9.4%. The National Energy Regulator of South Africa approved an average increase of 8.1% average effective April 1, 2020 and an average increase of 5.2% effective April 1, 2021. These increases have had an adverse effect on our production costs and similar or higher future increases could have a material adverse effect on our operating results and financial condition.

 

Ergo is currently disputing the electricity tariff charged by Ekurhuleni Metropolitan Municipality (refer to Item 18. Financial Statements - Note 26 – Contingent Assets and Liabilities).

 

 

Scarcity of water may negatively affect our operations.

 

South Africa faces water shortages, which may lead to the revision of water usage strategies by several sectors in the South African economy, including electricity generation and municipalities. This may result in rationing or increased water costs in the future. Such changes would adversely impact our surface retreatment operations, which use water to transport the slimes or sand from reclaimed areas to the processing plant and to the tailings facilities. In addition, as our gold plants and piping infrastructure were designed to carry certain minimum throughputs, any reductions in the volumes of available water may require us to adjust production at these operations.

 

DRDGOLD invested R22 million in the construction of a filtration plant at the Rondebult Waste Water Works (operated by the East Rand Water Care Company) to treat sewage water to reduce the use of potable water. This water is used both to reclaim and carry production materials and also, ultimately, to irrigate rehabilitation vegetation at a significantly lower cost than that of potable water. The plant was commissioned in early fiscal year 2016 and has capacity to provide Ergo with 10 Mega Litres (“Ml”) a day from the Rondebult sewage treatment facility. However, due to the deterioration of the local government authorities’ infrastructure, the expected quantity of sewerage is not reaching the treatment facility and as a result Ergo is still not able to extract the full design capacity of 10 Ml of water a day. It is not certain if and when the flow of sewerage will reach expected levels.

 

DRDGOLD installed new gland service infrastructure at the Ergo plant during October 2016 to allow for the use of recycled process water for gland service requirements. This initiative has resulted in the reduction of approximately 70Ml a month in potable water use.

 

The Central Water Facility was commissioned at a cost of R29.5 million during the last quarter of Fiscal year 2017 to store and distribute water sourced from Rondebult waste water treatment works, treated Acid Mine Drainage (“AMD”) water from Trans-Caledon Tunnel Authority

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(“TCTA”) and recycled water from our Brakpan/Withok Tailings Storage Facility. The Centrally Located Water Facility is a closed circuit and allows us to distribute water more efficiently throughout the operations.

 

As part of the Heads of agreement signed between EMO, Ergo, ERPM and TCTA in December 2012, Ergo secured the right to purchase up to 30Ml of partially treated AMD from TCTA at cost, in order to reduce Ergo’s reliance on potable water for mining and processing purposes. AMD water entered our system for the first time in fiscal year 2017.

 

These measures may not be sufficient to alleviate the water scarcity issues we face

 

Government Regulation

 

                Government policies in South Africa may adversely impact our operations and profits.

                 

                The mining industry in South Africa is extensively regulated through legislation and regulations issued through the government’s administrative bodies. These involve directives in respect of health and safety, the mining and exploration of minerals and managing the impact of mining operations on the environment. A variety of permits and authorities are required to mine lawfully, and the government enforces its regulations through the various government departments. The formulation or implementation of government policies may be discretionary and unpredictable on certain issues, including changes in conditions for the issuance of licenses insofar as social and labor plans are concerned, transformation of the workplace, laws relating to mineral rights, ownership of mining assets and the rights to prospect and mine, additional taxes on the mining industry and in extreme cases, nationalization. A change in regulatory or government policies could adversely affect our business.

                                  

                Mining royalties and other tax reform could have an adverse effect on the business, operating results and financial condition of our operations.

 

                The Mineral and Petroleum Resources Royalty Act, No.28 of 2008 and the Mineral and Petroleum Resources Royalty Act (Administration), No.29 of 2008 govern royalty rates for gold mining in South Africa. These acts provide for the payment of a royalty, calculated through a royalty rate formula (using rates of between 0.5% and 5.0%) applied against gross revenue per year, payable half yearly with a third and final payment thereafter. The royalty is tax deductible and the cost after tax amounts to a rate of between 0.33% and 3.3% at the prevailing marginal tax rates applicable to the taxed entity. The royalty is payable on old unconverted mining rights and new converted mining rights. Based on a legal opinion the Company obtained, mine dumps created before the enactment of the Mineral and Petroleum Resources Development Act (“MPRDA”) fall outside the ambit of this royalty and consequently the Company does not pay any royalty on any dumps created prior to the MPRDA. Introduction of further revenue based royalties or any adverse future tax reforms could have an adverse effect on our business, operating results and financial condition. 

 

                Failure to comply with the requirements of the Broad Based Socio-Economic Empowerment Charter could have an adverse effect on our business, operating results and financial condition of our operations.

 

                The Broad Based Socio‑Economic Empowerment Charter for the South African Mining Industry (“Mining Charter”) (effective from 2014) established certain numerical goals and timeframes to transform equity participation in the mining industry in South Africa. The goals set by the Mining Charter include that each mining company must achieve 15% ownership by historically disadvantaged South Africans, or HDSA, of its South African mining assets within five years and 26% ownership within ten years, in each case, from May 1, 2004. This is to be achieved by, among other methods, the sale of assets to historically disadvantaged persons on a willing seller/willing buyer basis at market value.

 

                In September 2010, the Department of Mineral Resources (“DMR”) released amendments to the Mining Charter. The intention behind the amendments to the Mining Charter was to clarify certain ambiguities and uncertainties which existed under the Mining Charter and to provide more specific targets. It was this latter Mining Charter which the DMR applied to assess compliance with socio-economic transformation objectives. The goals set by the amendments to the Mining Charter include: minimum 26% HDSA ownership by March 2015; procurement of a minimum 40% of capital goods, 50% of consumer goods and 70% of services from Black Economic Empowerment, or BEE, entities by March 2015; minimum 40% HDSA representation at each of executive management level, senior management level, middle management level, junior management level and core and critical skills levels; minimum 3% investment of annual payroll in skills training; investment in community development; and attaining an occupancy rate of one person per room in on-site accommodation.       

 

                A new Mining Charter has been implemented in September 2018 and supersedes all previous iterations thereof.  For detailed discussion, see Item 4B. Business Overview – Governmental regulations and their effect on our business –  The Broad Based Socio-Economic Empowerment Charter.

 

Government policies in South Africa may adversely impact our operations and profits related to financial provisioning for rehabilitation.

 

                An amendment to the MPRDA was first proposed in 2013. The amendment bill, if implemented, would have had a material adverse impact on the Group's estimated financial provisions for environmental remediation and management due to the proposed inclusion of historic and old mine dumps in the definition of “residue stockpiles” as well as the extension of the liability for rehabilitation beyond the issuance of a closure certificate and the requirement to maintain financial provision for closed sites within a period of 20 years after a site is closed. The MPRDA Amendment Bill was withdrawn in August 2018 by the Minister of Mineral Resources, citing, amongst other things, the adequacy of the current MPRDA to deal with all regulatory matter pertaining to the mining and petroleum industries.

 

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                Revised Financial Provisioning Regulations (“FPR”) were published on November 20, 2015 under the National Environmental Management Act, 107 of 1998 (“NEMA”) and became effective from the date of publication thereof. Proposed amendments to the FPRs were published for public comment GNR 1228 GG 41236 of November 10, 2017 (“Draft Regulations”), which seek to address some challenges relating to the implementation thereof. Under these FRPs to be implemented by the DMR, existing environmental rehabilitation trust funds may only be used for post closure activities and may no longer be utilised for their intended purpose of concurrent and final rehabilitation and closure. Further amendments were made to the FPR on September 21, 2018, which extends the period of compliance with the FPR to February 19, 2020. This is likely to affect the amount of funds set aside for financial provision for rehabilitation of the mine. See discussion in 4.B. Business Overview – Governmental regulations and their effect on our business – Financial Provision for Rehabilitation.

 

The implementation of Carbon Tax effective from June 1, 2019 may have a direct or indirect material adverse effect on our business, operating results and financial condition.

 

                The Carbon Tax Act No 15 of 2019, or the CTA, came into effect from June 1, 2019. The CTA is based on the polluter-pays-principle and will be implemented across phases. The first phase will run from June 1, 2019 to December 31, 2022 and is applicable to scope 1 emitters. The second phase will be implemented from January 1, 2023 to December 31, 2030. During the first phase, tax-free emission allowances ranging from 60 per cent to 95 per cent are available to emitters in this first phase. This includes a basic tax-free allowance of 60 per cent for all activities, a 10 per cent process and fugitive emissions allowance, a maximum 10 per cent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to 5 per cent for companies that reduce the emissions intensity of their activities, a 5 per cent carbon budget allowance for complying with the reporting requirements and a maximum 10 per cent allowance for trade exposed sectors. Regulations detailing the tax-free emission allowances during the first and second phases have not been published to date. The Carbon Tax will not have a direct impact on the price of electricity during the first phase. The Carbon Tax may have a direct or indirect material adverse effect on our business, operating results and financial condition. In addition, the potential increases in costs resulting from suppliers passing through their Carbon Tax exposure to the Company may have a direct or indirect material adverse effect on our business, operating results and financial condition.

 

                Ring-fencing of unredeemed capital expenditure for South African mining tax purposes could have an adverse effect on the business, operating results and financial condition of our operations.

 

                The Income Tax Act No 58 of 1962, or the ITA, contains certain ring-fencing provisions in section 36 specifically relating to different mines regarding the deduction of certain capital expenditure and the carry over to subsequent years. After the restructuring of the surface operations, effective July 1, 2012, Ergo is treated as one taxpaying operation pursuant to the relevant ring-fencing legislation. It is expected that FWGR will also be treated as one taxpaying operation pursuant to the relevant ring-fencing legislation. In the event that we are unsuccessful in confirming our position or should the South African Receiver of Revenue have a different interpretation of section 36 of the ITA, it could have an adverse effect on our business, operating results and financial condition.

                 

                Assessment of unredeemed capital expenditure by the South African Receiver of Revenue could have an adverse effect on the business, operating results and financial condition of our operations.

 

                Capital expenditure is assessed by the South African Receiver of Revenue when it is redeemed against taxable mining income rather than when it is incurred. A different interpretation by the South African Receiver of Revenue could have an adverse effect on our business, operating results and financial condition.

                 

                Since our South African labor force has substantial trade union participation, we face the risk of disruption from labor disputes and new South African labor laws.

 

                Labor costs are significant for Ergo, constituting 18% of Ergo’s production costs for fiscal year 2019 (2018: 19%). As of June 30, 2019, our Ergo operations provided full-time employment for 852 employees while our main service providers deployed an additional 1,362 employees to our operations, of whom approximately 92% are members of trade unions or employee associations.

 

                Labor costs are significant for FWGR, constituting 31% of FWGR’s production costs subsequent to the date of commercial production of April 1, 2019. As of June 30, 2019, our FWGR operations provided full-time employment for 152 employees while our main service providers deployed an additional 229 employees to our operations, of whom approximately 70% are members of trade unions or employee associations. We have entered into various agreements regulating wages and working conditions at our mines. Unreasonable wage demands could increase production costs to levels where our operations are no longer profitable. This could lead to accelerated mine closures and labor disruptions. We are also susceptible to strikes by workers from time to time, which result in disruptions to our mining operations.

 

                In recent years, labor laws in South Africa have changed in ways that significantly affect our operations. In particular, laws that provide for mandatory compensation in the event of termination of employment for operational reasons and that impose large monetary penalties for non-compliance with the administrative and reporting requirements of affirmative action policies could result in significant costs to us. In addition, future South African legislation and regulations relating to labor may further increase our costs or alter our relationship with our employees. Labor cost increases could have an adverse effect on our business, operating results and financial condition.

                 

                Labor unrest could affect production.

 

                During December 2018 to April 2019 there was strike action by staff at the Sibanye-Stillwater gold mines adjacent to FWGR. Such events at our operations or at our reclamation sites could have an adverse effect on our business, operating results and financial condition.

 

                We use a third party service provider for the management of our reclamation sites as well as on our Tailings Storage Facilities at

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Brakpan/Withok TSF and Driefonteint 4 TSF. Any labor unrest or other significant issue at this third party service provider may impact the operation of this facility. 

                 

                Strike action and intimidation at mining operations adjacent to our FWGR mining operations could have an adverse effect on our business, operating results and financial condition.

 

                Our financial flexibility could be materially constrained by South African currency restrictions.

 

South African law provides for exchange control regulations, which restrict the export of capital from the Common Monetary Area, including South Africa. The Exchange Control Department of the South African Reserve Bank, or SARB, is responsible for the administration of exchange control regulations. In particular, South African companies:

·        are generally not permitted to export capital from South Africa or to hold foreign currency without the approval of the SARB;

·        are generally required to repatriate, to South Africa, profits of foreign operations; and

·        are limited in their ability to utilize profits of one foreign business to finance operations of a different foreign business.

 

                While the South African Government has relaxed exchange controls in recent years, it is difficult to predict whether such relaxation of controls will continue in the future. For further information see Item 10D. Exchange Controls.

 

                We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside of the United States.

 

                The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Anti-bribery law enforcement active with aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non- U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with the FCPA and other applicable anti-bribery laws. Our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees, the employees of any of our businesses, or third party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we would investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits, reputational harm or other restrictions which could disrupt our business and have a material adverse effect on our business, financial condition, results of operations or liquidity.

 

                We face risks with respect to compliance with the FCPA and similar anti-bribery laws through our acquisition of new companies and the due diligence we perform in connection with an acquisition may not be sufficient to enable us fully to assess an acquired company’s historic compliance with applicable regulations. Furthermore, our post-acquisition integration efforts may not be adequate to ensure our system of internal controls and procedures are fully adopted and adhered to by acquired entities, resulting in increased risks of non-compliance with applicable anti-bribery laws.

 

Risks related to ownership of our ordinary shares or ADSs

 

                It may not be possible for you to effect service of legal process, enforce judgments of courts outside of South Africa or bring actions based on securities laws of jurisdictions other than South Africa against us or against members of our board.

 

Our Company, certain members of our board of directors and executive officers are residents of South Africa. All our assets are located outside the United States and a major portion with respect to the assets of members of our board of directors and executive officers are either wholly or substantially located outside the United States. As a result, it may not be possible for you to effect service of legal process, within the United States or elsewhere including in South Africa, upon most of our directors or officers, including matters arising under United States federal securities laws or applicable United States state securities laws.

 

Moreover, it may not be possible for you to enforce against us or the members of our board of directors and executive officers’ judgments obtained in courts outside South Africa, including the United States, based on the civil liability provisions of the securities laws of those countries, including those of the United States. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:

 

·          the court which pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts;

·          the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it);

·          the judgment has not lapsed;

·          the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including observance of the rules of natural justice which require that no award is enforceable unless the defendant was duly served with documents initiating proceedings, that he was given a fair opportunity to be heard and that he enjoyed the right to be legally represented in a free and fair trial before an impartial tribunal;

·          the judgment was not obtained by fraudulent means;

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·          the judgment does not involve the enforcement of a penal or revenue law; and

·          the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Business Act, 1978 (as amended), of South Africa.

 

                It is the policy of South African courts to award compensation for the loss or damage sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system that does not mean that such awards are necessarily contrary to public policy. Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law.

 

                It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for use in South African courts. It may not be possible therefore for an investor to seek to impose liability on us in a South African court arising from a violation of United States federal securities laws.

 

Dividend withholding tax will reduce the amount of dividends received by beneficial owners.

 

On April 1, 2012, the South African Government replaced Secondary Tax on Companies (then 10%) with a 15% withholding tax on dividends and other distributions payable to shareholders. The dividend withholding tax rate was increased to 20%, effective from February 22, 2017.  The withholding tax reduces the amount of dividends or other distributions received by our shareholders. Any further increases in such tax will further reduce net dividends received by our shareholders.

 

Your rights as a shareholder are governed by South African law, which differs in material respects from the rights of shareholders under the laws of other jurisdictions.

 

Our Company is a public limited liability company incorporated under the laws of the Republic of South Africa. The rights of holders of our ordinary shares, and therefore many of the rights of our ADS holders, are governed by our memorandum of incorporation and by South African law. These rights differ in material respects from the rights of shareholders in companies incorporated elsewhere, such as in the United States. In particular, South African law significantly limits the circumstances under which shareholders of South African companies may institute litigation on behalf of a company. 

 

Control by principal shareholders could adversely affect our other shareholders.

 

On July 31, 2018, 265 million ordinary shares were issued to Sibanye-Stillwater as settlement of the purchase consideration for the acquisition of the WRTRP Assets. As part of this acquisition, Sibanye-Stillwater was granted an option to subscribe for further shares to achieve a 50.1% shareholding at a 10% discount to the prevailing market value for a period of 2 years from the effective date of the acquisition. As a result, Sibanye-Stillwater currently beneficially owns approximately 38.05% of our outstanding ordinary shares and voting power and this may increase to 50.1%. Sibanye-Stillwater therefore has the ability to control, or exert a significant influence over, our board of directors, and will continue to have significant influence over our affairs for the foreseeable future, including with respect to the election of directors, the consummation of significant corporate transactions, such as an amendment of our constitution, a  merger or other sale of our company or our assets, and all matters requiring shareholder approval. In certain circumstances, Sibanye-Stillwater’s interests as a principal shareholder may conflict with the interests of our other shareholders and Sibanye-Stillwater’s ability to exercise control, or exert significant influence, over us may have the effect of causing, delaying, or preventing changes or transactions that our other shareholders may or may not deem to be in their best interests. In addition, any sale or expectation of sale of some or all the shares held by Sibanye-Stillwater could have an adverse impact on our stock price.

  

Sales of large volumes of our ordinary shares or ADSs or the perception that these sales may occur, could adversely affect the prevailing market price of such securities.

 

The market price of our ordinary shares or ADSs could fall if substantial amounts of ordinary shares or ADSs are sold by our stockholders, or there is the perception in the marketplace that such sales could occur. Current holders of our ordinary shares or ADSs may decide to sell them at any time. Sales of our ordinary shares or ADSs, if substantial, or the perception that any such substantial sales may occur, could exert downward pressure on the prevailing market prices for our ordinary shares or ADSs, causing their market prices to decline. Trading activity of hedge funds and the ability to borrow script in the market place will increase trading volumes and may place our share price under pressure.

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ITEM 4. INFORMATION ON THE COMPANY

 

4A. HISTORY AND DEVELOPMENT OF THE COMPANY

 

Introduction

 

                DRDGOLD Limited, or DRDGOLD, is a South African domiciled company that holds assets engaged in surface gold tailings retreatment in South Africa including exploration, extraction, processing and smelting.

                 

                We are a public limited liability company, incorporated on February 16, 1895, as Durban Roodepoort Deep, Limited. On December 3, 2004, the company changed its name from Durban Roodepoort Deep Limited to DRDGOLD Limited. Our operations focus on South Africa's West Witwatersrand Basin, which has been a gold producing region for over 120 years.

 

                Our shares and/or related instruments trade on the JSE, and the New York Stock Exchange.

 

                Our registered office and business address is 1 Sixty Jan Smuts Building, 2nd Floor - North Tower, 160 Jan Smuts Avenue, Rosebank, 2196, South Africa. The postal address is P.O. Box 390, Maraisburg, 1700, South Africa. Our telephone number is (+27 11) 470-2600 and our facsimile number is (+27 86) 524-3061. We are registered under the South African Companies Act 71, 2008 under registration number 1895/000926/06. For our ADSs, the Bank of New York Mellon, at 101 Barclay Street, New York, NY 10286, United States, has been appointed as agent.

 

                All of our operations are conducted in South Africa.  

 

                Our operations primarily consist of Ergo and FWGR. Our Ergo operations include the historic Crown operations (which were restructured into Ergo during fiscal year 2012 and have substantially been rehabilitated as at the end of fiscal year 2018) and the East Rand Proprietary Mines Limited's (“ERPM”)  underground mining infrastructure which is currently under care and maintenance.

 

                On July 31, 2018, we acquired certain gold surface processing assets and tailing storage facilities that included Driefontein 3 and 5, Kloof 1, Venterspost North and South, Libanon, Driefontein 4, Driefontein 2 plant, Driefontein 3 plant, WRTRP pilot plant, and land required for the future development of a central processing plant, regional tailings storage facility and return water dam (together, the “WRTRP Assets”) associated with Sibanye-Stillwater’s WRTRP, to be known going forward as FWGR.  This acquisition represented a significant increase in our assets, which impacted our results in fiscal 2019 and will impact our results in future years.  In connection with the acquisition, we issued to Sibanye-Stillwater new shares equal to 38.05% of outstanding shares and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the acquisition at a 10% discount to the prevailing market value. For more information regarding this acquisition please see our Form 6-K, dated November 22, 2017 "Proposed Transaction to acquire the WRTRP assets from Sibanye-Stillwater, waiver of mandatory offer and cautionary announcement", incorporated by reference herein and Item 10C. Material Contracts.

 

                For a detailed description of the assets acquired see Item 4D. Property, Plant and Equipment.  

 

Ergo

 

                Ergo was formed in June 2007. Ergo is the surface tailings retreatment operation consisting of what was historically the Crown Gold Recoveries Proprietary Limited (“Crown”), ERPM Cason Dump operation and the ErgoGold business units which are now collectively referred to as Ergo. On July 1, 2012, Ergo acquired the mining assets and certain liabilities of Crown and all the surface assets and liabilities of ERPM as part of the restructuring of our surface operations. Also as part of this restructuring, Ergo acquired DRDGOLD's 35% interest in ErgoGold.  

 

                The flotation and fine-grind (“FFG”) project, commissioned during fiscal year 2014, is designed to improve extraction efficiencies which are derived from the separation of gold contained within the sulfides of the tailings material by subjecting the treated material to a flotation circuit, further regrinding and a leach circuit.  The operation of the FFG circuit was temporarily halted in the first quarter of fiscal 2020 to perform an evaluation and compare the additional revenues earned from extracting additional gold from the most recently integrated reclamation sites compared to the cost incurred to operate the FFG circuit. The evaluation also includes considering alternative configurations of the FFG circuit and alternative means of extracting gold using the FFG circuit. At the date of this report, the evaluation is ongoing.

 

                Capital expenditure for the Ergo projects is mainly financed through cash resources and operational cash flows while financing for significant growth projects may be obtained through specific financing arrangements if required.

 

Brakpan/Withok TSF expansion

In order to extend the life of our Ergo operation, it is necessary to increase residue tailings deposition capacity at our Brakpan/Withok TSF.

A legal review of the existing authorizations was undertaken for increasing the deposition capacity of the Brakpan/Withok TSF. The results indicated that most of the current authorizations are sufficient, however certain documentation would need to be amended. We expect this could increase the potential deposition capacity by approximately 800Mt, and thus, our life of mine from 11 years to more than 20 years. For  

19  


 

further information on other capital investments, divestures, capital expenditure and capital commitments, see Item 4D. Property, Plant and Equipment, and Item 5B. Liquidity and Capital Resources.

 

ERPM

 

                ERPM, which consists of an underground mine which has been under care and maintenance since fiscal year 2009, and ERPM Extension 1 and 2 exploration tenements, were acquired in October, 2002. Underground mining at ERPM was halted in October 2008. On July 1, 2012, ERPM sold its surface mining assets and its 65% interest in ErgoGold to Ergo in exchange for shares in Ergo as part of the restructuring of our surface operations.

 

                In December 2018, ERPM concluded revised agreements to dispose certain of its underground assets to OroTree Limited (“Orotree”). The revised agreements consisted of a disposal of ERPM's underground mining and prospecting rights and an option agreement, at the sole discretion of Orotree, to purchase the underground mining infrastructure exercisable on or before 30 June 2019. The disposal of the underground mining and prospecting rights were concluded in the second half of the financial year ended 30 June 2019. Orotree’s option to purchase the underground mining infrastructure lapsed on June 30, 2019 when it did not exercise the option to such underground mining infrastructure.

 

Crown

 

                Crown was acquired on September 14, 1998. Due to the depletion of ore reserves in the western Witwatersrand, the Crown plant ceased operation in March 2017.

 

 

4B. BUSINESS OVERVIEW

 

We are a South African company that holds assets engaged in surface gold tailings retreatment including exploration, extraction, processing and smelting. Our surface tailings retreatment operations, including the requisite infrastructure and metallurgical processing plants, are located in South Africa. Our operating footprint is unique in that it involves some of the largest concentration of gold tailings deposits in the world, situated within the city boundaries of Johannesburg and its suburbs.

 

The success of DRDGOLD’s long-term goal to extract as much gold as possible and economically viable from its assets depends, to a large extent, on how effectively it continues to manage its capitals. DRDGOLD uses sustainable development to direct its strategic thinking. We seek sustainable benefits in respect to financial, manufactured, natural, social and human capitals, each of which is essential to our operations.

 

                We also aim to align and overlap the interests of each of these capitals in such a manner that an investment in any one translates into value-added increases in as many of the others as possible. We therefore seek to achieve an enduring and harmonious alignment between them, and we pursue these criteria in the feasibility analysis of each investment. The board intends to explore opportunities made possible by technology, which could entail further investment in research and development (“R&D”) to improve gold recoveries even further over the long term.

 

                On July 31, 2018, we acquired the gold assets associated with Sibanye-Stillwater’s WRTRP, to be known going forward as FWGR.  This acquisition represented a significant increase in our assets.

 

During the fiscal years presented in this Annual Report, all of our operations took place in one geographic region, namely South Africa.

 

Description of Our Mining Business

 

Surface tailings retreatment

 

                Surface tailings retreatment involves the extraction of gold from old mine dumps and slimes dams, comprising the waste material from earlier underground gold mining activities. This is done by reprocessing sand dumps and slimes dams. Sand dumps are the result of the less efficient stamp-milling process employed in earlier times. They consist of coarse-grained particles which generally contain higher quantities of gold. Sand dumps are reclaimed mechanically using front end loaders that load sand onto conveyor belts. The sand is fed onto a screen where water is added to wash the sand into a sump, from where it is pumped to the plant. Most sand dumps have already been retreated using more efficient milling methods. Lower grade slimes dams were the product of the “tube and ball mill” recovery process. This material has become economically more viable to process owing to improved treatment methods. The material from the slimes dams is broken down using monitor guns that spray jets of high pressure water at the target area. The resulting slurry is then pumped to a treatment plant for processing.

 

Exploration

 

                Exploration activities are focused on the extension of existing ore reserves and identification of new ore reserves both at existing sites and at undeveloped sites. Once a potential site has been identified, exploration is extended and intensified in order to enable clearer definition of the site and the portions with the potential to be mined. Geological techniques are constantly refined to improve the economic viability of exploration and exploitation.

 

Our Metallurgical Plants and Processes

 

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                A detailed review of the metallurgical plants and processes is provided under Item 4D. Property, Plant and Equipment.

 

Gold Market

 

                The gold market is relatively liquid compared to other commodity markets, and the price of gold is quoted in dollars. Physical demand for gold is primarily for manufacturing purposes, and gold is traded on a world-wide basis. Refined gold has a variety of uses, including jewelry, electronics, dentistry, decorations, medals and official coins. In addition, central banks, financial institutions and private individuals buy, sell and hold gold bullion as an investment and as a store of value.

 

The use of gold as a store of value and the large quantities of gold held for this purpose in relation to annual mine production have meant that historically the potential total supply of gold has been far greater than demand. Thus, while current supply and demand play some part in determining the price of gold, this does not occur to the same extent as in the case of other commodities. Instead, the gold price has from time to time been significantly affected by macro-economic factors such as expectations of inflation, interest rates, exchange rates, changes in reserve policy by central banks and global or regional political and economic crises. In times of inflation and currency devaluation gold is often seen as a safe haven, leading to increased purchases of gold and support for its price.

 

The average gold spot price decreased by 3% from $1,297 per ounce to $1,263 per ounce during fiscal year 2019 after having increased by 3% from $1,257 per ounce to $1,297  per ounce during the fiscal year 2018 and having increased by 8% from $1,167 per ounce to $1,257  per ounce during the fiscal year 2017. The average gold price received by us for fiscal year 2019 increased by 8% to R577,483 per kilogram compared to the previous year at R534,368 per kilogram.

 

Looking ahead we believe that the global economic environment, including escalating sovereign and personal levels of debt, economic volatility and the oversupply of foreign currency, will again make gold attractive to investors. The supply of gold has shrunk in recent years and is likely to shrink even more due to the significantly reduced capital expenditure and development occurring in the sector.  We believe that this, coupled with global economic uncertainty, is likely to provide support to the gold price in the long term.

 

All of our revenue is generated in South Africa. Our total revenue for fiscal year ended June 30, 2019 amounted to R2,762.1 million (2018: R2,490.4 million and 2017: R2,339.9 million).

 

                All gold we produce is sold on our behalf by Rand Refinery Proprietary Limited (Rand Refinery) in accordance with a refining agreement entered into in October 2001 and updated in July 2018. The gold bars which we produce consist of approximately 85% gold, 7-8% silver and the balance comprises copper and other common elements. The gold bars are sent to Rand Refinery for assaying and final refining where the gold is purified to 99.9% and cast into troy ounce bars of varying weights. The Group recognizes revenue from the sale of gold at a point in time when Rand Refinery, acting as an agent for the sale of all gold produced by the Group, delivers the Gold to the buyer. The sales price is fixed at the London afternoon fixed dollar price on the day the Gold is delivered to the buyer. The dollar proceeds are remitted to us within two days. In exchange for this service we pay Rand Refinery a variable refining fee plus fixed marketing and administration fees. We own 11% (fiscal year 2018  and 2017: 11%) of Rand Refinery. 

 

Ore Reserves

 

Ore Reserve estimates in this Annual Report are reported in accordance with the requirements of the SEC’s Industry Guide 7. Accordingly, as of the date of reporting, all ore reserves are planned to be mined under the life of mine plan within the period of our existing rights to mine, or within the time period of assured renewal periods of our rights to mine. In addition, as of the date of this report, all ore reserves are covered by required permits and governmental approvals. See Item 4D. Property, Plant and Equipment for a description of the rights in relation to each mine.

 

In South Africa, we are legally required to publicly report Ore Reserves and Mineral Resources in compliance with the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, or SAMREC Code. The SEC’s Industry Guide 7 does not recognize Mineral Resources. Accordingly, we do not include estimates of Mineral Resources in this Annual Report.

 

Ore Reserve calculations are subject to a review conducted in accordance with SEC Industry Guide 7. Ore Reserve tons, grade and content are quoted as delivered to the gold plant. There are two types of methods available to select ore for mining. The first is pay-limit, which includes cash operating costs, including overhead costs, to calculate the pay-limit grade. The second is the cut-off grade which includes cash operating costs, excluding fixed overhead costs, to calculate the cut-off grade, resulting in a lower figure than the full pay-limit grade. The cut-off grade is based upon direct costs from the mining plan, taking into consideration production levels, production efficiencies and the expected costs. We use the pay-limit to determine which areas to mine as an overhead inclusive amount that is indicative of the break-even position.

 

                The pay-limit approach is based on the minimum in-situ grade of reclamation sites, for which the production costs, which includes all overhead costs, including head office charges, are equal to a three-year historical average gold price per ounce for that year. This calculation also considers the previous three years’ mining and milling efficiencies, which includes metallurgical and other mining factors and the production plan for the next twelve months. Only areas above the pay-limit grade are considered for mining. The pay-limit grade is higher than the cut-off grade, because this includes overhead costs, which indicates the break-even position of the operation.

 

                When delineating the economic limits to the ore bodies, we adhere to the following guidelines:

·          The potential ore to be mined is well defined by an externally verified and approved geological model;

·          The potential ore, which is legally allowed to be mined, is also confined by the mine's lease boundaries; and

21  


 

·          A business plan is prepared to mine the potential ore.

 

                Our Ore Reserves figures are estimates, which may not reflect actual ore reserves or future production. These figures are prepared in accordance with industry practice, converting mineral deposits to an Ore Reserve through the preparation of a mining plan. The Ore Reserve estimates contained herein inherently include a degree of uncertainty and depend to some extent on statistical inferences. Ore reserve estimates require revisions based on actual production experience or new information. Should we encounter mineralization or formations different from those predicted by past drilling, sampling and similar examinations, ore reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might adversely affect our operations and actual gold recoveries may differ from those indicated in our Ore Reserves. Moreover, if the price of gold declines, or stabilizes at a price that is lower than recent levels, or if our production costs increase or recovery rates decrease, it may become uneconomical to recover Ore Reserves containing relatively lower grades of mineralization.

 

                Our Ore Reserves are prepared using three year average rand gold prices. We prepare business plans using the forecast rand gold price at the time of the ore reserve determination.

 

Gold prices and exchange rates used for Ore Reserves and for our business plan are outlined in the following table.

 

 

June, 30

June, 30

June, 30

 

2019

2018

2017

 

Three-year average

Prevailing gold price

Three-year average gold price

Prevailing gold price

Three-year average gold price

Prevailing gold price

Reserve gold price –$/oz

1,272

1,369

1,240

1,328

1,216

1,280

Reserve gold price –R/kg

552,585

629,404

543,327

550,411

514,785

565,000

Exchange rate –R/$

13.53

14.30

13.63

12.90

13.17

13.73

 

 

 

 

 

 

 

Our Ore Reserves (imperial) changed in the past three fiscal years as follows:

 

·         Our Ore Reserves (imperial) increased from 3.28 million ounces at June 30, 2018, to 5.77 million ounces at June 30, 2019, mainly because of the acquisition of the gold assets associated with the Sibanye-Stillwater WRTRP project, subsequently renamed FWGR, that added Ore Reserves of 2.72Moz. The increase was offset by depletion through ongoing mining activities.

 

·          Our Ore Reserves (imperial) increased from 2.99 million ounces at June 30, 2017, to 3.28 million ounces at June 30, 2018, representing a 9.7% increase. The increase was mainly because of a drilling program and PFS that commenced during September 2016 aimed at re-evaluating our surface gold tailings. The drilling program continued in fiscal year 2019. The increase was offset by depletion through ongoing mining activities and other survey adjustments.

 

·          Our Ore Reserves (imperial) increased from 1.8 million ounces at June 30, 2016, to 2.99 million ounces at June 30, 2017. The increase was mainly because of a drilling program and PFS that commenced during September 2016. The increase was offset by depletion through ongoing mining activities and other survey adjustments.

 

The life of mine for Ergo based on proven and probable ore reserves under Industry Guide 7 of the SEC as at June 30, 2019, was 11 years and the life of mine as at June 30, 2018, 12 years.  

 

The life of mine for FWGR based on proven and probably ore reserves under Industry Guide 7 of the SEC as at June 30, 2019 was 20 years.

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DRDGOLD's Ore Reserves as of June 30, 2019 and 2018 are set forth in the tables below.

 

 

 

 

 

 

 

 

 

 

 

 

 

Ore Reserves: Imperial

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2019

At June 30, 2018

 

Proven Ore Reserves

Probable Ore Reserves

Proven Ore Reserves

Probable Ore Reserves

 

 Tons  

 Grade  

 Gold Content

 Tons  

 Grade  

 Gold Content

 Tons  

 Grade  

 Gold Content

 Tons  

 Grade  

 Gold Content

 

 (mill)  

(oz/ton)

 ('000 ozs)

(mill)

(oz/ton)

 ('000 ozs)

 (mill)  

(oz/ton)

 ('000 ozs)

 (mill)  

 (oz/ton)  

 ('000 ozs)

 

 

 

 

 

 

 

 

 

 

 

 

 

Surface

 

 

 

 

 

 

 

 

 

 

 

 

Ergo 1

61,672

0.01

540

283,675

0.01

2,540

74.988

0.01

663

291,198

0.01

2,617

FWGR 1

194,883

0.01

2,070

74,106

0.01

620

-

-

-

-

-

-

Total1  

256,555

0.01

2,610

357,781

0.01

3,160

74.988

0.01

663

291,198

0.01

2,617

 

 

 

 

 

 

 

 

 

 

 

 

 

Ore reserves: Metric

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2019

At June 30, 2018

 

Proven Ore Reserves

Probable Ore Reserves

Proven Ore Reserves

Probable Ore Reserves

 

Tonnes

Grade

Gold Content

Tonnes

Grade

Gold Content

Tonnes

Grade

Gold Content

Tonnes

Grade

Gold Content

 

(mill)

(g/tonne)

(tonnes)

(mill)

(g/tonne)

(tonnes)

(mill)

(g/tonne)

(tonnes)

(mill)

(g/tonne)

(tonnes)

 

 

 

 

 

 

 

 

 

 

 

 

 

Surface

 

 

 

 

 

 

 

 

 

 

 

 

Ergo 1

55.95

0.310

17.360

257.35

0.317

81.660

68.03

0.303

20.590

264.17

0.308

81.300

FWGR 1

176.80

0.365

64.580

67.23

0.285

19.130

-

-

-

-

-

-

Total1  

232.75

0.352

81.940

324.58

0.311

100.790

68.03

0.303

20.590

264.17

0.308

81.300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 The Ore Reserves listed in the above table are estimates of what can be legally and economically recovered from operations, and, as stated, are estimates of tons delivered to the plant.

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            The measurement and classification of our Proven and Probable Ore Reserves are sensitive to an extent to the fluctuation of the rand gold price. If we had used different rand gold prices than the three-year average prices at the time of ore reserve determination, as of June 30, 2019 and 2018 respectively, we would not have had significantly different ore reserves as of those dates. Using the same methodology and assumptions as were used to estimate Ore Reserves but with different rand gold prices as detailed below, our Ore Reserves as of June 30, 2019 and 2018 would be as follows:

 

Year ended June 30, 2019

Three-year average gold price

Prevailing price

10% Below prevailing price

10% Above prevailing price

Rand gold price per kilogram

552,585

629,404

566,464

692,344

Dollar gold price per ounce

1,272

1,369

1,232

1,506

Ore Reserves (million ounces)

5.77

5.77

5.77

5.77

 

 

 

 

 

Year ended June 30, 2018

Three-year average gold price

Prevailing price

10% Below prevailing price

10% Above prevailing price

Rand gold price per kilogram

543,527

550,411

495,370

605,452

Dollar gold price per ounce

1,240

1,328

1,195

1,461

Ore Reserves (million ounces)

3.28

3.28

3.28

3.28

 

The approximate mining recovery factors for the 2019 ore reserves shown in the above table are as follows:

 

 

 

 

 

 

 

 

 

 

 

Metallurgical

 

 

 

 

 

Mine Call Factor

recovery factory

 

 

 

 

 

(%)

(%)

 

 

Ergo

 

 

100

47

 

 

FWGR

 

 

100

52

 

 

 

 

 

 

 

 

 

 

The approximate mining recovery factors for the 2018 ore reserves shown in the above table are as follows:

 

 

 

 

 

 

 

 

 

 

 

Metallurgical

 

 

 

 

 

Mine Call Factor

recovery factory

 

 

 

 

 

(%)

(%)

 

 

Ergo

 

 

100

48

 

 

 

The following table shows the average drill/sample spacing (rounded to the nearest foot), as at June 30, 2019 and 2018, for

each category of Ore Reserves at our mines calculated based on a three year average dollar price of gold.

 

 

Proven

Probable

 

 

Reserves

Reserves

Ergo and FWGR

328 ft. by 328 ft.

328 ft. by 328 ft.

 

 

The pay-limit grades based on the three year average dollar price for gold amounting to R552585 /kg and costs used to determine

reserves as of June 30, 2019, are as follows:

 

 

 

Costs used to determine pay-

 

 

Pay-limit grade (g/t)

limit grade (R/t)

Ergo

 

0.200

60.22

FWGR

 

0.220

61.12

 

 

 

 

 

The pay-limit grades based on the three year average dollar price for gold amounting to R543,527 and costs used to determine

reserves as of June 30, 2018, are as follows:

 

 

 

Costs used to determine pay-

Ergo

 

Pay-limit grade (g/t)

limit grade (R/t)

 

 

0.224

58.41

 

 

 

 

 

We apply the pay-limit approach to the mineralized material database of our business in order to determine the tonnage and

grade available for mining.

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Governmental regulations and their effects on our business

 

Common Law Mineral Rights and Statutory Mining Rights

 

                Prior to the introduction of the Minerals and Petroleum Resources Development Act, or MPRDA in 2002, ownership in mineral rights in South Africa could be acquired through the common law or by statute. With effect from May 1, 2004, all minerals have been placed under the custodianship of the South African government under the provisions of the MPRDA and old order proprietary rights were required to be converted to new order rights of use within certain prescribed periods, as dealt with in more detail below. Mine dumps create before the MPRDA became law fall outside the MPRDA and do not require a mining license to be processed nor does it require the extensive rehabilitation and closure guarantees that are a feature of the MPRDA. Many of the activities to re-process a mine dump do fall under the provisions of the National Environmental Management Act though, which requires at it most basic the compilation and submission of an Environmental Impact Assessment.

 

Conversion of Rights under the Mineral and Petroleum Resources Development Act, 2002

 

                Existing old order rights were required to be converted into new order rights in order to ensure exclusive access to the mineral for which rights existed at the time of the enactment of the MPRDA. In respect of used old order mining rights, the DMR is obliged to convert the rights if the applicant complies with certain statutory criteria. These include the submission of a mining works program, demonstrable technical and financial capability to give effect to the program, provision for environmental management and rehabilitation, and compliance with certain black economic empowerment criteria and a social and labor plan. These applications had to be submitted within five years after the promulgation of the MPRDA on May 1, 2004. Similar procedures apply where we hold prospecting rights and a prospecting permit and conduct prospecting operations. Under the MPRDA mining rights are not perpetual, but endure for a fixed period, namely a maximum period of thirty years, after which they may be renewed for a further period of thirty years. Prospecting rights are limited to five years, with one further period of renewal of three years. Applications for conversion of our old order rights were submitted to the DMR within the requisite time periods. As at June 30, 2019 and September 30, 2019 respectively, all of our Ergo operation’s old order mining rights have been converted into new order rights under the terms of the MPRDA.

                 

The Broad Based Socio-Economic Empowerment Charter

 

                In order to promote broad based participation in mining revenue, the MPRDA provides for a Mining Charter to be developed by the Minister within six months of commencement of the MPRDA beginning May 1, 2004. The Mining Charter was initially published in August 2004 and was subsequently amended in September 2010. Its objectives include:

 

·          increased direct and indirect ownership of mining entities by qualifying parties as defined in the Mining Charter;

·          expansion of opportunities for persons disadvantaged by unfair discrimination under the previous political dispensation;

·          expansion of the skills base of such persons, the promotion of employment and advancement of the social and economic welfare of mining communities; and

·          promotion of beneficiation.

 

The Mining Charter sets certain goals on equity participation (amount of equity participation and time frames) by historically disadvantaged South Africans of South African mining assets. It recommends that these are achieved by, among other methods, disposal of assets by mining companies to historically disadvantaged persons on a willing seller, willing buyer basis at fair market value. The goals set by the Mining Charter require each mining company to achieve 15 percent ownership by historically disadvantaged South Africans of its South African mining assets within five years and 26 percent ownership by May 1, 2014. It also sets out guidelines and goals in respect of employment equity at management level with a view to achieving 40 percent participation by historically disadvantaged persons in management and ten percent participation by women in the mining industry, each within five years from May 1, 2004. Compliance with these objectives is measured on the weighted average “scorecard” approach in accordance with a scorecard which was first published around August 2010.

 

                 The Mining Charter and the related scorecard are not legally binding and, instead, simply state a public policy. However, the DMR places significant emphasis on the compliance therewith. The Mining Charter and scorecard, have a decisive effect on administrative action taken under the MPRDA.

 

                In recognition of the Mining Charter’s objectives of transforming the mining industry by increasing the number of black people in the industry to reflect the country’s population demographics, to empower and enable them to meaningfully participate in and sustain the growth of the economy, thereby advancing equal opportunity and equitable income distribution, we have achieved our commitment to ownership compliance with the MPRDA through our existing black economic empowerment structure with Khumo Gold and the DRDSA Empowerment Trust. Our black economic empowerment partners, Khumo Gold and the DRDSA Empowerment Trust, hold 4% and 2%, respectively, in DRDGOLD Limited. (See Item 4C. Organizational Structure).

 

                The mining industry in South Africa is extensively regulated through legislation and regulations issued by government’s administrative bodies. These involve directives with respect to health and safety, mining and exploration of minerals, and managing the impact of mining operations on the environment. A change in regulatory or government policies could adversely affect our business.

 

                On September 27, 2018 the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (“Mining Charter 2018”) was published in Government Gazette No. 41934 of Government Notice No. 639 on September 27, 2018 superseding and replacing all previous charters, including the Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016 (“Mining Charter III”).

 

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                Mining Charter 2018 requires an enduring 30% BEE interest in respect of new mining rights. It also has extensive provisions in respect of HDP representation at board and management, as well provisions relating to local procurement of goods and services. The procurement target of the total spend on services from South African companies has been pegged at 80% (up from 70% in Mining Charter III) and 60% of the aggregate spend thereof must be apportioned to BEE entrepreneurs.

 

                Key provisions of Mining Charter 2018, which are welcomed by the industry are:

•               The conditional acceptance of the continued consequences of previous compliance of the BEE ownership threshold of 26% in respect of existing mining rights;

•               Of the 30% HDP ownership component, qualifying employees and communities are each to hold a 5% carried interest (as opposed to a free carry interest as per Mining Charter III)  the cost of which may be recovered by the mining right holder from the development of the asset. The community interest in turn may be offset by way of an equity equivalent;

•               Removal of the so-called 1% of EBITDA trickle dividend provided for in Mining Charter III; and

•               The removal of provisions requiring community and employee representation at board level.

 

Elements of Mining Charter 2018 which we consider unfortunate, and which will be the topic of ongoing discussion with the DMR,  are:

•               that the continuing consequences of HDP ownership are not recognized for transfers of mining rights; and

•               that a top up of HDP ownership back to 30% is required for the renewal of existing rights. 

 

                DRDGOLD is a member for the Minerals Council. DRDGOLD has noted a material improvement on Mining Charter 2018, but still expresses concern on its ability to promote growth and attract investment.

 

                The Minerals Council provided, on behalf of its members, its preliminary response on October 3, 2018 and welcomed the publication of the Mining Charter and indirectly that it broadly supports its purpose and content. The Minerals Council noted that the Mining Charter is the product of substantial engagement between key stakeholders and is a compromise that reflects different difficult choices that have been made. This Mining Charter provides a better balance between the mutually reinforcing concepts of promoting competitiveness and transformation.

 

Mine Health and Safety Regulation

 

                The South African Mine Health and Safety Act, 1996 (as amended), or the Mine Health and Safety Act, came into effect in January 1997. The principal object of the Mine Health and Safety Act is to improve health and safety at South African mines and, to this end, imposes various duties on us at our mines and grants the authorities broad powers to, among other things, close unsafe mines and order corrective action relating to health and safety matters. In the event of any future accidents at any of our mines, regulatory authorities could take steps which could increase our costs and/or reduce our production capacity. The Act was amended in 2009 and the amendments to the Act dealt with inter alia the stoppage of production and increase punitive measures including increased financial fines and legal liability of mine management. Some of the more important new provisions in the 2009 amendment bill are the insertion of section 50(7A) that obliges an inspector to impose a prohibition on the further functioning of a site where a person’s death, serious injury or illness to a person or a health threatening occurrence has occurred; a new section 86A(1) creating a new offence for any person who contravenes or fails to comply with the provisions of the Mine Health and Safety Act thereby causing a person’s death or serious injury or illness to a person. Subsection (3) further provides that (a) the “fact that the person issued instructions prohibiting the performance or an omission is not in itself sufficient proof that all reasonable steps were taken to prevent the performance or omission”; and that (b) “the defense of ignorance or mistake by any person accused cannot be permitted”; or that (c) “the defense that the death of a person, injury, illness or endangerment was caused by the performance or an omission of any individual within the employ of the employer may not be admitted”; section 86A(2) creating an offence of vicarious liability for the employer where a Chief Executive Officer, manager, agent or employee of the employer committed an offence and the employer either connived at or permitted the performance or an omission by the Chief Executive Officer, manager, agent or employee concerned; or did not take all reasonable steps to prevent the performance or an omission. The maximum fines were also increased. Any owner convicted in terms of section 86 or 86A may be sentenced to “withdrawal or suspension of the permit” or to a fine of R3 million or a period of imprisonment not exceeding five years or to both such fine and imprisonment, while the maximum fine for other offences and for administrative fines have all been increased, with the highest being R1 million.

 

                Under the South African Compensation for Occupational Injuries and Diseases Act, 1993 (as amended), or COID Act, employers are required to contribute to a fund specifically created for the purpose of compensating employees or their dependents for disability or death arising in the course of their work. Employees who are incapacitated in the course of their work have no claim for compensation directly from the employer and must claim compensation from the COID Act fund. Employees are entitled to compensation without having to prove that the injury or disease was caused by negligence on the part of the employer, although if negligence is involved, increased compensation may be payable by this fund. The COID Act relieves employers of the prospect of costly damages, but does not relieve employers from liability for negligent acts caused to third parties outside the scope of employment. In fiscal year 2019, we contributed approximately R4.3 million under the COID Act (2018: R3.7 million and 2017: R3.6 million) to a multi-employer industry fund administered by Rand Mutual Assurance Limited.

 

                Under the Occupational Diseases in Mines and Works Act, 1973 (as amended), or the Occupational Diseases Act, the multi-employer fund pays compensation to employees of mines performing “risk work,” usually in circumstances where the employee is exposed to dust, gases, vapors, chemical substances or other working conditions which are potentially harmful, or if the employee contracts a “compensatable disease,” which includes pneumoconiosis, tuberculosis, or a permanent obstruction of the airways. No employee is entitled to benefits under the Occupational Diseases Act for any disease for which compensation has been received or is still to be received under the COID Act. These payment requirements are based on a combination of the employee costs and claims made during the fiscal year.

 

                Uranium and radon are often encountered during the ordinary course of gold mining operations in South Africa, and present potential risks for radiation exposure of workers at those operations and the public to radiation in the nearby vicinity. We monitor our uranium and radon

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emissions for compliance with all local laws and regulations pertaining to uranium and radon management and under the current legislative exposure limits prescribed for workers and the public, under the Nuclear Energy Act, 1999 (as amended) and Regulations from the National Nuclear Regulator.

 

Environmental Regulation

 

Managing the impact of mining on the environment is extensively regulated by statute in South Africa. Recent statutory enactments set compliance standards both generally, in the case of the National Environmental Management Act, and in respect of specific areas of environment impact, as in the case of the Air Quality Act 2004, the National Water Act (managing effluent), and the Nuclear Regulator Act 1999. Liability for environmental damage is also extended to impose personal liability on managers and directors of mining corporations that are found to have violated applicable laws.

The impact on the environment by mining operations is extensively regulated by the MPRDA. The MPRDA has onerous provisions for personal liability of directors of companies whose mining operations have an unacceptable impact on the environment.

Mining companies are also required to demonstrate both the technical and financial ability to sustain an ongoing environmental management program, or EMP, and achieve ultimate rehabilitation, the particulars of which are to be incorporated in an EMP. This program is required to be submitted and approved by the DMR as a prerequisite for the issue of a new order mining right. Various funding mechanisms are in place, including trust funds, guarantees and concurrent rehabilitation budgets, to fund the rehabilitation liability.

The MPRDA imposes specific, ongoing environmental monitoring and financial reporting obligations on the holders of mining rights.

 

                We believe that our environmental risks have been addressed in EMPs which have been submitted to the DMR for approval. Additionally, key environmental issues have been prioritized and are being addressed through active management input and support as well as progress measured in terms of activity schedules and timescales determined for each activity.

 

                Our existing reporting and controls framework is consistent with the additional reporting and assessment requirements of the MPRDA.

 

                Amendment Bill to the MPRDA

 

                On March 6, 2014 the South African Parliament approved an Amendment Bill to the MPRDA. The Bill will come into effect once signed by the President of the Republic of South Africa. Some of the more important changes introduced by the Bill is to allow the holder of a Mining Right to also mine “associated minerals” not specifically included in the Mining Right; it addresses anti-competitive conduct by requiring the Minister of Minerals to refuse an application for exploration rights if it will cause a “concentration of rights” as defined in the Bill; historic and old mine dumps are to be included in the definition of “residue stockpiles” and certain rehabilitation obligations are created in respect of the discarded mines to which they pertain; and liability for rehabilitation will extend beyond the issuance of a closure certificate and financial provision for closed sites will be required to be maintained for a period of 20 years after a site is closed.

 

                The Bill was finally withdrawn by the Minister of Mineral Resources on 22 August 2018, citing, amongst other things, that there were no inherent inhibitions from the subsistence of the MPRDA in current form.

 

                Financial Provision for Rehabilitation

 

                We are required to make financial provision for the cost of mine closure and post-closure rehabilitation, including monitoring once the mining operations cease. We fund these environmental rehabilitation costs by irrevocable contributions to environmental trust funds that function under the authority of trustees that have been appointed by, and who owe a statutory duty of trust to the Master of the High Court of South Africa. The funds held in these trusts are invested primarily in interest bearing debt securities. As of June 30, 2019, we held a total of R508.9 million (2018: R118.0 million) in trust, the balance held in each fund being R114.8 million (2018: R107.5 million) for Ergo, R382.9 million (2018: Rnil million) for FWGR and R11.3 million (2018:R10.5 million) for ERPM. Trustee meetings are held as required and quarterly reports on the financial status of the funds, are submitted to our board of directors. If any of the operations are prematurely closed, the rehabilitation funds may be insufficient to meet all the rehabilitation obligations of those operations.

 

                Whereas the old Minerals Act allowed for the establishment of a fully funded rehabilitation fund over the operational life of mine, the MPRDA assumes a fully compliant fund at any given time. Insurance instruments may also be utilized to make up the shortfall in available cash funds subject to the DMR’s consent. The Company has subsequently made use of approved insurance products for a portion of its rehabilitation liabilities. As of June 30, 2019, we held a total of R78.6 million (2018: R126.0 million) in funds held in insurance instruments. As at June 30, 2019 guarantees amounting to R427.3 million (2018: R427.3 million) were issued to the DMR.

 

                The provision for environmental rehabilitation for the group was R682.6 million at June 30, 2019, compared to R553.4 million at June 30, 2018 and R531.7 million at 2017.

 

                New Financial Provisioning Regulations (“FPR”) were promulgated on November 20, 2015 under the National Environmental Management Act, 107 of 1998 (“NEMA”) by the Department of Environmental Affairs (“DEA”). Proposed amendments to the FPRs were published for public comment GNR 1228 GG 41236 of 10 November 2017 (“Draft Regulations”), which seek to address some challenges relating to the implementation thereof.

 

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                Under the FRPs to be implemented by the DMR, existing environmental rehabilitation trust funds, of which DRDGOLD has R508.9 million, may be used only for post closure activities and may no longer be utilized for their intended purpose of concurrent and final rehabilitation on closure. As a result, new provisions will have to be made for these activities.

 

                Further amendments to the FPR, (“Proposed Amendments”) were published in September 2018, which extends the compliance therewith to 19 February 2020.

 

                The Proposed Amendments, in their current form and which are still subject to the approval of the DMR and Treasury, allow under certain circumstances for the withdrawal against financial provision (which is currently not contemplated in the FPR). It is therefore uncertain whether these provisions relating to withdrawal will remain in their current form, or at all, in the draft which the DEA is aiming to publish for comment in November 2018. 

 

                Regulation 5(4) of the Proposed Amendments states that the determination of financial provision must be undertaken by a specialist, which according to the definitions listed in the Proposed Amendments is an “independent person”. Regulation 10 of the Proposed Amendments further requires the annual review and re-assessment of financial provision by an independent specialist, which in terms of Regulation 11 of the Proposed Amendments must also be audited by an independent auditor. The Proposed Amendments do not require that the annual review and re-assessment of financial provision be audited by a financial auditor.

 

4C. ORGANIZATIONAL STRUCTURE

 

                The following chart shows our principal subsidiaries as of June 30, 2019 and as of September 30, 2019 respectively. All of our subsidiaries are incorporated in South Africa. Our voting interest in each of our subsidiaries are equal to our ownership interests. We hold the majority of the investments directly or indirectly as indicated below. Refer to Exhibit 8.1 for a list of our significant subsidiaries.

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4D. PROPERTY, PLANT AND EQUIPMENT

 

Description of Significant Subsidiaries' Properties and Mining Operations, June 30, 2019 and September 30, 2019

 

Ergo

 

Overview

 

                We own 100% of Ergo. Ergo is a surface tailings retreatment operation operating across central and east Johannesburg. In order to improve synergies, effect cost savings and establish a simpler group structure, DRDGOLD restructured the Group’s surface operations (Crown, ERPM’s Cason Dump surface operation and ErgoGold) into Ergo with effect from July 1, 2012. ERPM’s Cason Dump surface tailings retreatment operation was depleted in the first half of fiscal year 2015. At June 30, 2019, Ergo employed 852 full-time employees. In addition, specialist service providers deployed a further 1,362 employees to our operations bringing the total number of in-house and outsourced employees to 2,214 at June 30, 2019 (at June 30, 2018: 2,288; at June 30, 2017: 2,215).   

 

Properties

 

                The Ergo plant is located approximately 43 miles (70 kilometers) east of the Johannesburg’s central business district in the province of Gauteng on land owned by Ergo. Access to the Ergo plant is via the Ergo Road on the N17 Johannesburg-Springs motorway. As of June 30, 2019 and September 2019, no encumbrances exist on Ergo's property.

 

                Following the restructuring of the Crown operations, which consisted of three separate locations, City Deep, Crown Mines and Knights, into a single surface retreatment operation in Ergo, these mining rights were transferred to Ergo in March 2014.

 

                Our ore reserves in the western Witwatersrand had become depleted. We therefore took a decision to close the Crown Mines plant which operated as a pump/milling station feeding the metallurgical plants until March 2017. By the end of fiscal year 2018, the Crown sites had been cleared and the rehabilitation of the Crown plant site was substantially completed.

 

                The City Deep operation is located on the West Wits line within the Central Goldfields of the Witwatersrand Basin, approximately 3 miles (5 kilometers) south-east of the Johannesburg central business district in the province of Gauteng. Access is via the Heidelberg Road on the M2 Johannesburg-Germiston motorway. The City Deep plant continues to operate as a pump/milling station feeding the metallurgical plants.

                 

                The Knights operation is located at Stanley and Knights Road Germiston off the R29 Main Reef Road. The Knights plant continues to operate as a metallurgical plant.

 

Mining and Processing

 

Ergo undertakes the retreatment of surface tailings.

 

Material processed by Ergo is sourced from primary surface sources namely, sand and slime. The surface sources have generally undergone a complex depositional history resulting in grade variations associated with improvements in plant recovery over the period the material was deposited. Archive material is a secondary source of gold bearing material. This material is generally made up of old gold metallurgical plant sites.

 

                Our two gold producing metallurgical plants, Ergo and Knights have an installed capacity to treat approximately 25 million tons of material per year based on 92% availability and are fully operational. All of the plants have undergone various modifications during recent years resulting in significant changes to the processing circuits. The City Deep plant continues to operate as a pump/milling station feeding the metallurgical plants.

 

                Ergo’s assets include: access to tailings deposited across the western, central and eastern Witwatersrand; a 50km pipeline; and tailings deposition facilities including the significant Brakpan/Withok TDF.

 

                The feed stock is made up of sand and slime which are reclaimed separately. Sand is reclaimed using mechanical front-end loaders, re-pulped with water and pumped to the plant. Slime is reclaimed using high pressure water monitoring guns also known as hydraulic reclamation. The re-pulped slime is pumped to the plant and the reclaimed material is treated using screens, cyclones, ball mills as well as floatation and fine grind, or FFG, and Carbon-in-Leach, or CIL, technology to extract the gold.

 

                Set forth below is a description of each of our plants in operation:

 

                Ergo Plant:  Commissioned by Anglo American Corporation in 1977, became part of AngloGold Ashanti in 1998 from which it was acquired for a consideration of R42.8 million in 2007. The remaining five CIL tanks were refurbished during fiscal year 2015 to increase capacity to treat up to 25.2Mt per year. The Ergo FFG project is designed to assist in liberating the gold particles currently encapsulated in the sulphides and to achieve a targeted improvement in gold recovery efficiencies of between 16% and 20%.

 

                Knights Plant:  Commissioned in 1988, this surface/underground plant comprises a circuit including screening, primary cycloning, milling in closed circuit with hydrocyclones, thickening, oxygen preconditioning, CIL, elution, electro-winning and smelting to doré. The Knights plant, although historically part of the Crown operation, is located further east and considerably closer to the Brakpan TDF.

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Due to the location of the Knights plant it is able to access the Brakpan TDF to deposit waste. The Knights plant has an installed capacity to treat an estimated 3.6Mt per year.

                 

                City Deep Plant:  Commissioned in 1987, this surface/underground plant comprises a circuit including screening, primary, secondary and tertiary cycloning in closed circuit milling, thickening, oxygen preconditioning, CIL, elution and zinc precipitation followed by calcining and smelting to doré. Retreatment continued at the City Deep Plant until the plant was decommissioned in August 2013 to operate as a milling and pump station and is currently pumping material to the Ergo Plant for the final extraction of gold.

 

                As of June 30, 2019, the net book value of Ergo’s mining assets was R1,300.4 million (2018: R 1,410.7 million).

 

Capital Expenditure

                 

                For a discussion of capital expenditures in fiscal years 2017, 2018 and 2019, see "Item 5.A. Operating and Financial Review and Prospects—Capital expenditure".                

 

                Currently there are no material plans to construct or further expand Ergo’s facilities other than optimising and maintaining existing facilities.  Capital expenditure is financed through cash resources and operational cash flows while financing for significant growth projects may be obtained through specific financing arrangements if required. For a summary of capital expenditure, see Item 5A. Operating Results.

 

Exploration and Development

 

                Exploration and development activity at Ergo involves the drilling of surface dumps and evaluating the potential gold bearing surface material.

 

Environmental and Closure Aspects

 

                Municipal infrastructure as well as commercial and residential developments have encroached towards the Ergo operation. The major environmental risks are associated with dust from various reclamation sites, and effective management of relocated process material on certain tailings dams. The impact of windblown dust on the surrounding environment and community is addressed through a scientific monitoring and evaluation process, with active input from Professor H. Annagran from the Cape Peninsula University of Technology and appropriate community involvement. Environmental management programs, addressing a wide range of environmental issues, have been prepared by specialist environmental consultants, which are audited annually. Water pollution is controlled by means of a comprehensive system of return water dams which allow for used water to be recycled for use in Ergo’s metallurgical plants. Overflows of return water dams may, depending on their location, pollute surrounding streams and wetlands. Ergo has an ongoing monitoring program to ensure that its water balances (in its reticulation system, on its tailings and its return water dams) are maintained at levels that are sensitive to the capacity of return water dams.

 

                Dust pollution is controlled through an active environmental management program for the residue disposal sites and chemical and organic dust suppression on recovery sites. Short-term dust control is accomplished through ridge ploughing the top surface of dormant tailings dams. Additionally, environmentally friendly dust suppressants are applied. Dust fall-out is monitored through an extensive dust monitoring network monthly, and is utilized as a management measure to ensure the effectiveness of mitigation measures employed. In the long-term, dust suppression and water pollution is managed through a program of progressive vegetation of the tailings followed by the application of lime, to reduce the natural acidic conditions, and fertilizer to assist in the growth of vegetation planted on the tailings dam.

 

                A program of environmental restoration that provides for the rehabilitation of areas affected by mining operations during the life of the mine is in place. The surface reclamation process at Ergo has several environmental merits as it removes potential pollution sources and opens up land for development.

                 

Environmental management and compliance is further assisted by the in–house developed electronic monitoring system (Compliance Management Tool) that incorporates all existing Environmental Impact Assessments (“EIAs”), EMPs, Mining Right Conversions, Performance Assessments and Social and Labor Plans (“SLPs”) associated with each mining right. The existing and most recent studies are used to supplement the management components with regards to the mining right boundaries and its required compliance parameters. The individual management items are integrated to provide a holistic overview of the state of each of the mining right areas. Spatial data pertaining to the mining right boundaries is stored onto a central database and is utilized to create a live map which illustrates the mining right area and various environmental monitoring systems. This map depicts the mining right boundaries, roads, rails, mine dumps, plants, rivers, pipeline routes, servitudes, way leaves, municipal services and other spatial data relevant to our mining operations.

 

While the ultimate amount of rehabilitation costs to be incurred is uncertain, we have estimated that the total cost for Ergo, in current monetary terms as at June 30, 2019 is approximately R485.3 million. As at June 30, 2019, a total of R114.8 million (2018: R107.5 million) is held in the Ergo Rehabilitation Trust Fund, previously called the Crown Rehabilitation Trust Fund, which is an irrevocable trust, managed by specific responsible people who we nominated and who are appointed as trustees by the Master of the High Court of South Africa. In addition, a total of R56.2 million (2018: R52.2 million) is held in insurance instruments.

 

Ore Reserves

 

                As at June 30, 2019, our Proven and Probable Ore Reserves of Ergo was 3.08 million ounces, down from 3.28 million ounces at June 30, 2018 due to depletion. A Mineral Resource competent person is appointed at each operation to review our Ore Reserve calculations for accuracy. For Ergo, Mr. Gary Viljoen is the designated competent person in terms of the SAMREC Code responsible for the compilation and

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reporting of ore reserves. Ore reserves were independently reviewed by Red Bush Geoservices Proprietary Limited (Red Bush) for compliance with the SAMREC Code, the National Instrument 43-101 and the United States Securities and Exchange Commission (SEC) Industry Guide 7.

 

Production

                 

                For fiscal year 2019, production decreased to 144,453 ounces from 150,433 ounces in fiscal year 2019 mainly due the volume throughput that decreased from 24,281Mt to to 23,162Mt. The impact of this decrease was mitigated by the increase in the average yield from 0.193g/t to 0.194g/t.

 

                Cash operating costs in fiscal year 2019 increased $6.0 per ounce from $1,118 in fiscal year 2018 to $1,124 per ounce mainly due to the decrease in production.

 

 

The following table details certain production and financial results of Ergo for the past three fiscal years.

 

 

2019

2018

2017

Production (imperial)

 

 

 

Ore milled ('000 tons)

23,162

24,281

24,958

Recovered grade (oz/ton)

0.006

0.006

0.005

Gold produced (ounces)

144,453

150,433

137,114

Results of Operations

 

 

 

  Revenue (R million)

2,577.5

2,490.4

2,339.9

  Cost of sales (R million)

2,414.7

2,339.2

2,307.0

  Cash operating cost (R million)

2,311.1

2,159.7

2,087.9

  Cash operating costs (R/kilogram)1

512,439

458,866

489,549

  All-in sustaining costs (R/kilogram) 1

521,907

505,622

530,930

  All-in cost (R/kilogram) 1

527,624

524,651

552,243

1 Cash operating cost, cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram are financial measures of performance that we use to determine cash generating capacities of the mines and to monitor performance of our mining operations. These are all non-IFRS measures. For a reconciliation of these measure see Item 5A.: “Operating Results - Reconciliation of cash cost per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram.”

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FWGR

 

Overview

 

                On July 31, 2018, we acquired surface gold processing assets and tailing storage facilities in Carletonville in the West Rand Goldfield of Gauteng, 30km from Johannesburg, that include Driefontein 3 and 5, Kloof 1, Venterspost North and South, Libanon, Driefontein 4, Driefontein 2 plant, Driefontein 3 plant, WRTRP pilot plant, and land for the development of a central processing plant, regional tailings storage facility and return water dam (together, the “WRTRP Assets”) associated with Sibanye-Stillwater’s WRTRP, subsequently renamed as FWGR.  This acquisition represents a significant increase in our assets, which will impact our results in future years.  In connection with the acquisition, we issued to Sibanye-Stillwater new shares equal to 38.05% of outstanding shares and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the acquisition at a 10% discount to the prevailing market value. We acquired the following assets as a result of the acquisition:

 

Asset (incl properties)

Description

Additional tailings dams

Movable surface tailings dams which form part of the gold assets of the WRTRP Assets and which include Driefontein Dumps 3 and 5, Kloof 1, Venterspost North and South and Libanon Dump.

 

DP2 Plant

The Driefontein 2 Plant which is located on Portion 6 of Farm Blyvooruitzicht No 116 Registration Division I.Q. and Remainder of Portion 1 of the Farm Driefontein No 113, Registration Division I.Q., Gauteng Province.

The DP2 Plant processed surface rock dumps (“SRD”) material, which was delivered by rail and truck. Throughput is achieved through two Semi-Autogenous Grinding (“SAG”) mills and a ball milling circuit, cyanide leaching and a Carbon-in-Pulp (“CIP”) plant. A Carbon-in-leach circuit was commissioned in 2014 at DP2 Plant to improve recoveries by replacing the aging CIP circuit.

 

DP3 Plant

The Driefontein 3 Plant which is located on Portion 6 of Farm Blyvooruitzicht No 116, Registration Division I.Q., Gauteng Province.  The DP3 Plant was originally designed as a uranium plant, but was converted to process low-grade surface rock in 1998. Similar to DP2 Plant, SRD ore was delivered by rail and truck. This plant has four SAG mills followed by cyanide leaching and a CIP circuit.

 

Driefontein 4

The current active tailings deposition facility which forms part of the gold assets of the WRTRP Assets.

 

 

Pilot Plant

The moveable LogiProc pilot plant established to test the processes, techniques and assumptions made in the definitive level design of the full scale retreatment of dumps as part of the WRTRP Assets and located at Driefontein 1 Plant.

 

Plan and Materials

 

Any and all drawings, plans, studies (including feasibility studies of a geological or geotechnical nature), surveys, reports (including sampling and assaying reports), maps (including geophysical,  geological and/or drill maps), statements, schedules and other data in whatever form of a financial, technical, labour, marketing,  administrative, accounting or other matters pertaining to the WRTRP Assets.

 

Transferring Land

The land upon which:

·  the proposed Central Processing Plant (“CPP”) will be located after the subdivision of the Farm Rietfontein No 347  Registration Division I.Q. Portion 35 and 73, Gauteng  Province;  and

·  the Regional Tailing Storage Facility and Return Water Dam will be located.

 

 

Active Tailings Dams

The Driefontein 1 and 2, Kloof 2 and Leeudoorn currently active tailings dams are also required to be transferred under the acquisition agreement,  for no additional consideration, once they have been decommissioned by Sibanye-Stillwater.

 

Licences to Operate

All the licences, permits, permissions, management plans and reports, as well as amendments, variations or modifications thereof from time to time necessary for Sibanye-Stillwater to operate the WRTRP Assets lawfully.

 

Access Rights

 

The grant of access to DRDGOLD of the:

·  Driefontein 10 shaft;

·  Kloof 10 shaft located in the Kloof mining area that is subject to the Kloof Mining Right, for the purpose of pumping and  supplying, at the cost of WRTRP, the required quantities of water, as licenced, for the WRTRP Assets;

·  rights, servitudes and agreements for installation, supply and distribution and maintenance of power supply; existing and proposed pipeline routes; servitudes; wayleaves and surface right permits; and

·  Driefontein  1 Gold Plant for the purpose of accessing the Pilot Plant.

 

As of June 30, 2019 and September 30, 2019, no encumbrances exist on FWGR's property.

                 

                At June 30, 2019, the net book value of FWGR’s mining assets was R1,443.6 million.

 

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                At June 30, 2019, FWGR employed 152 full-time employees. In addition, specialist service providers deployed a further 229 employees to our operations bringing the total number of in-house and outsourced employees to 381.

 

Mining and Processing

 

FWGR undertakes the retreatment of surface tailings.

 

Material processed by FWGR is sourced from Driefontein Dump 5. The surface sources have generally undergone a complex depositional history resulting in grade variations associated with improvements in plant recovery over the period the material was deposited.

 

                The DP2 gold producing metallurgical plant was reconfigured to have an installed capacity to treat approximately 6 million tons of material per year based on 92% availability and are fully operational. The plant has undergone reconfiguration resulting in significant changes to the processing circuits.

 

                 Slime is reclaimed using high pressure water monitoring guns also known as hydraulic reclamation. The re-pulped slime is pumped to the plant and the reclaimed material is treated using screens, cyclones, ball mills and Carbon-in-Leach, or CIL, technology to extract the gold.

 

                FWGR entered into a smelting agreement with Sibanye-Stillwater to smelt and recover gold from gold loaded carbon produced at the DP2 plant, and deliver the gold to Rand Refinery. In exchange for this service, Sibanye-Stillwater receives a fee based on the smelting costs plus 10% of the smelting costs. Rand Refinery performs the final refinement of all gold produced. FWGR also engaged its fellow subsidiary, Ergo Mining Proprietary Limited, to act as its agent and representative and to enter into a refining services arrangement with Rand Refinery for the sale, marketing and export of the refined gold of the Company. This agreement is expected to be in place until the Company obtains its own refining license.

 

FWGR is currently operating under the Sibanye-Stillwater Kloof mining right – new order mining right GP30/5/1/2/2/66MR issued in 2007 and valid until 2027. FWGR is also operating under the Driefontein mining right – new order mining right GP30/5/1/2/2/51MR issued in 2007 and valid until 2037. Sibanye is entitled to mine all declared material falling within this mining right and has all necessary statutory requirements in place. A section 102 amendment to these mining rights in terms of the MPRDA Amendment Act of 2014, has been submitted by Sibanye-Stillwater to permit the reclamation activities of FWGR. We believe that the surface rights agreements over both the Driefontein and Kloof rights for the TSFs and processing plant sites are adequate for the Sibanye-Stillwater operations and would therefore be applicable to FWGR.

 

Capital Expenditure

                 

                For a discussion of capital expenditures in fiscal year 2019, see "Item 5.A. Operating and Financial Review and Prospects—Capital expenditure".            

 

                Financing for significant growth projects may be obtained through specific financing arrangements if required. Capital expenditure incurred on the development of Phase 1 of FWGR, of approximately R324.4 were financed through a combination of borrowings (refer to the Revolving Credit Facility described in Item 10C. Material Contracts) and cash resources and operational cash flows of the Group. For a summary of capital expenditure, see Item 5A. Operating Results.

 

Exploration and Development

 

                Exploration and development activity at FWGR involves the drilling of surface dumps and evaluating the potential gold bearing surface material, as well as exploratory and development activities around Phase 2 of the project.

 

Environmental and Closure Aspects

 

                The majo