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 30 June 2018 and 2017 and
for the years ended 30 June 2018, 2017 and 2016 are derived from our
consolidated financial statements set forth elsewhere in this Annual Report,
which have been prepared in accordance
with
IFRS, as issued by the IASB
. These
consolidated financial statements have been audited by KPMG Inc. The
selected consolidated financial data as at June 30, 2016, 2015 and 2014,
and for the years ended June 30, 2015 and 2014 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.
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Selected
Consolidated Financial Data
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(in
millions, except share, per share and ounce data)
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Year ended June 30,
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2018
1
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2018
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2017
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2016
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2015
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2014
|
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$’m
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R'm
|
R'm
|
R'm
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R'm
|
R'm
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Profit
or loss Data
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Revenue
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175.9
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2 490.4
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2,339.9
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2,433.1
|
2,105.3
|
1,809.4
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Results
from operating activities
|
3.7
|
52.0
|
(24.5)
|
119.6
|
94.9
|
(12.6)
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Profit/(loss)
for the year attributable to equity owners of the parent
|
0.5
|
6.5
|
13.7
|
61.9
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67.8
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(45.8)
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Per
Share Data
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Basic
earnings/(loss) per share (cents)
|
0.1
|
1.5
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3.2
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14.7
|
17.4
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(12.0)
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Diluted
earnings/(loss) per share (cents)
|
0.1
|
1.5
|
3.2
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14.7
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17.4
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(12.0)
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Dividends
proposed per share for the year (ZAR cents)
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5.0
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5.0
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62.0
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10.0
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2.0
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Dividends
proposed per American Depositary Shares for the year (USD cents)
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4.2
|
3.7
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45.2
|
6.5
|
1.6
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Exchange
rate (USD1:ZAR)
1
|
|
14.16
|
13.51
|
13.72
|
13.82
|
10.42
|
Intraday
high (USD1:ZAR)
|
|
14.57
|
14.75
|
16.87
|
12.58
|
11.39
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Intraday
low (USD1:ZAR)
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|
11.50
|
12.42
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12.24
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10.50
|
9.50
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Number
of shares issued as at June 30
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431 429 767
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431 429 767
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431 429 767
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431 429 767
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430 883 767
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385 383 767
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Statement
of financial position data
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Total
assets
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166.8
|
2 360.4
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2,287.4
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2,419.1
|
2,503.0
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2,440.7
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Equity
(Net assets)
|
89.5
|
1 267.3
|
1,302.4
|
1,339.6
|
1,529.9
|
1,481.2
|
Ordinary
share capital ²
|
295.1
|
4 177.2
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4,177.2
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4,177.2
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4,180.9
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4,088.5
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2018
|
2018
|
2018
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2018
|
2018
|
2018
|
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September
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August
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July
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June
|
May
|
April
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Exchange
Rate Data
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Intraday
high (USD1:ZAR)
|
15.69
|
15.47
|
13.92
|
14.00
|
12.89
|
12.53
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Intraday
low (USD1:ZAR)
|
13.99
|
13.16
|
13.07
|
12.50
|
12.17
|
11.78
|
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|
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|
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|
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1
Translations into Dollars in this table
are for the purpose of convenience only and are computed at the noon buying
rate in New York City at September 28, 2018 of R14.16 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 service providers. This line item has been prepared in
accordance with Item 3.A(3) of Form 20-F.
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2
Ordinary share capital as of June 30,
2018 is stated after the deduction of R50.7 million (2017 and 2016: R50.7
million) share capital relating to treasury shares held by the Group.
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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 rand 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.
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 of delivery. 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. In fiscal year 2018, the closing price of the rand against the dollar weakened
by 5%. In fiscal year 2017 the closing price of the rand against the dollar strengthened
by 11% compared to the prior year. In fiscal year 2016 the closing price of the
rand weakened against the dollar by 21% compared to the prior year. At
September 30, 2018 the rand traded at R14.14 = $1.00 (based on closing rates),
a 3% weakening of the rand against the Dollar from June 30, 2018.
A decrease in the dollar gold price and/or a
strengthening of the rand against the dollar would result in a decrease in our
profitability as was the case in fiscal year 2018. 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.
O
ur Ore Reserves (imperial) increased from 3.0 million ounces at
June 30, 2017, to 3.3 million ounces at June 30, 2018,
mainly because of a drilling program and pre-feasibility study (“PFS”) that
commenced during September 2016
and continued into fiscal year
2018
,
aimed at re-evaluating our surface gold
tailings
and specifically
performing drilling on the Rooikraal tailings deposition facility in fiscal
2018
. The increase
was offset by depletion through ongoing mining activities.
O
ur Ore Reserves (imperial) increased from 1.8 million ounces at
June 30, 2016, to 3.0 million ounces at June 30, 2017,
mainly because of a drilling program and PFS that commenced during
September 2016 aimed at re-evaluating our surface gold tailings. The increase
was offset by depletion through ongoing mining activities and other survey
adjustments.
Our Ore Reserves (imperial)
decreased
from 1.9
million ounces at June 30, 2016, to
1.8 million ounces at June 30, 2017, mainly because
of depletion through ongoing mining activities.
We may be unable to make desirable
acquisitions or to integrate successfully any businesses we acquire, including
the acquisition of WRTRP 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 potential difficulties in obtaining government
approvals. Our acquisitions, such as and including our acquisition of the WRTRP
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.
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;
• inadequate phasing of activities;
• labor disputes;
• inadequate workforce planning or productivity of workforce;
• inadequate change 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, significant variations in 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 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 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 correct.
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 unanticipated 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 we cannot guarantee that any such
financing would be permitted under the terms of our existing financing
arrangements, or would 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.
We have incurred losses in the past and may
incur losses in the future
.
We realized a profit of R6.5 million for fiscal
year 2018, R13.7 million for fiscal year 2017 and R61.9 million for fiscal year
2016.
Our profits and cash flows of our operations are
directly exposed to the rand gold price and input costs as we do not generally
hedge. Such exposure and other factors could result in us incurring losses in
the future, which would have a material adverse effect on our business,
operating results and financial condition.
Any interruption in gold production
at Ergo, currently our only mining operation generating cash flows, will have
an adverse effect on the Company.
As at September 30, 2018, we have one mining
operation generating cash flows, namely Ergo.
Ergo’s processing plants, pump stations and
the Brakpan/Withok Tailings Deposition Facility ("Brakpan/Withok
TDF") are linked through pipeline infrastructure. The Ergo plant is
currently our major processing plant.
The Ergo plant, pipeline infrastructure and the
Brakpan/Withok TDF 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.
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, fiscal
year 2015 brought a very strong El Nino event that is believed to be the cause
of drought conditions in South Africa. Municipalities where we operate put in
place water consumption restrictions with penalties if restrictions are not
adhered to. The drought ended in late calendar 2016 which resulted in the
relevant water restrictions being lifted
, but future
droughts could result in similar restrictions.
Severe thunderstorms and high winds may also cause
damage to operation infrastructure that may in turn cause an interruption in
the production of gold. Although freeboard on the Brakpan/Withok TDF is
continually monitored to maintain acceptable levels, such monitoring may not
provide adequate warning if the facility is exposed to significant rainfall.
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.
Increased production costs could have an
adverse effect
on our results of operations.
We may not be able to accurately predict and
contain further increases in our production costs. 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;
• unforeseen changes in ore grades and recoveries;
• unexpected changes in the quality or quantity of reserves;
• technical production issues;
• 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 expected inflation rate and result in the restructuring
of these operations at substantial cost.
On April 9, 2018, Ergo signed
a one year extension of the 2016/18 Wage Agreement with the Majority Unions for
an
average increase of 8.2% per annum across our workforce
with individual increases
ranging
from 7-10% per annum
. The next round of
wages and conditions of employment negotiations will commence in June 2019.
The 2016/18 Wage Agreement
does not include FWGR employees whose wage increases are currently being
negotiated
.
Our initiatives 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. These claims may have a material adverse
effect on our business, operating results and financial condition.
Our operations are subject to extensive
environmental regulations which could impose significant costs and liabilities.
Our operations are subject to increasingly
extensive laws and regulations governing the protection of the environment
under various state, provincial and local laws, which regulate air and water
quality, hazardous waste management and environmental rehabilitation and
reclamation.
Our mining and related activities 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 R553.4 million which is included in our statement of financial
position as at June 30, 2018 (Refer to Item 18. ‘‘Financial Statements - Note 10
– 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 the operations are prematurely
closed, the rehabilitation funds may be insufficient to meet all the
rehabilitation obligations of those operations. The closure of mining
operations, without sufficient financial provision for the funding of
rehabilitation liabilities, or unacceptable damage to the environment,
including pollution or environmental degradation, may expose us and our
directors to 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 R6.4 billion,
with a total loss limit of R650 million for
the 2018 financial year. Business interruption is only covered from the time
the loss occurs and is subject to time and amount deductibles that vary between
categories.
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.
Operational
risk 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.
Production was temporarily suspended on April 2,
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 flotation and fine-grind 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.
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. While we seek to detect
and investigate all unauthorized attempts and attacks against our network, and
to prevent their recurrence where practicable through changes to our internal
processes and tools, we remain potentially vulnerable to additional known or
unknown threats. In some instances, we may be unaware of an incident or its
magnitude and effects. While we also seek to periodically review and assess our
cybersecurity policies and procedures to ensure their adequacy and
effectiveness, we cannot guarantee that we will not be susceptible to new and
emerging risks and attacks 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 anticipated and 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 2018 the gold price reached a
high of U$1 366 per ounce and a low of U$1 204. 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.
Economic conditions may
adversely affect the profitability of the Group’s operations.
The outlook for the global economy remains
uncertain.
Economic conditions remain volatile
and the demand for resources is uncertain. The uncertainty in the
outlook of resources generally and of gold
may
result in tightened credit markets, reduced
liquidity and extreme volatility in fixed income, credit, currency and equity
markets. Such conditions may adversely affect the Group’s business. For
example, tightening credit conditions may make it more difficult for the Group
to obtain financing on commercially acceptable terms or make it more likely
that one or more of our key suppliers may become insolvent and lead to a supply
chain breakdown.
The exploration of mineral properties is
highly speculative in nature, involves substantial expenditures, and is frequently
unproductive.
Exploration
is highly speculative in nature and requires substantial expenditure for
drilling, sampling and analysis of ore bodies to quantify the extent of the
gold reserve.
Many gold exploration
programs, including some of ours, do not result in the discovery of
mineralization and any mineralization discovered may not be of sufficient
quantity or quality to be mined profitably. If we discover a viable deposit, it
usually takes several years from the initial phases of exploration until
production is possible.
During this time, the economic feasibility of
production may change.
Moreover,
we rely on the evaluations of professional geologists, geophysicists, and
engineers for estimates in determining whether to commence or continue mining.
These estimates generally rely on scientific and economic assumptions, which in
some instances may not be correct, and could result in the expenditure of
substantial amounts of money on a deposit before it can be determined with any
degree of accuracy whether the deposit contains economically recoverable
mineralization. Uncertainties as to the metallurgical recovery of any gold
discovered may not warrant mining based on available technology.
Our future growth and profitability will depend,
in part, on our ability to identify and acquire additional mineral rights, and
on the costs and results of our continued exploration and development programs.
Our business focuses mainly on the extraction of gold from tailings,
which is a volume driven exercise. Only significant deposits within proximity
of services and infrastructure that contain adequate gold content to justify
the significant capital investment associated with plant, reclamation and
deposition infrastructure are suitable for exploitation in terms of our model.
There is a limited supply of these deposits which may inhibit e
xploration 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 uncertainty with our Ore Reserve estimates.
Our
Ore Reserve figures described in this document are the best estimates of our
current management as of the dates stated and are reported in accordance with
the requirements of Industry Guide 7 of the SEC. These estimates may 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 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 and 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;
·
activities of illegal or artisanal miners;
·
material and equipment availability;
·
legal and regulatory restrictions and changes
to such restrictions;
·
social or community disputes or
interventions;
·
accidents caused from the collapse of
tailings dams;
·
pipeline failures and spillages;
·
safety-related stoppages; and
·
corruption, fraud and theft
including gold bullion theft.
The occurrence of any of these hazards could
delay production, increase production costs and may result in significant legal
claims.
Risks related to doing business in South
Africa
Political or economic
instability in South Africa may reduce our production and profitability.
We are incorporated 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. 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 2018, the
annual Consumer Price Inflation Index, or CPI, stood at 4.6% compared to 5.1%
in June 2017 and 6.3% in June 2016. Annual CPI was 4.9% as at September 30,
2018.
Higher inflation in South Africa would result 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. Significantly 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.
In January 2013, DRDGOLD,
East Rand
Proprietary Mines Limited (“ERPM”)
(“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 (“Court") for a class
certification (“Certification Application”) 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.
In May, 2016 the Court granted an order for,
inter
alia,
(1) certification of two industry-wide classes: a silicosis class and
a tuberculosis class, both of which cover current and former underground
mineworkers who have contracted the respective diseases (or the dependants of
mineworkers who died of those diseases); and (2) that the common law be developed
to provide that in instances where a claimant claiming general damages passed
away, the claim for general damages will be transmitted to the estate of the
deceased claimant. This order did not represent a ruling on the merits of the
Application brought against the Respondents.
An application for leave to appeal to the
Supreme Court of Appeal (“SCA”) was brought by each of the respondent mining
companies against the judgment of the Court, specifically on the allegations of
the certification and transmissibility of damages to the estate of a deceased
mineworker.
In June 2016, the Court granted leave to
appeal to the SCA against the transmissibility of damages but refused leave to
appeal in respect of the certification.
The DRDGOLD Respondents (together with each
of the Working Group companies) served a notice of appeal to petition the SCA
against the
order for
certification
and the transmissibility of damages. The SCA granted leave to appeal thereto on
both issues in September 2016.
The appeal to the SCA was set down for
hearing in March 2018 but was subsequently postponed by agreement between the
Applicants and the Respondent companies in light of progress made by the
Working Group described below. The SCA endorsed and upheld the postponement.
The Respondent companies formed a Working
Group consisting of representatives from each company to consider and discuss
issues pertaining to the action. DRDGOLD withdrew from the Working Group in
January 2016.
The remaining members of the Working Group
have all raised accounting provisions during the calendar year 2017 due to
progress made by the Working Group towards a possible settlement with the
Applicants. In May 2018, the remaining members of the Working Group announced
that a mediated settlement agreement had been reached. The agreement is subject
to certain conditions, including the approval by the South African High Court
after which an effective date of the agreement will be set.
DRDGOLD is not a party to the Working Group’s
mediated settlement agreement and maintains the view that it is too early to
consider settlement of the matter, mainly for the following reasons:
• the Applicants have as yet not issued and
served a summons (claim) in the matter;
• there is no indication of the number of
potential claimants that may join the class action against the DRDGOLD
respondents;
• many principles upon which legal
responsibility is founded, are required to be substantially developed by the
trial court (and possibly subsequent courts of appeal) to establish liability
on the bases alleged by the applicants.
In light of the above there is inadequate
information to determine if a sufficient legal and factual basis exists to
establish liability, and to quantify such potential liability.
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.
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 f
uture 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.
While such power supply disruptions have not
had a material impact on our production
in recent years
, 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.
T
he group has
installed auxiliary emergency units at its plant to prevent the tripping of
thickeners and entered into a five year lease agreement for the supply of
temporary power generation equipment and services during fiscal year 2014 to
drive certain key installations associated with the disposal of tailings.
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. This has enabled us to maintain continuous operations and
very little reduction in volume since its inception.
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, 2016 an average tariff increase of 9.4% and from April 1, 2017 an
average tariff increase of 2.2% and from April 1, 2018 an average tariff
increase of 5.2%. 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.
Possible scarcity of water may
negatively affect our operations.
South
Africa faces water shortages, wh
ich 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 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 be normalised.
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
(“TCTA”) and recycled water from our Brakpan/Withok Tailings Deposition
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.
There is no assurance that these measures will 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 20014) 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.
There is now a new Mining Charter in place,
which was gazetted 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 for 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.
New 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 or other climate
change related taxes might have a direct or indirect negative cost impact on
our operations.
Climate change is a global problem that requires
both a concentrated international response and national efforts to reduce
greenhouse gas, or GHG, emissions. The United Nations Framework Convention on
Climate Change is the main global response to climate change. The associated
Kyoto Protocol is an international agreement that classifies countries by their
level of industrialization and commits certain countries to GHG emission
reduction targets. Although South Africa is not one of these countries
identified, it ranked among the top 20 countries measured by absolute carbon
dioxide emissions. During the 2009 Copenhagen climate change negotiations,
South Africa voluntarily announced that it would act to reduce domestic GHG emissions
by 34% by 2020 and 42% by 2025, subject to the availability of adequate
financial, technological and other support. The two main economic policy
instruments available for setting a price on carbon and curbing GHG emissions
are carbon taxation and emissions trading schemes. In a discussion paper on
carbon taxation by the National Treasury of the South African Government
released in June 2013 different methods of carbon taxation were discussed. The
implementation of these carbon taxes has been postponed pending consideration
by the South African Parliament. Should these taxes be implemented, they might
have a direct or indirect cost impact on our operations which could have an
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 constituted 19% of our production costs
for fiscal year 2018 (2017: 17% and 2016: 18%). As of June 30, 2018,
our Ergo operations provided full-time employment for 862 employees while our
main service providers deployed an additional 1 426 employees to our
operations, of whom approximately 91% 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 August and September 2012, a number of
illegal strikes at several mining companies in South Africa and events related
to these strikes resulted in 45 people being killed. Between February and June
2014, the platinum industry had a wage strike that lasted for five months. To
bring the strike to an end, above inflation wage increases and changes to
working conditions were agreed to.
We use a third party service provider for the
management of our reclamation sites as well as the Deposition facility at
Brakpan/Withok TDF. Any labor unrest or other significant issue at this third
party service provider may impact the operation of this facility.
Such events at our operations or
at our
reclamation sites
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. Recent
years have seen a substantial increase in anti-bribery law enforcement
activity, with more frequent and 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;
·
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 expected 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.
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 have focused 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, New York Stock Exchange, the Over The Counter, or OTC, market in Berlin
and Stuttgart and the Regulated Unofficial Market on the Frankfurt Stock
Exchange. The Company’s shares were delisted from the Marché Libre Paris
effective May 30, 2018.
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. It also includes 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) as well as ERPM
which is currently under care and maintenance.
On July 31, 2018, we completed the
acquisition of certain gold surface processing assets and tailing storage
facilities 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 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 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
for 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), East
Rand Proprietary Mines Limited's (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 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 refurbishment of the remaining five
carbon-in-leach tanks was completed during September 2015 to increase volume
capacity by approximately 0.3Mtpm to a total of 2.1Mtpm.
Capital expenditure 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 TDF expansion
Ergo has the
technology to fine-grind gold-bearing material to achieve recovery efficiencies
previously outside the reach of typical metallurgical processing. Although we
pump processing material from as far as 60km away, most of our tailings mine
residue recovery sites are based in the vicinity of Ergo, including our surface
and pipeline infrastructure. This is a key focus of DRDGOLD’s operations. We have
typically processed 1.8Mt of material through the Ergo plant every month. In
order to extend the life of our Ergo operation, it is necessary to increase
residue tailings deposition capacity at our Brakpan/Withok TDF.
A legal review of the
existing authorizations was undertaken for increasing the deposition capacity
of the Brakpan/Withok TDF. 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 12 years to more than 20 years.
For further information on other
capital investments, divestures, capital expenditure and capital commitments,
see Item 4D. Property, Plant and Equipment, and Item 5B. Liquidity and Capital
Resources.
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 line with the Group’s strategy to exit underground mining
operations, ERPM entered into an agreement to sell certain of the underground
mining and prospecting rights held by ERPM including the related liabilities
during the financial year ended 30 June 2014 subject to conditions, including
regulatory approvals.
The last
outstanding
regulatory approval, being the approval under Section 11 of the Mineral and
Petroleum Resource Development Act was not fulfilled by the purchaser.
Management decided not to provide any further extension to the purchaser and
accordingly the agreement in respect of the disposal of these underground
mining and prospecting rights, including the related liabilities, lapsed.
The R2 million breakage
fee, equal to the transaction costs incurred, plus R0.8 million interest
accrued thereon was paid to ERPM on September 5, 2018.
Crown
Crown was
acquired on September 14, 1998. Crown exploited various surface sources, including
sand and slime tailings deposited as part of previous mining operations. On
July 1, 2012, Crown sold its mining assets, mining and prospecting rights and
certain liabilities to Ergo in exchange for shares in Ergo as part of the
restructuring of our surface operations. Due to the depletion of ore reserves
in the western Witwatersrand, we took the decision at the end of fiscal year
2016 that in fiscal year 2017 we would complete the recovery of material from a
number of Crown reclamation sites and to close the Crown plant. This plant
operated as a pump/milling station feeding the metallurgical plants until March
2017 when it ceased all operations.
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 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 the opportunities made possible by technology,
which means further investment in research and development (“R&D”) to
improve gold recoveries even further over the long term.
On July 31, 2018, we completed the
acquisition of the gold assets associated with Sibanye-Stillwater’s WRTRP, to
be known going forward as FWGR. This acquisition represents 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,
comprising
the waste material from earlier underground gold mining activities. This is done
by reprocessing sand dumps and slimes dams along the reefs that stretch from
east to west just to the south of Johannesburg’s central business district
(CBD). 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
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, with the price of gold quoted in dollars. Physical
demand for gold is primarily for manufacturing purposes, and gold is traded on
a world-wide basis. Refined gold has a variety of uses, including jewelry,
electronics, dentistry, decorations, medals and official coins. In addition,
central banks, financial institutions and private individuals buy, sell and
hold gold bullion as an investment and as a store of value (due to the tendency
of gold to retain its value in relative terms against basic goods and in times
of inflation and monetary crises).
The use of gold as a store of value and the
large quantities of gold held for this purpose in relation to annual mine
production have meant that historically the potential total supply of gold has
been far greater than demand. Thus, while current supply and demand play some
part in determining the price of gold, this does not occur to the same extent
as in the case of other commodities. Instead, the gold price has from time to
time been significantly affected by macro-economic factors such as expectations
of inflation, interest rates, exchange rates, changes in reserve policy by
central banks and global or regional political and economic crises. In times of
inflation and currency devaluation gold is often seen as a safe haven, leading
to increased purchases of gold and support for its price.
The average gold spot price increased by 3%
from $1 257 per ounce to $1 297 per ounce
during fiscal year
2018
after having increased by 8% from $1 167
per ounce
to
$1 257
per ounce
during the fiscal
year
2017 and having decreased by 5% from $1 224
per ounce
to
$1 167
per ounce
during the fiscal
year
2016. The average gold price received by us
for fiscal year 2018 decreased by 3% to R534 344 per kilogram compared to
the previous year at R548 268 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 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 significant support to the gold
price in the long term.
All of our revenue is generated in South Africa. Our total revenue
for year ended June 30, 2018 amounted to R2 490.4 million (2017: R2 339.9
million and 2016: R2 433.1 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. Rand Refinery then sells the
gold on the same day as delivery, for the London afternoon fixed dollar price,
with the dollar proceeds remitted to us within two days. In exchange for this
service we pay Rand Refinery a variable refining fee plus fixed marketing, loan
and administration fees. We own 11% (fiscal year
2017
and
2016
:
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
·
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. 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.
|
2018
|
2017
|
2016
|
|
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
|
1 240
|
1 328
|
1,216
|
1,280
|
1,228
|
1,293
|
Reserve gold price –R/kg
|
543 327
|
550 411
|
514,785
|
565,000
|
475,268
|
591,697
|
Exchange rate –R/$
|
13.63
|
12.90
|
13.17
|
13.73
|
12.03
|
14.23
|
|
|
|
|
|
|
|
O
ur Ore Reserves (imperial) increased from 2.99 million ounces at June
30, 2017, to 3.28 million ounces at June 30, 2018,
mainly
because of a drilling program and pre-feasibility study (“PFS”) that commenced
during September 2016 and continued into fiscal year 2018, aimed at
re-evaluating our surface gold tailings, and specifically due to drilling
performed on the Rooikraal tailings deposition facility in fiscal 2018. The
increase was offset by depletion through ongoing mining activities.
The life of mine for Ergo based on proven and probable ore
reserves under Industry Guide 7 of the SEC as at June 30, 2018, was 12 years
and the life of mine as at June 30, 2017, 12 years
.
DRDGOLD's Ore Reserves as of
June 30, 2018 and 2017 are set forth in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
Reserves: Imperial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2018
|
At June 30, 2017
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ergo
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface
|
74.988
|
0.01
|
663
|
291 198
|
0.01
|
2 617
|
99.691
|
0.01
|
881
|
230.136
|
0.01
|
2 110
|
Total
1
|
74.988
|
0.01
|
663
|
291 198
|
0.01
|
2 617
|
99.691
|
0.01
|
881
|
230.136
|
0.01
|
2 110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
reserves: Metric
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2018
|
At June 30, 2017
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ergo
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface
|
68.03
|
0.303
|
20.590
|
264.17
|
0.308
|
81.300
|
90.44
|
0.303
|
27.414
|
208.782
|
0.314
|
65.621
|
Total
1
|
68.03
|
0.303
|
20.590
|
264.17
|
0.308
|
81.300
|
90.44
|
0.303
|
27.414
|
208.782
|
0.314
|
65.621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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.
|
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, 2018 and 2017 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, 2018 and 2017 would be as follows:
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
|
|
|
|
|
|
Year ended June 30, 2017
|
Three-year average gold price
|
Prevailing price
|
10% Below prevailing price
|
10% Above prevailing price
|
Rand gold price per kilogram
|
514 785
|
565 000
|
508 500
|
621 500
|
Dollar gold price per ounce
|
1 216
|
1 280
|
1 152
|
1 408
|
Ore Reserves (million ounces)
|
3.0
|
3.0
|
2.9
|
3.0
|
|
The
approximate mining recovery factors for the 2018 ore reserves shown in the
above table are as follows:
|
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Metallurgical
|
|
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|
|
Mine Call Factor
|
recovery factory
|
|
|
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|
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(%)
|
(%)
|
|
|
Ergo
|
|
|
100
|
48
|
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|
|
|
|
|
|
|
The
approximate mining recovery factors for the 2017 ore reserves shown in the above
table are as follows:
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|
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|
Metallurgical
|
|
|
|
|
|
Mine Call Factor
|
recovery factory
|
|
|
|
|
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(%)
|
(%)
|
|
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Ergo
|
|
|
95
|
47.4
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|
|
|
|
|
The
following table shows the average drill/sample spacing (rounded to the
nearest foot), as at June 30, 2018 and 2017, 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
|
|
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 R543,527 and costs used to determine
|
reserves
as of June 30, 2018, are as follows:
|
|
|
|
Costs used to determine pay-
|
|
|
Pay-limit grade (g/t)
|
limit grade (R/t)
|
Ergo
|
|
0.224
|
58.41
|
|
|
|
|
|
The
pay-limit grades based on the three year average dollar price for gold
amounting to R514,785 and costs used to determine
|
reserves
as of June 30, 2017, are as follows:
|
|
|
|
Costs used to determine pay-
|
Ergo
|
|
Pay-limit grade (g/t)
|
limit grade (R/t)
|
|
|
0.284
|
65.95
|
|
|
|
|
|
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.
|
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.
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 September 30, 2018, 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”).
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 who
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 a new section 50(7A)
that obliges an inspector to impose a prohibition on the further functioning of
a site where a person’s death, serious injury or illness to a person or a
health threatening occurrence has occurred; a new section 86A(1) creating a new
offence for any person who contravenes or fails to comply with the provisions
of the Mine Health and Safety Act thereby causing a person’s death or serious
injury or illness to a person. Subsection (3) further provides that (a) the
“fact that the person issued instructions prohibiting the performance or an
omission is not in itself sufficient proof that all reasonable steps were taken
to prevent the performance or omission”; and that (b) “the defense of ignorance
or mistake by any person accused cannot be permitted”; or that (c) “the defense
that the death of a person, injury, illness or endangerment was caused by the
performance or an omission of any individual within the employ of the employer
may not be admitted”; a new section 86A(2) creating an offence of vicarious
liability for the employer where a Chief Executive Officer, manager, agent or
employee of the employer committed an offence and the employer either connived
at or permitted the performance or an omission by the Chief Executive Officer,
manager, agent or employee concerned; or did not take all reasonable steps to
prevent the performance or an omission. The maximum fines have also been
increased. Any owner convicted in terms of section 86 or 86A may be sentenced
to “withdrawal or suspension of the permit” or to a fine of R3 million or a
period of imprisonment not exceeding five years or to both such fine and
imprisonment, while the maximum fine for other offences and for administrative
fines have all been increased, with the highest being R1 million.
Under the South African Compensation for
Occupational Injuries and Diseases Act, 1993 (as amended), or COID Act,
employers are required to contribute to a fund specifically created for the
purpose of compensating employees or their 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 2018, we contributed approximately R3.7 million
under the COID Act (2017: R3.6 million and 2016: R3.4 million) to a
multi-employer industry fund administered by Rand Mutual Assurance Limited.
Under the Occupational Diseases in Mines and Works
Act, 1973 (as amended), or the Occupational Diseases Act, the multi-employer
fund pays compensation to employees of mines performing “risk work,” usually in
circumstances where the employee is exposed to dust, gases, vapors, chemical
substances or other working conditions which are potentially harmful, or if the
employee contracts a “compensatable disease,” which includes pneumoconiosis,
tuberculosis, or a permanent obstruction of the airways. No employee is
entitled to benefits under the Occupational Diseases Act for any disease for
which compensation has been received or is still to be received under the COID
Act. These payment requirements are based on a combination of the employee
costs and claims made during the fiscal year.
Uranium and radon are often
encountered during the ordinary course of gold mining operations in South
Africa, and present potential risks for radiation exposure of workers at those
operations and the public to radiation in the nearby vicinity. We monitor our
uranium and radon emissions for compliance with all local laws and regulations
pertaining to uranium and radon management and under the current legislative
exposure limits prescribed for workers and the public, under the Nuclear Energy
Act, 1999 (as amended) and Regulations from the National Nuclear Regulator.
Environmental Regulation
Managing the impact of mining on the
environment is extensively regulated by statute in South Africa. Recent
statutory enactments set compliance standards both generally, in the case of
the National Environmental Management Act, and in respect of specific areas of
environment impact, as in the case of the Air Quality Act 2004, the National
Water Act (managing effluent), and the Nuclear Regulator Act 1999. Liability
for environmental damage is also extended beyond the corporate veil to impose
personal liability on managers and directors of mining corporations that are
found to have violated applicable laws.
The impact on the environment by mining
operations is extensively regulated by the 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.
Should the amendment bill to the MPRDA be enacted in its currently proposed form,
the latter three amendments referred to above may have a fundamental impact on
the Group's estimated environmental provisions.
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, 2018, we held a total of R118.0 million (2017: R110.5 million) in
trust, the balance held in each fund being R107.5 million (2017: R100.6
million) for Ergo and R10.5 million (2017: R9.9 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, 2018, we held a total of R126.0 million (2017: R117.2 million) in
funds held in insurance instruments. As at June 30, 2018 guarantees amounting
to R427.3 million (2017: R427.3 million) were issued to the DMR.
The provision for environmental rehabilitation for
the group was R553.4 million at June 30, 2018, compared to R531.7 million at June
30, 2017. The provision for environmental rehabilitation for the group at June
30, 2016 consisted of R522.9 million included in provision for environmental
rehabilitation as well as R15.6 million included in liabilities classified as
held for sale.
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.
Under the FRPs to be implemented by the DMR,
existing environmental rehabilitation trust funds, of which DRDGOLD has R118.0
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, 2015 (“Proposed
Amendments”) were published on Friday, 21 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, 2015). 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
September 30, 2018. 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.
During fiscal year 2018, we completed a
reorganization of some of our subsidiaries to simplify our group structure.
Refer to Exhibit 8.1 for a list of our
significant subsidiaries.
4D. PROPERTY, PLANT AND EQUIPMENT
Description of Significant Subsidiaries'
Properties and Mining Operations, September 2018
FWGR
Overview
On July 31, 2018, we acquired surface
gold processing assets and tailing storage facilities 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, to be known going forward 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
for 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
refer to 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. We acquired the following assets as a result of the
acquisition:
Asset
|
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 processes surface rock dumps (“
SRD
”)
material, which is delivered by rail and truck. Throughput is achieved
through two Semi-Autogenous Grinding (“
SAG
”) mills and a ball milling
circuit, cyanide leaching and a Cleaning-in-place (“
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
c
onverted to process
low-grade surface rock in 1998. Similar to DP2 Plant, SRD ore is 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 and which
is proposed to form part of the WRTRP Assets.
|
|
|
Active Tailings Dams
|
The Driefontein 1 and 2, Kloof 2 and Leeudoorn
currently active tailings dams will also be transferred,
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.
|
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, 2018, Ergo employed 862 full-time employees. In addition, specialist
service providers deployed a further 1 426 employees to our operations
bringing the total number of in-house and outsourced employees to 2 288
(at June 30, 2017:
2,215;
at June 30, 2016:
2,484)
.
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, 2018, and
September 2018, no encumbrances exist on Ergo's property.
The Crown operation is situated on the outskirts of
Johannesburg, South Africa and consists of three separate locations, City Deep,
Crown Mines and Knights. The entire mining footprint consists of the mining
rights of City Deep, Consolidated Main Reef & Estates, Crown Mines (“3Cs”)
and Knights. Crown’s mining rights have been converted to new order rights
under the MPRDA and the mining rights in respect of the 3Cs and Knights were
registered at the Mineral and Petroleum Titles Registration Office in January
2014. Following the restructuring of the company into a single surface
retreatment business unit, these mining rights were transferred to Ergo in
March 2014.
The Crown Mines operation was located on the West
Wits line within the Central Goldfield of the Witwatersrand Basin,
approximately 6 miles (10 kilometers) west of the Johannesburg central business
district in the province of Gauteng. Access is via Xavier Road on the M1
Johannesburg-Kimberley-Bloemfontein highway. However, over a period of more
than 30 years our ore reserves in the western Witwatersrand had become
depleted. We therefore took a decision at the end of fiscal year 2016 that in
fiscal year 2017 we would complete the recovery of material from a number of
Crown reclamation sites and to close the Crown plant. This plant operated as a
pump/milling station feeding the metallurgical plants until March 2017 when it
ceased all operations. By the end of fiscal year 2018, most of the Crown sites
had been cleared and the rehabilitation of the Crown plant site, has
substantially been completed.
The City Deep operation is located on the West Wits
line within the Central Goldfields of the Witwatersrand Basin, approximately 3
miles (5 kilometers) south-east of the Johannesburg central business district
in the province of Gauteng. Access is via the Heidelberg Road on the M2
Johannesburg-Germiston motorway. The City Deep plant continues to operate as a
pump/milling station feeding the metallurgical plants.
The Knights operation is located at Stanley and
Knights Road Germiston off the R29 Main Reef Road. The Knights plant continues
to operate as a metallurgical plant.
History
of Ergo
|
2005
|
Anglo American Corporation commissioned
the Ergo plant in Brakpan in 1977. The operation became part of AngloGold
Ashanti in 1998 and was closed by that company in 2005.
|
2007
|
Ergo was founded by EMO (owned by DRDGOLD
at the time) and Mintails SA as a joint venture.
|
On August 6, 2007, the joint venture
parties entered into an agreement with AngloGold Ashanti - pursuant to which
it acquired the remaining assets of the Ergo plant for a consideration of
R42.8 million.
|
Additional agreements were concluded with
AngloGold Ashanti on November 14, 2007 for the acquisition by Ergo of
additional tailings properties and the Brakpan/Withok TDF for a consideration
of R45.0 million.
|
2008
|
Ergo Phase 1 was launched comprising the
refurbishment and recomissioning of the Ergo plant’s first CIL circuit and
the retreatment of the Elsburg and Benoni tailings complexes.
|
DRDGOLD acquired Mintails SA’s stake in
ErgoGold for R277.0 million.
|
2009
|
Ergo Phase 1 commissioning continued;
first feeder line to the Ergo Plant from Elsburg tailings complex came into
operation.
|
Ergo Phase 2 exploration drilling for
gold, uranium and acid completed.
|
2010
|
DRDGOLD acquired control of Ergo through
the acquisition of Mintails SA’s 50% in Ergo for R82.1 million.
|
Ergo Phase 1 production ramp-up nears
completion with the installation of the second Elsburg tailings complex
feeder line to the Ergo plant. Construction of the Crown/Ergo pipeline
commenced.
|
2011
|
Construction of the Crown/Ergo pipeline
continued and the second CIL circuit of the Ergo plant was refurbished as
part of the Crown/Ergo pipeline project.
|
2012
|
The construction of the Crown/Ergo
pipeline and second CIL circuit of the Ergo plant was completed.
|
2013
|
To improve synergies, effect cost savings
and implement a simpler group structure DRDGOLD restructured the Group’s
surface operations into Ergo on July 1, 2012, which consisted of Crown, the
surface operations of ERPM and ErgoGold. Construction and commissioning of
the Ergo flotation/fine-grind plant (FFG) was completed in late December
2013.
|
2014
|
The FFG was suspended in April 2014 after
metallurgical efficiencies declined. Test-work recommenced in August.
|
A prospecting right in respect of surface
tailings dumps on various portions of the Farm Grootvlei and a portion of the
Farm Geduld was registered on May 12, 2014 for a period of 5 years ending on
April 21, 2019.
|
2015
|
The FFG became fully operational in
February 2015.
|
Ministerial consent in terms of section
11 of the MPRDA for the restructuring of the Group’s surface operations into
Ergo were obtained.
|
2016
|
A legal review of the existing
authorisations was undertaken for increasing the deposition capacity of the
Brakpan/Withok TDF. The results indicated that most of the current
authorisations are sufficient, however certain documentation will need to be
amended.
|
|
|
History
of Crown (consolidated into Ergo on July 1, 2012)
|
1979-2012
|
Crown was an operating mine
|
2013
|
On July 1, 2012, Crown sold its mining
assets, mining and prospecting rights and certain liabilities to Ergo in
exchange for shares in Ergo.
|
2015
|
Ministerial consent in terms of section
11(2) of the MPRDA to cede the converted mining rights of Crown to Ergo was
obtained and in August 2015 the converted mining rights were registered.
|
2017
|
Crown plant ceased all operations in
March 2017 and final rehabilitation of the site commenced.
|
|
|
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. The Crown plant
operated as a pump/milling station feeding the metallurgical plants until March
2017 when it ceased all operations.
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:
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%. This circuit commenced a
three month test phase during August 2014 after it was temporarily suspended in
April 2014 following a decline in metallurgical efficiencies.
By February 2015
the FFG
was returned to full operation.
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. 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.
Crown
Plant:
Commissioned in 1982, this
surface/underground plant comprises a circuit including screening, primary
cycloning, open circuit milling, thickening, oxygen preconditioning, CIP and
CIL, elution, zinc precipitation followed by calcining and smelting to doré. In
June 2012, the gold extraction portion of the Crown plant was discontinued. It
continued to screen, mill and thicken material before being pumped to the Ergo
plant for the final extraction of gold up to March 2017 when all operations
were ceased at this plant. The rehabilitation of the Crown plant site has
substantially been completed by the end of fiscal year 2018.
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, 2018, the net book value of Ergo’s mining assets
was R1 410.7 million (2017: R1,484.0 million).
Capital Expenditure
For a discussion of capital expenditures in
fiscal years 2016, 2017 and 2018, 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, 2018 is approximately R535.9
million. As at June 30, 2018, a total of 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 R47.8 million is held in insurance
instruments.
Ore Reserves
As at June 30, 2018, our Proven and Probable Ore
Reserves of Ergo was 3.3 million ounces. As at June 30, 2017 Proven and
Probable Ore Reserves was 3.0 million ounces. 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
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 2018, we achieved an increase in
production from 137 114 ounces to 150 423 ounces
mainly due to the average yield that increased from
0.171g/t to 0.193g/t.
This was
mainly a consequence of
(i)
not having treated material from the Crown
sites during fiscal year 2018 compared to fiscal year 2017 during which material
from various Crown sites was treated until the said Crown sites were closed, as
well as (ii) processing higher grade material reclaimed from the 5A9 and 4L30
dumps through the Knights Plant.
Volume
throughput decreased during fiscal year 2018 to 24.3Mt compared to 25.0Mt in
fiscal year 2017.
Cash operating costs in fiscal year 2018 was down
$4 per ounce from $1,122 in fiscal year 2017 to $1,118 per ounce mainly due to
the increased production.
|
The following table details certain
production and financial results of the Group (consisting of the production
results of Ergo) for the past three fiscal years.
|
|
|
2018
|
2017
|
2016
|
Production
(imperial)
|
|
|
|
Ore milled ('000 tons)
|
24 281
|
24 958
|
24 842
|
Recovered grade (oz/ton)
|
0.006
|
0.005
|
0.005
|
Gold produced (ounces)
|
150 423
|
137 114
|
143 457
|
Results of Operations
|
|
|
|
Revenue (R million)
|
2 490.4
|
2 339.9
|
2 433.1
|
Cost of sales (R million)
|
2 347.7
|
2 307.9
|
2 236.8
|
Cash operating cost (R million)
|
2 159.7
|
2 087.9
|
1 991.2
|
Cash operating costs (R/kilogram)
(1)
|
458 866
|
489 549
|
446 153
|
All-in sustaining costs (R/kilogram)
(1)
|
505 622
|
530 930
|
499 425
|
All-in cost (R/kilogram)
(1)
|
524 651
|
552 243
|
512 353
|
(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.”
|
See
Item 5A. Operating Results – Capital expenditure for a discussion on capital
expenditure.
ERPM
Overview
As at June 30, 2018 DRDGOLD owns 100% of ERPM. ERPM
consists of an underground section that was halted in October 2008. At June 30,
2018, ERPM had no employees. The financial results and assets and liabilities
of these halted underground operations are included in ‘Corporate office and
other reconciling items’ in the financial statements for segmental reporting
purposes for all three years presented
.
Property
ERPM is situated on the Central Rand Goldfield located within and
near the northern margin of the Witwatersrand Basin in the town of Boksburg, 20
miles (32 kilometers) east of Johannesburg on land owned by ERPM. Access is via
Jet Park Road on the N12 Boksburg-Benoni highway. Historically underground
mining and recovery operations comprised relatively shallow remnant pillar
mining in the central area and conventional longwall mining in the
south-eastern area. Surface reclamation operations including the treatment of
sand from the Cason Dump, was conducted through the Knights metallurgical
plant, tailings deposition facilities and associated facilities. Until
underground mining was halted in October 2008, the mine exploited the
conglomeratic South Reef, Main Reef Leader and Main Reef in the central area
and the Composite Reef in the south-eastern area. ERPM operates under mining
license ML5/1997 in respect of statutory mining and mineral rights.
As of June 30,
2018
, and September 30,
2018
, no
encumbrances exist on ERPM's property.
At June 30, 2018, the net book
value of ERPM’s mining assets was zero due to the transfer of ERPM’s related
surface mining assets to Ergo as part of the restructuring which took place on
July 1, 2012.
History
|
|
1895-2007
|
ERPM was an operating underground gold
mine
|
2008
|
On October 23, 2008, ERPM announced the
suspension of drilling and blasting operations underground, following the
cessation of pumping of underground water at the South West Vertical shaft on
October 6, 2008 for safety reasons following the deaths of two employees. On
November 19, 2008, we announced our intention to place on care and
maintenance the underground operations of ERPM, and to proceed with a
consultation process in terms of Section 189A of the Labor Relations Act to
determine the future of the mine’s 1,700 employees.
|
2013
|
On July 1, 2012, ERPM sold all its
surface mining assets (excluding its 50% interest in Ergo) and its 65%
interest in ErgoGold to Ergo in exchange for shares in Ergo.
|
2014
|
During July 2014 EMO and ERPM entered
into an agreement with ERPM South Africa Holding Proprietary Limited, the
nominee of Australian based Walcott Capital for the disposal of certain of
the underground mining and prospecting rights held by ERPM including the
related environmental liabilities. This agreement is subject to a number of
suspensive conditions including regulatory consent and permission which had
not been fulfilled at the date of this report.
|
2015
|
Ministerial consent in terms of section
11(2) of the MPRDA to cede the converted mining rights of ERPM’s surface
operations to Ergo was obtained and in August 2015 the converted mining
rights were registered.
|
2017
|
Management concluded the restructure of
payment terms in support of the timely conclusion of the disposal of certain
underground assets
|
2018
|
The contract to dispose of certain of the
underground mining and prospecting rights, including the related liabilities,
lapsed on 31 March 2018.
|
Mining and Processing
ERPM’s underground gold mine is under care and
maintenance and has not produced any gold since fiscal year 2009.
Exploration and Development
ERPM has a prospecting right covering an area of
1,252ha (3,094 acres) of the adjacent Sallies mine, referred to as ERPM
Extension 1. The regional geology of the area indicates that there will be a
strike change due to faulting associated with an East-West trending sinistral
tear fault. In order to confirm the anticipated change in the geological
structure and hence payshoot orientation, it is envisaged that prospecting
would take place through development situated 50m in the footwall. Owing to
high induced stress experienced at depth, there will be concurrent over-stoping
(that is stoping taking place concurrently with development) on the reef plane
for safety reasons. Prior to this prospecting right in respect of ERPM Ext. 1
lapsing, an application for a mining right in respect of the same prospecting
footprint was made in terms of the provisions of the MPRDA. The said mining
right was approved and granted and the registration thereof took place in March
2012. The mining right will expire in January 2042.
An additional application to extend ERPM’s existing
prospecting right eastwards into the Rooikraal/Withok area, incorporating the
southern section of the old Van Dyk mining lease area and a small portion of
Sallies, was granted by the DMR in fiscal year 2007. Known as ERPM Extension 2,
the additional area is 5,500ha (13,590 acres). This prospecting right was
initially granted for a period of 4 years and expired in March 2011. An application
for renewal thereof was made in terms of the provisions of the MPRDA. The
renewal of the prospecting right was initially refused by the DMR, but after an
appeal was lodged with the Legal Services Directorate of the DMR, the renewal
of the prospecting right was granted in November 2014. These rights, ERPM Ext 1
and ERPM Ext 2, both formed part of the sale transaction with Walcott Capital
that has since lapsed.
Environmental and Closure Aspects
There is a regular ingress of water into the
underground workings of ERPM, which was contained by continuous pumping from
the underground section. Studies on the estimates of the probable rate of rise
of water have been inconsistent, with certain theories suggesting that the
underground water might reach a natural subterranean equilibrium, whilst other
theories maintain that the water could decant or surface. A program is in place
to routinely monitor the rise in water level in the various underground
compartments and there has been a substantial increase in the subsurface water
levels.
The government has appointed Trans-Caledon Tunnel
Authority (TCTA) to construct a partial treatment plant (neutralisation plant)
to prevent the ground water being contaminated. TCTA completed the construction
of the neutralisation plant for the Central Basin and commenced treatment
during July 2014. As part of the Heads of agreement signed in December 2012
between EMO, Ergo, ERPM and TCTA, sludge emanating from this plant is
co-disposed onto the Brakpan/Withok TDF. Partially treated water is then
discharged by TCTA into the Elsburg Spruit. This agreement includes the
granting of access to the underground water basin through one of ERPM shafts
and the rental of a site onto which it constructed its neutralisation plant. In
exchange, Ergo and its associate companies including ERPM have a set-off
against any future directives to make any contribution toward costs or capital
of up to R250 million.
Through this agreement, Ergo also secured the
right to purchase up to 30 ML of partially treated AMD from TCTA at cost, in
order to reduce Ergo’s reliance on potable water for mining and processing
purposes.
While the ultimate amount of rehabilitation costs
to be incurred in the future is uncertain, we have estimated that as at June
30, 2018 the present discounted value of the total cost of rehabilitation for
ERPM is approximately R17.6 million (2017: R16.8 million. A total of R10.5 million
(2017: R9.9 million) is held in the Ergo Rehabilitation Trust Fund (previously
called the Crown Rehabilitation Trust Fund) for the benefit of ERPM and R73.7 million
(2017: R68.2 million) is held in insurance instruments and is available for the
settlement of these rehabilitation costs. The Ergo Rehabilitation Trust Fund is
an irrevocable trust, managed by specific responsible people who we nominated
and who are appointed as trustees by
the Master of the
High Court of South Africa.
Ongoing Legal Proceedings
Ekurhuleni Metropolitan Municipality (“Municipality”) Electricity
Tariff Dispute
Main Application
Integral to
Ergo’s gold extraction operation is its metallurgical plant at Brakpan (“Ergo
Plant”) located within the municipal boundaries of the Municipality. In order
to operate the Ergo Plant and conduct its business operations, Ergo requires a
reliable and steady feed of electricity which it draws from Eskom’s Ergo
Central Substation.
Over the
past several years the Municipality has charged Ergo for such electricity, at
the Megaflex tariff, which is the rate at which Eskom charges its large power
users plus an additional surcharge.
Pursuant
to its own investigations, and after having sought legal advice on the matter,
Ergo determined that not only is it supplied by Eskom, not the Municipality,
but also that the surcharges levied were inconsistent with the provisions of
the Local Government: Municipal Systems Act (“Systems Act”), which sets down
clear and strict parameters in this regard. Ergo subsequently challenged the
Municipality, Eskom and the National Energy Regulator of South Africa (“NERSA”)
for declaratory relief. Included in the application are the Minister of Energy
Affairs, the Minister of Co-operative Governance & Traditional Affairs and
the South African Local Government Association, the latter 4 (four) respondents
against whom Ergo does not seek any relief and who have not opposed the
application.
Ergo
seeks the following relief:
1. declaring that it is not supplied electricity by the
Municipality and that the Municipality is not authorised to levy a surcharge of
40% (“the D-tariff”) to the rate which Eskom ordinarily charges Ergo on its
Megaflex rate (“Eskom tariff”);
2. declaring that the Municipality is in breach of its
temporary Distribution Licence (issued by NERSA) by purporting to supply
electricity to Ergo at the Ergo Plant;
3. declaring that neither the Municipality nor Eskom may
lawfully insist that only the Municipality may supply electricity to Ergo at
the Ergo Plant;
4. declaring
that Eskom presently supplies electricity to Ergo at the Ergo Plant; and
5. directing
Eskom to conclude a consumer agreement with Ergo for the supply of electricity
at the Ergo Plant at Eskom’s Megaflex tariff.
Ergo,
also instituted a counterclaim against the Municipality for the recovery of the
surcharges which were erroneously paid to the Municipality in the
bona fide
belief that they were due and payable prior to the Main Application of
approximately R43 million (these surcharges were expensed for accounting
purposes).
Consequently,
and pending the final determination of the Main Application by the High Court,
Ergo stopped paying the surcharges to the Municipality, paying and expensing only
the Eskom tariff and depositing the difference comprising the D-tariff into its
attorneys’ trust account as security in favour of the Municipality in the event
that the court rules against Ergo. These surcharges were not expensed but
recognised under cash and cash equivalents as restricted cash (refer to Item
18. ‘‘Financial Statements – Note 12”).
The Main Application has been set down for
hearing on 5 December 2018. Based on the probability of outflows, no liability
for any surcharges claimed by the Municipality has been recognised.
Urgent Application
In May 2015, the Municipality threatened to,
through an interruption to the Eskom supply grid, cause the supply of electricity
to the Ergo Central Substation to be terminated. Ergo successfully interdicted
the Municipality, pending the determination of the Main Application.
The Municipality sought leave to appeal the
interdict, which application was rejected by the High Court. The Municipality
then successfully petitioned the Supreme Court of Appeal (“SCA”) in
Bloemfontein for leave to appeal thereto.
Ergo subsequently, and ultimately, petitioned
the Constitutional Court in Braamfontein, Johannesburg in December 2017 for
leave to appeal thereto against the latter judgment of the full bench of the
SCA, which found in favour of the Municipality. In January 2018, the
Constitutional Court rejected and refused to hear Ergo’s petition for a further
appeal.
This ruling enabled the Municipality to avail
itself of the credit control measures provided for in the Systems Act by
terminating the supply of electricity to Ergo, unless it paid the surcharges
levied in their entirety and which were retained in Ergo’s attorneys’ trust
account over to the Municipality.
On the date of the Constitutional Court
ruling, the money held in Ergo’s attorney’s trust account amounted to
approximately R126 million. In February 2018, Ergo paid R25.2 million (including
VAT) from the trust account to the Municipality, under protest and without
prejudice and/or admission of liability (
refer to
Item 18. ‘‘Financial Statements – Note 24.2”
). This amount was the difference between the surcharge of 11%
(“the J-tariff”) over the Eskom tariff which was introduced during the course
of 2017 “
for bulk supplies at medium and high voltage situated in a position
designated by the Municipality as close-coupled to the Eskom grid
”. The
J-tariff, which Ergo still deems to be irregular and disproportionate in
accordance with the provisions of the Systems Act, is significantly lower than
the previously imposed “D-tariff”. The balance, following the payments of the
R25.2 million, remains in the trust account of Ergo’s attorneys of record.
Subsequently, Ergo pays monthly to the
Municipality,
the amount calculated at the lower J-tariff in respect of its electricity
consumption, under protest and without prejudice and/or admission of liability
(
refer to Item 18. ‘‘Financial Statements –
Note 24.2”
).
Ergo’s legal team is confident about the
prospects of success in the Main Application on the basis that the Municipality
does not supply electricity to Ergo or in any manner add value to Eskom’s
supply of electricity to Ergo. Ergo is furthermore, in terms of the Main
Application, in addition to its contention that the Municipality does not
supply electricity to it and not licensed to supply it, challenging the
imposition of both the J-tariff and D-tariff on the grounds that they are,
inter
alia, ultra vires
and beyond the scope of the Municipality’s Electricity
By-Laws, the Systems Acts as well as the Credit Control and Debt Collection
By-Laws.
The Main Application has been set down for
hearing on 5 December 2018. Based on management’s assessment of the probability
of outflows, no liability for any surcharges claimed by the Municipality has
been recognised.
Silicosis Litigation
In January 2013, DRDGOLD, ERPM (“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 (“Court") for a class certification
(“Certification Application”) 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.
In May 2016, the Court granted an order for,
inter
alia
, (1) certification of two industry-wide classes: a silicosis class and
a tuberculosis class, both of which cover current and former underground
mineworkers who have contracted the respective diseases (or the dependants of
mineworkers who died of those diseases); and (2) that the common law be
developed to provide that in instances where a claimant claiming general
damages passed away, the claim for general damages will be transmitted to the
estate of the deceased claimant. This order did not represent a ruling on the
merits of the Application brought against the Respondents.
An application for leave to appeal to the Supreme
Court of Appeal (“SCA”) was brought by each of the respondent mining companies
against the order of the Court, specifically on the allegations of the
certification and transmissibility of damages to the estate of a deceased
mineworker.
In June 2016, the Court granted leave to appeal to the
SCA against the transmissibility of damages but refused leave to appeal in
respect of the certification.
The DRDGOLD Respondents (together with each of the
Working Group companies) served a notice of appeal to petition the SCA against
the certification and the transmissibility of damages. The SCA granted leave to
appeal thereto on both issues in September 2016.
The appeal to the SCA was set down for hearing in
March 2018 but was subsequently postponed indefinitely by agreement between the
Applicants and the Respondent companies in the light of progress made by the
Working Group as described below. The SCA endorsed and upheld the postponement.
The Respondent companies formed a Working Group
consisting of representatives from each company to consider and discuss issues
pertaining to the action. DRDGOLD withdrew from the Working Group in January
2016.
The remaining members of the Working Group have all
raised accounting provisions during the 2017 calendar year due to progress made
by the Working Group towards a settlement with the Applicants. In May 2018, the
remaining members of the Working Group announced that a mediated settlement
agreement had been reached. The agreement is subject to certain suspensive
conditions, including the approval by the South African High Court after which
an effective date of the agreement will be set.
DRDGOLD is not a party to the Working Group’s mediated
settlement agreement and maintains the view that it is too early to consider
settlement of the matter, mainly for the following reasons:
• the Applicants have as yet not issued and served a summons
(claim) in the matter;
• there is no indication of the number of potential claimants that
may join the class action against the DRDGOLD respondents;
• many principles upon which legal responsibility may be founded,
are required to be substantially developed by the trial court (and possibly
subsequent courts of appeal) to establish liability on the bases alleged by the
applicants.
In light of the above there is inadequate information
to determine if a sufficient legal and factual basis exists to establish
liability, and to quantify such potential liability.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following Operating and Financial Review and Prospects section
is intended to help the reader understand the factors that have affected the
Company's financial condition and results of operations for the historical
period covered by the financial statements and management's assessment of
factors and trends which are anticipated to have a material effect on the
Company's financial condition and results in future periods. This section is
provided as a supplement to, and should be read in conjunction with, our
audited financial statements and the other financial information contained
elsewhere in this Annual Report. Our financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). Our discussion contains
forward looking information based on current expectations that involve risks
and uncertainties, such as our plans, objectives and intentions. Our actual
results may differ from those indicated in such forward looking statements.
5A. OPERATING RESULTS
Business overview
We are a South African gold mining company engaged in
surface gold tailings retreatment
, including exploration, extraction, processing and
smelting. All our surface tailings retreatment operations, including the
requisite infrastructure and metallurgical processing plants, are located in
South Africa. 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 from its assets depends, to a large extent, on how
effectively it continues to manage its resources.
DRDGOLD’s strategic thinking is informed by principles
of sustainable development. Our goal is to optimally exploit our entire
resource over the long term, thereby seeking sustainable benefits in respect to
the following capitals, each of which is essential to our operation –
financial, manufactured, natural, human and social capital.
We also aim to align and overlap the interests of each
of these capitals in such a manner that an investment in any one translates
into value-add in as many of the others as possible. We therefore seek to
achieve an enduring and harmonious alignment between them, and we pursue these
criteria in the feasibility analysis of each investment.
Our profit for fiscal 2018 decreased despite an increase
in gold produced of 10%. This was due to,
inter alia
, the following:
·
the average rand gold price received having
decreased by 3%;
·
the expense related to the increase in the
LTI scheme liability amounted to R17.2 million during fiscal 2018 compared to
to R10.0 million during fiscal 2017;
·
a net income tax charge of R25.9 million compared
to a net income tax benefit of R50.4 million during fiscal 2017 which includes
a deferred tax rate adjustment of R12.8 million;
·
non-recurring transactions costs on the
acquisition of the WRTRP assets from Sibanye-Stillwater of R9.0 million; and
·
profit for fiscal year 2018 did not include
any profit on disposal of property, plant and equipment
The profit in fiscal year 2017 decreased versus the
prior year largely due to a 4% decrease in gold produced. The average rand gold
price received remained flat at R548,268.
The lower gold production was due to a lower average yield as the
throughput volumes were consistent with fiscal year 2016.
The profit for fiscal year 2017 also includes
a profit on disposal of property, plant and equipment of R12.9 million and a
net income tax benefit of R50.4 million which mainly consist of a deferred tax
rate adjustment of R37.5 million.
The profit in fiscal year 2016 includes a reversal
of an accrual of R22.7 million and a profit on disposal of property, plant and
equipment of R10.5 million.
On July 31, 2018, we completed the
acquisition of the gold assets associated with Sibanye-Stillwater’s WRTRP, to
be known going forward 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
for a period of 2 years from the effective date of the acquisition
at a 10% discount to the prevailing market value
.
Key drivers of our operating results and principal factors
affecting our operating results
The principal uncertainties and variables facing our
business and, therefore, the key drivers of our operating results are:
·
The price of gold, which fluctuates both in terms of
dollars and rands;
·
Our production tonnages and gold content thereof,
impacting on the amount of gold we produce at our operations;
·
Our cost of producing gold, including the effects of
mining efficiencies; and
·
General economic factors, such as exchange rate
fluctuations and inflation, and factors affecting mining operations in South
Africa.
Gold price
Our revenues are derived primarily from the sale of gold produced
at our surface tailings retreatment operations. As a result, our operating
results are directly related to the price of gold, which can fluctuate widely
and is affected by numerous factors beyond our control, including industrial
and jewelry demand, expectations with respect to the rate of inflation, the
strength of the U.S. dollar (the currency in which the price of gold is
generally quoted) and of other currencies, interest rates, actual or expected
gold sales by central banks, forward sales by producers, global or regional
political or economic events, and production and cost levels in major
gold-producing regions such as South Africa. In addition, the price of gold is
often subject to rapid short-term changes because of speculative activities.
The demand for and supply of gold affects gold prices, but not necessarily in
the same manner that supply and demand affect the prices of other commodities.
The supply of gold consists of a combination of new production from mining and
existing stocks of bullion and fabricated gold held by governments, public and
private financial institutions, industrial organizations and private
individuals. As a general rule we sell the gold produced at market prices to
obtain the maximum benefit from prevailing gold prices and we generally do not
hedge against changes in gold prices.
However, during periods of medium-term
borrowings being incurred to fund specific growth projects that may introduce
some liquidity risk, we may enter into facilities to establish some price
protection to mitigate this liquidity risk (refer to
Item 11. Quantitative and
Qualitative Disclosures About Market Risk – General)
.
On September 3, 2018, Ergo Mining Proprietary Limited
entered into a zero cost collar, with respect to
50,000 ounces of gold, spread equally over nine months commencing
September 2018. The collar has a floor of R 565,000/kg and a ceiling of just
under R609,000/kg and will be settled in cash at the end of each month
The following table indicates data relating to the
dollar gold spot prices for the 2018 and 2017 fiscal years:
|
2018 fiscal year
|
2017 fiscal year
|
Change
|
|
$ per ounce
|
$ per ounce
|
%
|
Closing gold spot price on June 30,
|
1 252
|
1 241
|
1
|
Lowest gold spot price during the fiscal
year
|
1 204
|
1 128
|
7
|
Highest gold spot price during the fiscal
year
|
1 366
|
1 366
|
0
|
Average gold spot price for the fiscal
year
|
1 297
|
1 257
|
3
|
|
|
|
|
|
2017 fiscal year
|
2016 fiscal year
|
Change
|
|
$ per ounce
|
$ per ounce
|
%
|
Closing gold spot price on June 30,
|
1 241
|
1 322
|
(6)
|
Lowest gold spot price during the fiscal
year
|
1 128
|
1 051
|
7
|
Highest gold spot price during the fiscal
year
|
1 366
|
1 324
|
3
|
Average gold spot price for the fiscal
year
|
1 257
|
1 167
|
8
|
Our production has been sourced from South Africa, and
as a result, the impact of movements in relevant exchange rates is significant
to our operating results.
The average gold price in rand (based on average spot
prices for the year)
increased
by
1%
from R
16 939
per ounce in
2016
to R
17 094
per ounce in
2017
, and
decreased
by
3%
to R
16 662
per ounce in
2018
.
An increase/(decrease) of 10% in the rand gold price
throughout fiscal year 2018 would have increased/(decreased) revenue by
approximately R249.0 million (2017: R234.0 million).
Gold production
In fiscal year 2018, we achieved an increase in gold
produced to 150 423 ounces (produced from 24.3 million tonnes milled at
an average yield of 0.193g/t) from 137 114 ounces in fiscal year 2017
(produced from 25.0 million tonnes milled at an average yield of 0.171g/t). This
was
mainly due to (i) not treating material from
the Crown sites that were closed during 2017 at a higher cost as well as (ii)
treating higher grade material reclaimed from the 5A9 and 4L30 dumps through the
Knights Plant during fiscal year 2018.
In fiscal year 2017, gold produced decrease to 137 114
ounces (produced from 25.0 million tonnes milled at an average yield of 0.171g/t)
from 143 457 ounces in fiscal year 2016 (produced from 24.8 million
tonnes milled at an average yield of 0.180g/t). The decrease in total gold
produced is mainly due to t
he lower average yield
achieved. The decrease in yield
was
due to the reclaimed material from the Crown
sites in the western Witwatersrand that were closed during fiscal year 2017 that
required higher volumes of water to treat. As a result, the treatment system
contained more water than material, leading to lower densities and with no
capacity for augmentation with material from our other operating sites.
Cash operating costs
Cash operating costs is a
non-IFRS financial measure of performance
that is
reported to
the group’s chief operating
decision maker (CODM) and
is used to monitor performance
– refer
to
Item 18. ‘‘Financial Statements - Note 21
– Operating Segments”.
For a reconciliation of this measure see Item
5A.: “Reconciliation of cash cost per kilogram, all-in sustaining costs per
kilogram and all-in costs per kilogram”.
Cash operating costs include consumables, labor,
specialized service providers, electricity and other related costs incurred in
the
production of gold. Consumables, water and
electricity, labor, specialized service providers and other costs are the
largest components of cash operating costs. The breakdown of cash operating
costs into these costs are described in Item 5A.: “
Comparison
of financial performance for the fiscal year ended June 30, 2018 with fiscal
year ended June 30, 2017”
General economic factors
All our operations are located in South Africa. We are
exposed to a number of factors, which could affect our profitability, such as
exchange rate fluctuations, inflation and other risks relating to South Africa.
In conducting mining operations, we recognize the inherent risks and
uncertainties of the industry, and the wasting nature of the assets.
Effect of exchange rate fluctuations
For the fiscal years 2018, 2017 and 2016, all of our
revenues were generated from South African operations, all of our operating
costs were denominated in rand and we derived all of our revenues in dollars
before being translated to rands. As the price of gold is denominated in
dollars which is then translated into rands, the appreciation of the dollar
against the rand increases our profitability, whereas the depreciation of the
dollar against the rand reduces our profitability.
In fiscal year 2018 the Rand gold price received decreased
by 3% compared to fiscal year 2017 due to the combined impact of the average
Dollar gold price which increased
by
4%
and the average exchange rate of the rand against the
dollar that strengthened by 5%.
In fiscal year 2017 the Rand gold price received remained
flat compared to fiscal year 2016 reflecting the combined impact of the average
Dollar gold price which increased
by
8%
and the average exchange rate of the rand against the
dollar which strengthened by 6%.
In line with our long-term strategy of being an
unhedged gold producer, we generally do not enter into forward gold sales
contracts to reduce our exposure to market fluctuations in the Dollar gold
price or the exchange rate movements. If revenue from gold sales falls for a
substantial period below our cost of production at our operations, we could
determine that it is not economically feasible to continue commercial
production at any or all of our plants or to continue the development of some
or all of our projects. However, during periods when medium-term debt is
incurred to fund growth projects and hence introduce liquidity risk to the
Group, we may mitigate this liquidity risk by entering into facilities to
achieve price protection (refer
Item 11. Quantitative and Qualitative Disclosures
About Market Risk – General)
.
Effect
of inflation and exchange rates
In the past, our operations have been materially adversely
affected by inflation. If there is a significant increase in inflation in South
Africa, our costs will increase and if such a cost increase is not offset by an
increase in the rand price of gold, this will negatively affect our operating
results.
The movements in the rand/dollar exchange rate, based upon average
rates during the periods presented, and the local annual inflation rate for the
periods presented, as measured by the South African Consumer Price Index, or
CPI, are set out in the table below:
|
Fiscal year ended
|
Year
ended June 30,
|
2018
|
2017
|
2016
|
(%)
|
(%)
|
(%)
|
The average rand/dollar exchange rate
(strengthened)/weakened by
|
(5)
|
(6)
|
27
|
CPI (inflation rate)
|
4.6
|
5.1
|
6.3
|
Recent developments
Revised Mineral Reserves
DRDGOLD began a drilling program and pre-feasibility study (PFS)
in September 2016 aimed at re-evaluating its surface gold tailings. The PFS
focused on tailings on the East Rand, to the east of the Ergo plant, with the
aim of adding these to the Mineral Reserve base. Mineral Reserves
as measured under the SAMREC
code
increased by 10% from 3.0Moz (299.2Mt @ 0.31g/t Au) in fiscal 2017
to 3.3Moz (332.2Mt @ 0.31g/t Au) in fiscal 2018 due to additional drilling
performed on the Rooikraal tailings deposition facility.
Key financial
and operating indicators
The table below presents the key performance
measurement data for the past three fiscal years: The financial results for the
years ended June 30, 2018, 2017 and 2016 below are stated in accordance with
IFRS as issued by the IASB. The table also includes the key performance
measures for our business and its profitability, which are revenue, gold
production, gold prices, operating costs, cash operating costs per kilogram,
all-in sustaining costs per kilogram and all-in costs per kilogram, capital
expenditure (additions to property, plant and equipment) and Ore Reserves.
Operating data
|
|
|
|
|
Year ended June 30,
|
|
2018
|
2017
|
2016
|
Revenue (R'm)
|
2 490.4
|
2 339.9
|
2 433.1
|
Gold production (ounces)
|
150 423
|
137 114
|
143 457
|
Gold production (kilograms)
|
4 679
|
4 265
|
4 462
|
Gold sold (ounces)
|
149 604
|
137 221
|
143 232
|
Gold sold (kilograms)
|
4 653
|
4 268
|
4 455
|
Average spot gold price (R/kilogram)
|
535 696
|
549 582
|
544 608
|
Average gold price received (R/kilogram)
|
534 344
|
548 268
|
546 142
|
Cost of sales (R'm)
|
2 347.7
|
2 307.9
|
2 236.8
|
Operating costs (R'm)
|
2 207.1
|
2 109.3
|
2 030.2
|
Cash operating costs (R'm)
(1)
|
2 159.7
|
2 087.9
|
1 991.2
|
Cash operating costs (R/kilogram)
(1)
|
458 866
|
489 549
|
446 153
|
All-in sustaining costs (R/kilogram)
(1)
|
505 622
|
530 930
|
499 425
|
All-in costs (R/kilogram)
(1)
|
524 651
|
552 243
|
512 353
|
Additions to property, plant and
equipment (R'm)
|
126.1
|
116.3
|
100.0
|
Ore Reserves (ounces)
|
3 280 000
|
2 990 000
|
1 840 000
|
(1) Cash operating costs, cash operating
costs per kilogram, all-in sustaining costs, all-in sustaining costs per
kilogram and all-in costs and all-in costs per kilogram are non-IFRS
financial measures of performance that we use to monitor performance. A
reconciliation of these measures to cash operating costs, are included in
Item 5A.: “Operating Results - Reconciliation of cash cost per kilogram,
all-in sustaining costs per kilogram and all-in costs per kilogram.”
|
Revenue
Revenue increased by 6% to R2 490.4 million in fiscal year
2018 from R2 339.9 million in fiscal year 2017 mainly due to a
9% increase in gold sold from 4 268 kilograms
in fiscal 2017 to 4 653 kilograms in fiscal 2018 despite the average rand
gold price received having decreased by 3% to R534 344 per kilogram.
Revenue decreased by 4% to R2 339.9 million in fiscal year
2017 from R2 433.1 million in fiscal year 2016 mainly due to a
4% decrease in gold sold from 4 455 kilograms
in fiscal 2016 to 4 268 kilograms in fiscal 2017. The average rand gold
price received having remained flat
in fiscal year 2017
compared to
fiscal year 2016
.
Refer to Item 5A:. “Operating
results: Key drivers of our operating results and principal factors affecting
our operating results” for a discussion regarding the impact of the gold price
received and the production levels on revenue.
Ore Reserves
As at June 30, 2018, our Ore Reserves
(imperial)
were
estimated at 3.3 million ounces, as compared to 3.0 million ounces at June
30, 2017, 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 2018. 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
3.0 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
.
Our Ore Reserves (imperial)
decreased
from 1.9
million ounces at
June
30,
2015, to 1.8 million ounces at
June 30,
2016, mainly because of
depletion through ongoing mining activities.
|
Year ended June 30,
|
|
2018
|
2017
|
2016
|
Ore Reserves
|
Ounces
|
Kilograms
|
Ounces
|
Kilograms
|
Ounces
|
Kilograms
|
|
‘000
|
|
‘000
|
|
‘000
|
|
Ergo
|
3 280
|
105 454
|
2 990
|
93 035
|
1 840
|
57 235
|
Total Ore Reserves
|
3 280
|
105 454
|
2 990
|
93 035
|
1 840
|
57 235
|
Capital expenditure
During fiscal year 2018, capital expenditure was R125.9 million,
compared to R110.6 million in fiscal year 2017, an increase of
R15.3 million. Capital expenditure increased primarily as
a result of R41.3 million spent on the installation of two ball mills at Ergo
in order to process higher grade sand at better margins (these mills were reclaimed
from the now decommissioned Crown plant), R24.3 million spent on the ramp-up of
reclamation from the 4L50 slimes dam, which is the southern portion of the
Elsburg Tailings Complex, bordering Boksburg and Germiston; R14.4 million spent
on conversion of the Ergo plant’s electro-winning circuit to zinc precipitation
and EBDA also spent R17.8 million on building a new lodge to support training
services rendered.
During fiscal year 2017, capital expenditure was R110.6 million,
compared to R99.8 million in fiscal year 2016, an increase of R10.8
million. Capital expenditure increased primarily as a result of
R31.9 million spent on bringing new Reclamation Site 4L37
on line, being one of three new reclamation sites that were
commissioned during fiscal year 2017 to replace the various Crown sites that
were closed
, R29.5 million spent on the
Centralised
Water Facility to reduce the use of potable water and reduce the associated
cost of water
, R13.4 million spent on various exploration and grade
verification projects and the balance was spent on various other capital items.
Critical
accounting policies that require significant judgment
The preparation of the
consolidated financial statements requires management to make accounting
assumptions, estimates and judgements that affect the application of the
Group's accounting policies and reported amounts of assets and liabilities,
income and expenses. By their nature, judgments are subject to an inherent
degree of uncertainty. Accounting assumptions, estimates and judgements are
reviewed on an ongoing basis. Revisions to reported amounts are recognized in
the period in which the revision is made and in any future periods affected.
Actual results may differ from these estimates.
Management believes the
following critical accounting policies involve the more significant assumptions
and estimates used in the preparation of our consolidated financial statements
and could potentially impact our financial results and future financial
performance:
·
Depreciation of property, plant and equipment
·
Impairment of property, plant and equipment
·
Future environmental rehabilitation costs
·
Income tax
·
Long-term receivable
Management believes the
following critical accounting policies involve the more significant judgements
used in the preparation of our consolidated financial statements and could potentially
impact our financial results and future financial performance:
·
Assets and liabilities classified as held for
sale
·
Long-term receivable
·
Contingent liabilities
Management has discussed the development
and selection of each of these critical accounting policies with the Board of
Directors and the Audit and Risk Committee, both of which have approved and
reviewed the disclosure of these policies. This discussion and analysis should
be read in conjunction with the consolidated financial statements and related
notes included in Item 18. “Financial statements”.
Depreciation of property, plant and equipment
Depreciation of mining
property and development (including mineral rights) and mine plant facilities
are calculated using the units of production method which is based on the life
of mine
.
The group’s life of mine is
primarily based on proved and probable ore reserves and may include some
resources. It reflects the estimated quantities of economically recoverable
gold that can be recovered from reclamation sites based on the gold price
prevailing at the end of the financial year. Changes in the life of mine will
impact depreciation on a prospective basis. The life of mine is prepared using
a methodology that takes account of current information to assess the
economically recoverable gold from specific reclamation sites and includes the
consideration of historical experience.
Other
assets are depreciated using the straight-line method over the expected life of
these assets.
Impairment of property, plant and equipment
The carrying amounts of property, plant and equipment
are reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, the asset's
recoverable amount is estimated. The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. For the purpose of impairment testing, assets are grouped together
into the smallest group of assets which generates cash inflows from continuing
use that is largely independent of the cash inflows of other assets or groups
of assets, or the cash-generating unit. Each metallurgical plant or combination
of plants that, together with its deposition facility, is capable of operating
independently is considered to be a cash-generating unit. An impairment loss is
recognized directly against the carrying amount of the asset whenever the
carrying amount of an asset, or its cash generating unit, exceeds its
recoverable amount. Impairment losses are recognized in profit or loss.
Management considers such factors as the
market capitalization of the group, mineral reserves and resource estimates,
production estimates, spot and future gold prices, foreign currency exchange
rates, discount rates, estimates of costs to produce and future capital
expenditure in determining the recoverable amount.
Future environmental rehabilitation costs
Provisions for environmental rehabilitation are
provided at the present value of the costs expected to be incurred in the
future to settle the obligation based on current prices. The unwinding of the
obligation is included in profit or loss. Estimated future costs of
environmental rehabilitation are reviewed regularly and adjusted as
appropriate. Changes in estimates are capitalized or reversed against the
related asset but taken to profit or loss if there is no related asset left.
Gains or losses from the expected disposal of assets are not taken into account
when determining the provision.
Estimates of future environmental rehabilitation
costs are based on the Group’s environmental management plans which are
developed in accordance with regulatory requirements, the life-of-mine plan and
the planned method of rehabilitation which is influenced by developments in
trends and technology.
Income tax
Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes. The
deferred tax liability is calculated by applying a forecast weighted average
tax rate that is based on a prescribed formula. The calculation of the forecast
weighted average tax rate requires the use of assumptions and estimates and are
inherently uncertain and could change materially over time. These assumptions and
estimates include the expected future profitability and timing of the reversal
of the temporary differences. Due to the forecast weighted average tax rate
being based on a prescribed formula that increase the effective tax rate with
an increase in forecast future profitability, and vice versa, the tax rate can
vary significantly year on year and can move contrary to current period
financial performance.
Assets classified as held for sale
The assessment of whether
an asset is classified
as held for sale depends on whether the
disposal is highly probable and require the exercise of
significant judgement and estimates of the outcome of future events that are
not wholly within the control of the Group.
Long-term receivable
Our long-term receivable include payments
made under protest and is a non-derivative financial asset.
The assessment to define the accounting policy and
subsequent classification of the long-term receivable requires the exercise of
significant judgement of the outcome of future events that are not wholly under
the control of the Group. The judicial proceedings that impact on the long-term
receivable are inherently complex legal issues that are subject to
uncertainties and complexities and are subject to interpretation.
The fair value determination of the long-terms
receivable is determined using assumptions and estimates that are inherently
uncertain and can change materially over time. These assumptions and estimates
include estimating the timing of concluding on the main application, the
ultimate settlement terms, the discount rate applied and the credit risk
assessment for impairment purposes.
The long-term receivable is a non-derivative financial
asset categorised as loans and receivables. The asset is initially measured at
fair value and any difference between the face value of payments made and the
fair value of the long-term receivable on initial recognition are recognised in
profit or loss as a finance expense. Subsequent to initial recognition, the
long-term receivable is measured at amortised cost using the effective interest
method less any impairment losses. Unwinding of the carrying value is accounted
for as finance income.
Contingent liabilities
The assessment of the impact of contingent
liabilities require the exercise of significant judgement and estimates of the
outcome of future events that are not wholly within the control of the Group.
Litigation and other judicial proceedings inherently entail complex legal
issues that are subject to uncertainties and complexities and are subject to
interpretation.
Comparison
of financial performance for the fiscal year ended June 30, 2018 with fiscal
year ended June 30, 2017
Revenue
The following table illustrates the year-on-year change in revenue
for fiscal year 2018 in comparison to fiscal year 2017:
R
million
|
Total
|
Impact of change in amount of gold sold
|
Impact of change in gold price
|
Net change
|
Total
|
revenue
|
revenue
|
2017
|
2018
|
Ergo
|
2 339.9
|
211.1
|
(60.6)
|
150.5
|
2 490.4
|
Revenue increased by R150.5 million, or 6%, to R2 490.4 million
during fiscal year 2018.
This was mainly due
to a 9% increase in gold sold, reflecting a 10% increase in gold production. The
impact of the 9% increase in gold sold was offset in part by the average rand
gold price received which decreased by 3% to R534 344 per kilogram.
Cost of sales
Cost of sales amounted to R2 347.7 million,
consisting mainly of operating costs of R2 207.1 million, depreciation of
R
168.0
million and a positive movement in
both change in estimate of environmental rehabilitation of
R2.9 million and gold in process of
R24.5 million. These are discussed as follows:
Operating costs
Operating costs were
R2 207.1
million compared to
R2 109.3 million for
fiscal year 2017. The increase was mainly due to inflationary increases.
Depreciation
Depreciation charges were
R168.0
million for fiscal year 2018 compared to
R179.8 million
for fiscal year 2017.
Retrenchment costs
No retrenchment costs were incurred in fiscal year 2018 compared
to R23.0 million incurred in fiscal year 2017 due to retrenchments related to
the closure of the various Crown sites which was completed in fiscal year 2017.
Change in estimate of environmental rehabilitation
As of June 30, 2018, we estimate our total rehabilitation
provision, being the discounted estimate of future costs, to be
R553.4
million
as compared to
R531.7
million at
June 30, 2017. A
change in estimate of
environmental rehabilitation of R2.9 million was recognized due to minor
changes in the planned rehabilitation activities
of June 30, 2018
compared to fiscal year 2017
.
A total of
R118.0 million was
invested in our various environmental trust funds as at the end of fiscal year 2018,
as compared to R110.5 million at the end of fiscal year 2017. The increase
is attributable to
R7.5 million interest received
on these funds during fiscal year 2018. A total of
R126.0 million
(2017: R117.2 million) is invested in
funds
held in insurance instruments to secure
financial guarantees provided to
the DMR through an insurance cell captive company, the Guardrisk Cell Captive. The
increase is attributable to
R8.8
million interest received on these funds during fiscal year 2018.
As at June 30, 2018 guarantees amounting to
R427.3 million were issued to the DMR (2017: R427.3
million).
The shortfall between the invested funds and the estimated
provisions is expected to be financed by ongoing contributions to the Guardrisk
Cell Captive, over the remaining production life of the respective mining
operations and, at the time of mine closure, the proceeds on the disposal of
remaining assets and gold from plant clean-up.
Movements in gold in process
Movement in gold in process in fiscal year 2018 amounted to a benefit
of R
24.5 million mainly due to an increase in the
volume of gold in the plant as at June 30, 2018 compared to June 30, 2017.
Administration expenses and general costs
Administration expenses and general costs increased by R21.3 million
from R69.4 million in fiscal year 2017 to
R90.7 million
in fiscal year 2018. In fiscal year 2018 administration expenses and general
costs included R9.0 million related to transaction costs incurred on the
acquisition of the WRTRP assets from Sibanye-Stillwater, long-term incentives
of R17.2 million, legal costs amounting to R2.8 million and a loss on disposal
of fixed assets of R0.6 million.
In fiscal year 2017,
administration expenses and general costs included long-term incentives of
R10.0 million and legal costs amounting to R6.1 million.
Finance income
Finance income decreased from R
40.0 million
in fiscal year 2017 to R38.8 million in fiscal year 2018
, mainly due to
lower
average cash balances during the year
.
Finance expenses
Finance expenses increased from R
52.2
million in fiscal year 2017 to R58.4 million in fiscal year 2018
, mainly attributable to the increase in the unwinding of
the provision for environmental rehabilitation and a fair value adjustment on
the initial recognition of the long-term receivable of R8.8 million.
Income tax
Income tax amounted to a charge of R
25.9 million
for fiscal year 2018 (tax benefit amounting to R50.4 million for fiscal
year 2017) and consisted of current tax of
R6.4 million,
mostly relating to non-mining income, and a deferred tax charge for fiscal year
2018 of R
19.5 million, mostly relating to mining
income.
The tax charge resulted from our profit before tax in fiscal year
2018 as well as a charge of R12.8 million relating to the forecast weighted
average deferred tax rate that increased from 18.6% in fiscal year 2017 to 20.3%
in fiscal year 2018 because of an increase in forecast profitability of Ergo.
The increase in the effective tax rate resulted in an increase in the deferred
tax liability and the associated tax charge.
Comparison
of financial performance for the fiscal year ended June 30, 2017 with fiscal
year ended June 30, 2016
Revenue
The
following table illustrates the year-on-year change in revenue for fiscal year 2017
in comparison with fiscal year 2016
R
million
|
Total
|
Impact of change in amount of gold sold
|
Impact of change in gold price
|
Net change
|
Total
|
revenue
|
revenue
|
2016
|
2017
|
Ergo
|
2 433.1
|
(102.3)
|
9.1
|
(93.2)
|
2 339.9
|
Revenue decreased by R93.2 million, or 4%, to R2 339.9 million
during for fiscal year 2017.
This was mainly
due to a 4% decrease in gold sold reflecting a 4% decrease in gold produced. The
average rand gold price received amounting to R548 268 per kilogram remained
flat compared to fiscal year 2016.
Cost of sales
Cost of sales amounted to R2 307.9 million,
consisting mainly of operating costs of R2 109.3 million,
retrenchment costs of R23.0 million,
depreciation of R
179.8
million, change in
estimate of environmental rehabilitation R0.6 million and a positive movement
in gold in process R4.8 million. These are discussed as follows:
Operating costs
Operating costs were R2 109.3 million compared
to R2 030.2 million for fiscal year 2016. The increase was mainly due to
to the 5% increase in throughput, as well as general inflationary
increases, relatively high costs associated with the Crown clean-up and
increased trucking of sand material to the City Deep plant
.
Depreciation
Depreciation charges were R179.8 million for fiscal year 2017
compared to R180.2 million for fiscal year 2016. Depreciation remained flat due
to the increase in depreciation resulting from the clean-up and closure of the
various Crown sites being offset by the net decrease in depreciation resulting
from the increase in the expected units-of-production in Ergo’s life of mine
that became effective on January 1, 2017.
Retrenchment costs
Retrenchment costs were R23.0 million in fiscal
year 2017 compared to nil in fiscal year 2016. These costs were incurred due to
closure of the various Crown sites.
Movements in provision for environmental rehabilitation
As of June 30, 2017, we estimate our total rehabilitation
provision, being the discounted estimate of future costs, to be R531.7
million as compared to
R522.9
million at June 30, 2016. Refer to Item 18.
‘‘Financial Statements - Note 10 – Provision for environmental rehabilitation
and Note 23 – Assets and Liabilities classified as held for sale’’ of the
consolidated financial statements for a discussion of the increase in the
provision for environmental rehabilitation in fiscal year
2017
.
A total of R110.5 million was invested in our various
environmental trust funds as at the end of fiscal year 2017, as compared to R93.8 million
as of the end of fiscal year 2016. The increase is attributable to R6.8 million
interest received on these funds during fiscal year 2017. A total of R117.2 million
(2016: R108.3 million) is invested in
funds
held in insurance instruments to secure
financial guarantees provided to
the DMR through an insurance cell captive company, the Guardrisk Cell Captive.
The increase is attributable to
R8.9
million interest received on these funds during fiscal year 2017.
As at June 30,
2017,
guarantees amounting to R427.3 million were
issued to the DMR
(2016
: R427.3
million).
The shortfall between the invested funds and the estimated
provisions is expected to be financed by ongoing contributions to the Guardrisk
Cell Captive, over the remaining production life of the mining operations and,
at the time of mine closure, the proceeds on the disposal of remaining assets
and gold from plant clean-up.
Movements in gold in process
Movement in gold in process in fiscal year 2017 amounted to a benefit
of R4.8 million mainly due to a increase in the volume of gold in the plant as
at June 30, 2017 compared to June 30, 2016.
Administration expenses and general costs
The administration expenses and general costs decreased by R17.8 million,
from R87.2 million in fiscal year 2016 to R69.4 million in fiscal
year 2017.
In fiscal year 2017 administration
expenses and general costs included long term incentives of R10.0 million (2016:
R 29.9 million). These costs decreased mainly due to this decrease in the
share-based payment expense as well as implementation of various cost cutting
initiatives at the corporate office.
Finance income
Finance income increased from R36.8 million in fiscal year 2016
to R40.0 million in fiscal year 2017. The increase was mainly due to
higher average cash balances during the year
.
Finance expenses
Finance expenses increased from R
47.6
million in fiscal year 2016 to R52.2 million in fiscal year 2017, mainly
attributable to the increase in the unwinding of the provision for environmental
rehabilitation.
Income tax
Income tax amounted to a benefit of R
50.4 million
for fiscal year 2017 (tax charge amounting to R46.9 million for fiscal
year 2016) and consisted of current tax of
R1.9 million,
mostly relating to non-mining income, and a deferred tax benefit for fiscal
year 2017 of R
53.4 million, mostly relating to
mining income.
The tax benefit resulted from
a loss before tax as well as a benefit of R37.5 million relating to the
forecast weighted average deferred tax rate that decreased from 23.1% in fiscal
year 2016 to 18.6% in fiscal year 2017 because of a decrease in forecast
profitability of Ergo. The decrease in the effective tax rate resulted in a
decrease in the deferred tax liability and the associated tax benefit.
Cash operating costs, cash operating costs per kilogram, all-in
sustaining costs and all-in costs per kilogram
Cash operating costs per kilogram, all-in sustaining costs per
kilogram and all-in costs per kilogram are non-IFRS financial measures that
should not be considered by investors in isolation or as alternatives to cost
of sales, net profit/(loss) attributable to equity owners of the parent,
profit/(loss) before tax and other items or any other measure of financial
performance presented in accordance with IFRS or as an indicator of our
performance. While the World Gold Council provided guidance for the calculation
of cash operating costs, cash operating costs per kilogram, all-in sustaining
costs 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. However, we believe that
these measures are useful indicators to investors and our management of an
individual mine's performance and of the performance of our operations as a
whole as they provide:
·
an indication of a mine’s profitability and efficiency;
·
the trend in costs;
·
a measure of margin per kilogram, by comparison of the cash
operating costs per kilogram to the price of gold; and
·
a benchmark of performance to allow for comparison against other
mines and mining companies.
For fiscal year 2018, cash operating costs per kilogram decreased by
6% to R458 866 per kilogram from R 489 549 per kilogram in fiscal
year 2017. All-in sustaining costs per kilogram decreased to R505 622 per
kilogram from R 530 930 per kilogram in fiscal year 2017. All-in costs per
kilogram decreased to R524 651 per kilogram of gold from R 552 243
per kilogram of gold in fiscal year 2017.
The decrease in cash
operating costs per kilogram, all-in sustaining costs per kilogram
and
all-in costs per
kilogram
was
mainly due to the
increase in gold production and completion of the rehabilitation of the Crown
footprint.
For
fiscal year 2017, cash operating costs per kilogram increased by 10% to R
489 549 per kilogram compared to R 446 153 per kilogram in fiscal
year 2016.
This was
mainly due to
lower gold production resulting from the clean-up of the Crown sites that
caused a decrease in the average yield. The increase in the all-in sustaining
costs per kilogram to R 530 930 per kilogram from R 499 425 per
kilogram in fiscal year 2016 was mainly due to the increase in cash operating
costs, with reduced charges resulting from movement in gold in process,
movement in provision for environmental rehabilitation and corporate costs
mitigating the overall increase. The total all-in costs per kilogram increased
to R 552 243 per kilogram of gold from R 512 353 per kilogram of gold
in fiscal year 2016 due to the above increase in the all-in sustaining cost, as
well as increased retrenchment costs and growth capital expenditure.
|
2018
|
2017
|
2016
|
Reconciliation
of cash operating costs, cash operating costs per kilogram, all-in sustaining
costs, all-in sustaining costs per kilogram, all-in costs and all-in costs
per kilogram
|
|
|
|
Cost
of sales
|
2 347.7
|
2 307.9
|
2 236.8
|
Depreciation
|
(168.0)
|
(179.8)
|
(180.2)
|
Retrenchment
costs
|
-
|
(23.0)
|
-
|
Change
in estimate of environmental rehabilitation
|
2.9
|
(0.6)
|
(19.3)
|
Movement
in gold in process
|
24.5
|
4.8
|
(7.1)
|
Operating
costs
|
2 207.1
|
2 109.3
|
2 030.2
|
Ongoing
rehabilitation expenditure
|
(26.7)
|
(22.4)
|
(27.8)
|
Care
and maintenance costs
|
(8.2)
|
(7.1)
|
(10.5)
|
Other
operating income/(costs)
|
(12.5)
|
8.1
|
(0.7)
|
Cash
operating costs
(1)
|
2 159.7
|
2 087.9
|
1 991.2
|
Movement
in gold in process
|
(24.5)
|
(4.8)
|
7.1
|
Administration
expenses and other costs excluding non-recurring items
(1)
|
81.1
|
69.4
|
87.2
|
Other
operating (income)/costs
|
12.5
|
(8.1)
|
0.7
|
Change
in estimate of environmental rehabilitation
|
(2.9)
|
0.6
|
19.3
|
Unwinding
of rehabilitation provision
|
45.6
|
46.5
|
43.0
|
Sustaining
capital expenditure
(1)
|
81.3
|
72.9
|
80.5
|
All-in
sustaining costs
(1)
|
2 352.8
|
2 264.4
|
2 229.0
|
Retrenchment
costs
|
-
|
23.0
|
-
|
Care
and maintenance costs
|
8.1
|
7.1
|
10.5
|
Ongoing
rehabilitation expenditure
|
26.7
|
22.4
|
27.8
|
Capital
recoupment
|
-
|
(5.0)
|
(0.2)
|
Transaction
costs incurred related to the acquisition of FWGR
|
9.0
|
-
|
-
|
Growth
capital expenditure
(1)
|
44.7
|
43.4
|
19.5
|
All-in
costs
(1)
|
2 441.3
|
2 355.3
|
2 286.6
|
Gold
produced (kilograms)
|
4 679
|
4 265
|
4 462
|
Cash
operating costs per kilogram (R per kilogram)
|
458 866
|
489 549
|
446 153
|
All-in
sustaining costs per kilogram (R per kilogram)
|
505 622
|
530 930
|
499 425
|
All-in
costs per kilogram (R per kilogram)
|
524 651
|
552 243
|
512 353
|
|
|
|
|
Reconciliation
of sustaining capital expenditure and growth capital expenditure
|
|
|
|
Total
capital expenditure/additions to property, plant and equipment
|
126.1
|
116.3
|
100.0
|
Growth
capital expenditure
(1)
|
44.7
|
43.4
|
19.5
|
Sustaining
capital expenditure
(1)
|
81.3
|
72.9
|
80.5
|
|
|
|
|
Reconciliation
of growth administration expenses and administration expenses
|
|
|
|
Administration
expenses and other costs
|
90.7
|
69.4
|
87.2
|
Loss
on disposal of property, plant and equipment
|
0.6
|
-
|
-
|
Transaction
costs incurred related to the acquisition of FWGR
|
9.0
|
-
|
-
|
Administration
expenses and other costs excluding non-recurring items
(1)
|
81.1
|
69.4
|
87.2
|
|
|
|
|
(1)
See Glossary of Terms for
definitions.
|
|
|
|
Cash operating costs
Cash operating costs are
linked directly to the level of throughput of a specific fiscal year.
The following table illustrates the year-on-year change in
cash operating costs for fiscal year 2018 in comparison with fiscal year 2017
.
R million
|
Cash operating costs
|
Impact of change in throughput
|
Impact of change in costs
|
Net change
|
Cash operating costs
|
2017
|
2018
|
Ergo
|
2 087.9
|
(56.6)
|
128.4
|
71.8
|
2 159.7
|
Cash operating costs in
fiscal year 2018 increased by 3% to R2 159.7 million compared to cash
operating costs of R 2 087.9 million in fiscal year 2017.
The below inflationary increases resulted from savings attributed
to having substantially completed the rehabilitation of the Crown footprint in
fiscal year 2017, as well as the centralised water management plant being in
operation for the full fiscal year 2018
.
The following table illustrates the year-on-year
change in cash operating costs for fiscal year 2017 in comparison with fiscal
year 2016:
R million
|
Cash operating costs
|
Impact of change in throughput
|
Impact of change in costs
|
Net change
|
Cash operating costs
|
2016
|
2017
|
Ergo
|
1 991.2
|
9.3
|
87.4
|
96.7
|
2 087.9
|
Cash operating costs in
fiscal year 2017 increased by 5% to R 2 087.9 million compared to cash
operating costs of R 1 991.2 million in fiscal year 2016
due to the 5% increase in throughput, as well as general
inflationary increases, relatively high costs associated with the Crown
clean-up and increased trucking of sand material to the City Deep plant
.
The
following table lists the major components of cash operating costs for each
of the fiscal years set forth below:
|
|
|
|
|
|
Years ended June 30,
|
Costs
|
2018
|
2017
|
2016
|
Consumables
|
36%
|
38%
|
36%
|
Electricity and water
|
19%
|
20%
|
20%
|
Labor
|
19%
|
17%
|
18%
|
Specialized service providers
|
15%
|
14%
|
14%
|
Other costs
|
10%
|
11%
|
12%
|
5B. LIQUIDITY AND
CAPITAL RESOURCES
Cash flows from operating activities
Cash generated from operating activities amounted
to R233.8 million for fiscal year 2018 (fiscal year 2017: R51.6 million
and fiscal year 2016: R415.9 million).
Cash generated from operating activities increased
during fiscal year 2018 due mostly
to a
9% increase in gold sold despite the average rand
gold price received having decreased by 3% to R534 344 per kilogram. as
well as the net working capital movements that resulted in an inflow in cash of
R14.6 million in fiscal year 2018 compared to a outflow in cash of R117.8
million in fiscal year 2017.
Cash generated from operating activities decreased
during fiscal year 2017 due mostly
to a
4% decrease in gold sold with the average rand
gold price received of gold sold remained flat as well as the net working
capital movements that resulted in an outflow of cash of R117.8 million in
fiscal year 2017 compared to a inflow in cash of R81.9 million in fiscal year
2016.
Cash generated from operating activities increased
during fiscal year 2016 due mostly to a 21% increase in the average rand gold
price received, despite a 5% decrease in gold sold, as well as the net working
capital movements.
Cash flows from investing activities
Net cash utilized by investing activities amounted
to R140.4 million in fiscal year 2018 compared to R96.7 million in
fiscal year 2017 and R107.2 million in fiscal year 2016.
In fiscal year 2018, net cash utilized by
investing activities mainly consisted of R125.9 million in additions to
property, plant and equipment and R21.5 million spent on environmental
rehabilitation payments. These outflows were reduced by R7.0 million proceeds
on the disposal of property, plant and equipment.
Additions to property, plant and equipment
in fiscal year 2018 were predominantly on:
☐
R41.3 million spent on the installation of two ball mills at Ergo
in order to process higher grade sand at better margins (these mills were
reclaimed from the company’s now decommissioned Crown plant),
☐
R24.3 million spent on the ramp-up of reclamation from the 4L50
slimes dam, which is the southern portion of the Elsburg Tailings Complex,
bordering Boksburg and Germiston;
☐
R14.4 million spent on conversion of the Ergo plant’s
electro-winning circuit to zinc precipitation; and
☐
R17.8 million on building a new lodge to support training services
rendered by EBDA.
In fiscal year 2017, net cash utilized by
investing activities consisted mainly of R110.6 million in additions to
property, plant and equipment and R11.6 million spent on environmental
rehabilitation payments. These outflows were reduced by R20.5 million proceeds
on the disposal of property, plant and equipment.
Additions to property, plant and equipment
in fiscal year 2017
were predominantly on Ore Reserve
development, new infrastructure and new mining equipment at our operations.
Significant capital projects for Ergo during fiscal year 2017 included:
☐
R31.9 million on Reclamation Site 4L37;
☐
R29.5 million on the centralized water facility;
☐
R13.4 million on various exploration and grade verification
projects; and
☐
R42.1 million on various other capital items.
In fiscal year 2016, net cash utilized by
investing activities consisted mainly of R99.8 million in additions to
property, plant and equipment, R10.6 million spent on environmental
rehabilitation payments. These outflows were reduced by R7.0 million proceeds
on the disposal of property, plant and equipment.
Additions to property, plant and equipment
in fiscal year 2016 were predominantly to create
increased
flexibility and volume capacity
, new
infrastructure and new mining equipment at our operations. Significant capital
projects for Ergo during fiscal year 2016 included:
☐
R40.2 million spent on
bringing the 4L2 reclamation
site on line;
☐
R13 million on phase II of the refurbishment of the No 3 tailings
thickener; and
☐
R46.6 million was spent on various
other
capital items.
Cash flows from financing
activities
Net cash outflow from
financing activities was R45.0 million
in fiscal year 2018 compared to R53.0 million in fiscal year 2017 and R281.1 million
in fiscal year 2016.
During fiscal year 2018, the net cash outflow
consisted mostly of a dividend payment of R42.2 million.
During fiscal year 2017, the net cash outflow
consisted mostly of a dividend payment of R50.6 million.
During fiscal year 2016, the net cash outflow
consisted mostly of a dividend payment of R252.9 million, R22.5 million
repayments of the Domestic Medium Term Note Program and R6.5 million related to
the acquisition of treasury shares in the market.
Cash and cash equivalents
Cash and cash equivalents as at June 30,
2018 amounted to R 302.1 million compared to
R253.7 million at the end of fiscal year 2017 and R351.8 million at the end of
fiscal year 2016. Substantially all of our cash and cash equivalent balances
were denominated in South African rand.
Cash and cash equivalents as at June 30,
2018 includes restricted cash
in the form
of cash held in escrow amounting to
R114.2
million at
the end of fiscal year
2018
compared
to
R92.7
million at the end of
fiscal year
2017
and
R47.7
million at the end of fiscal year
2016
related to an electricity tariff dispute with Ekurhuleni
(refer to Item 4D. Ongoing legal proceedings). Restricted cash also includes guarantees
of R17.2 million compared to R16.1 million at
the end of fiscal year
2017 and R15.2
million at the end of fiscal year 2016.
At September 30,
2018
, our cash and cash
equivalents were R244.7 million.
Borrowings and funding
Our available external sources of capital
include
an overdraft facility of R100 million. Subsequent to year end,
this overdraft facility was incorporated into a
R300 million Revolving Credit Facility described
in Item 10C. Material
Contracts – ZAR 300 million Revolving Credit Facility.
Anticipated funding requirements and sources
Existing operations
Our cash and cash equivalents are set out above
under “Cash and cash equivalents”. Our management believes that existing cash
resources, net cash generated from operations and the availability of
negotiated funding facilities will be sufficient to meet the anticipated
commitments of our existing operations for fiscal year 2019.
West Rand Tailings Retreatment Project
On July 31, 2018, we completed the acquisition of
the gold assets associated with Sibanye-Stillwater’s WRTRP, to be known going
forward as FWGR.
We have already embarked on the first phase of its
planned two-phase development. We secured a R300 million Revolving Credit Facility
from ABSA Bank Limited (acting through its Corporate and Investment Banking
division) to fund the anticipated capital expenditure required for phase 1.
A description of the
Revolving Credit Facility is set forth below.
Phase 1 involves the upgrading of the Driefontein 2
plant to process tailings from the Driefontein 5 dump at a rate of between 400
000 and 600 000tpm and depositing the residue on the Driefontein 4 tailings
dam. First production is expected in the first quarter of calendar 2019.
Our estimated working capital, capital expenditure
and other funding commitments, as well as our sources of liquidity, for both
the existing operations as well as the development of FWGR would be adversely
affected if:
·
our operations fail to generate forecasted net cash
flows from operations;
·
there is an adverse variation in the price of gold or
foreign currency exchange rates in relation to the US dollar, particularly with
respect to the rand; or
·
our operating results or financial condition are
adversely affected by the uncertainties and variables facing our business
discussed under Item 5A. Operating Results or the risk factors described in Item
3D. Risk Factors.
In such circumstances, we could have insufficient
capital to meet our current obligations in the normal course of business, which
would have an adverse impact on our financial position and our ability to
continue operating as a going concern. We would need to reassess our
operations, consider further restructuring and/or obtain additional debt or
equity funding. There can be no assurance that we will obtain this additional
or any other funding on acceptable terms or at all.
5C. RESEARCH AND DEVELOPMENT, PATENTS AND
LICENSES, ETC.
DRDGOLD
has a dedicated team that looks at ways and means of improving recoveries.
While the team remains active with an ongoing focus on improving extraction
efficiencies, the projects undertaken during the year ended June 30, 2018 were
focused on optimizing the existing facilities rather than implementing new
technologies to improve extraction efficiencies. We have no registered patents
or licenses.
5D. TREND INFORMATION
For the fiscal year 2019, we are planning
gold production from our Ergo operations of 148,000 to 154,000 ounces at cash
operating costs of approximately R490,000 per kilogram. Our ability to meet the
full year’s production target could be impacted by, among other factors, lower
grades and failure to achieve the targets set at Ergo. We are also subject to
cost pressures in the event of above inflation increases in labor, electricity
and water; crude oil and steel costs. Unforeseen changes in ore grades and
recoveries, unexpected changes in the quality or quantity of reserves and
resource, technical production issues, environmental and industrial accidents,
gold theft, environmental factors and pollution could adversely impact the
production, sales and cash operating costs for fiscal year 2019.
Our acquisition of WRTRP assets from
Sibanye-Stillwater will impact our results going forward, but we remain subject
to risks associated with acquired assets (refer Item 3D. Risk Factors—Risks
related to our business and operations). We may be unable to make desirable
acquisitions or to integrate successfully any businesses we acquire.
Refer to
Item 5A.: “Key drivers
of our operating results and principal factors affecting our operating results”
for a discussion of the trend in the US Dollar
gold price as well as the exchange rate impacting our business.
5E. OFF-BALANCE SHEET ARRANGEMENTS
The Company does not engage in off-balance sheet financing
activities, and does not have any off-balance sheet debt obligations, unconsolidated
special purposes entities or unconsolidated affiliates.
5F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
|
|
Estimated and actual payments
due by period
|
|
Total
|
Less than
|
Between
|
Between
|
More than 5 years
|
1 year
|
1-3 years
|
3-5 years
|
|
R m
|
R m
|
R m
|
R m
|
R m
|
Provision for environmental
rehabilitation
(2)
|
553.4
|
56.2
|
106.5
|
85.6
|
305.1
|
Finance leases
|
14.7
|
3.5
|
11.2
|
-
|
-
|
Trade and other payables
|
303.3
|
303.3
|
-
|
-
|
-
|
Purchase obligations – contracted capital
expenditure
(1)
|
32.7
|
32.7
|
-
|
-
|
-
|
Other contractual obligations
|
6.7
|
2.8
|
3.9
|
-
|
-
|
Total contractual cash obligations
|
910.8
|
398.5
|
121.6
|
85.6
|
305.1
|
|
|
|
|
|
|
(1)
Represents planned capital
expenditure for which contractual obligations exist.
|
(2)
Gold mining companies are subject to
extensive environmental regulations in the various jurisdictions in which
they operate. These regulations establish certain conditions on the conduct
of our operations. Pursuant to environmental regulations, we are also obliged
to close our operations and reclaim and rehabilitate the lands upon which we
have conducted our mining and gold recovery operations. The estimated closure
costs at existing operating mines and mines in various stages of closure are
reflected in this table. For more information on environmental rehabilitation
obligations, see Item 4D. “Property, Plant and Equipment” and Note 10 -
“Provision for environmental rehabilitation” under Item 18. “Financial
Statements".
|
5G. SAFE HARBOR
See
Special Note Regarding Forward-Looking Statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6A. DIRECTORS AND
SENIOR MANAGEMENT
Directors and Executive Officers
Our board of directors may consist of not less than
four and not more than twenty directors. As of June 30, 2018, our board
consisted of seven directors.
In accordance with JSE listing requirements and our
Memorandum of Incorporation, or MOI, one third of the directors comprising the
board of directors, on a rotating basis, are subject to re-election at each
annual general shareholders’ meeting. Additionally, all directors are subject
to election at the first annual general meeting following their appointment.
Retiring directors normally make themselves available for re-election.
In accordance with the provisions of the agreement
for the acquisition of the WRTRP Assets, a director nominated by Sibanye
‑
Stillwater,
will be appointed as a non-executive director of the Board subject to the terms
of DRDGOLD’s MOI and shareholders’ approval.
The address of each of our Executive Directors and
Non-Executive Directors is the address of our principal executive offices.
Executive Directors
Daniël Johannes
Pretorius (51)
Chief Executive Officer. Niël Pretorius has two decades of
experience in the mining industry. He was appointed Chief Executive Officer
designate of DRDGOLD on August 21, 2008 and Chief Executive Officer on January
1, 2009. Having joined the company on May 1, 2003 as legal advisor, he was
promoted to Group Legal Counsel on September 1, 2004 and General Manager:
Corporate Services on April 1, 2005. Niël was appointed Chief Executive Officer
of Ergo Mining Operations Proprietary Limited (formerly DRDGOLD SA) on July 1,
2006 and became Managing Director thereof on April 1, 2008.
Adriaan Jacobus Davel (42)
Chief Financial Officer.
Riaan Davel joined DRDGOLD in January 2015. Before joining
DRDGOLD, he gained 17 years’ experience in the professional services industry,
the majority obtained in the mining industry in Africa. As part of gaining that
experience, Riaan provided assurance and advisory services, including support
and training on IFRS to clients and teams across the African continent. He has
spent seven years at KPMG as an audit partner, performing,
inter alia
,
audits of listed companies in the mining industry, including SEC registrants.
Riaan has also gained experience as an IFRS technical partner and represented
the South African Institute of Chartered Accountants on the International
Accounting Standards Board’s project on extractive activities from 2003 to
2010. Riaan has served on committees that compile/update the South African
codes for reporting and valuation of mineral reserves and resources.
Non-Executive Directors
Geoffrey Charles Campbell (57).
Geoffrey Campbell was appointed a Non-executive
Director in 2002, a senior independent non-executive director in December 2003 and
Non-executive Chairman in October 2005. A qualified geologist, he has worked on
gold mines in Wales and Canada. He spent 15 years as a stockbroker before
becoming a fund manager, managing the Merrill Lynch Investment Managers Gold
and General Fund, one of the largest gold mining investment funds. He was also
research director for Merrill Lynch Investment Managers. Geoffrey is a director
of Oxford Abstracts Limited.
James Turk (71).
James Turk was appointed Non-executive Director in October 2004
and in 2011 met the JSE Listing Requirements to become an independent director.
He is a founder and director of Goldmoney Inc., which is traded on the Toronto Stock
Exchange. Goldmoney.com is an online provider of physical gold, silver,
platinum and palladium bullion to buyers worldwide and operator of a digital
gold currency payment system. Since graduating from George Washington University
in 1969, he has specialised in international banking, finance and investments.
Having begun his career with the Chase Manhattan Bank (now JP Morgan Chase), in
1980 James joined the private investment and trading company of a prominent
precious metals trader. He moved to the United Arab Emirates in 1983 to become
manager of the Commodity Department of the Abu Dhabi Investment Authority, that
country’s sovereign wealth fund. Since resigning in 1987, James has written
frequently on money and banking. He is the founder of Lend & Borrow Trust
Co. Ltd. a UK-based online peer-to-peer lending platform.
Edmund Abel Jeneker (56)
.
Edmund Jeneker was appointed Non-executive Director in November
2007 and Lead Independent Non-executive Director in August 2017. He has more
than 30 years’ experience as an executive in banking, business strategy,
advisory and management at Grant Thornton South Africa Proprietary Limited,
Swiss Re Corporate Solutions Advisors South Africa Proprietary Limited, the
World Bank Competitiveness Fund and Deloitte South Africa. More recently, he
completed almost 14 years at Absa Bank and Barclays Africa Group, where he was
managing executive and served as director on the boards of several subsidiaries
in the Barclays Africa Group. Edmund is active in community social upliftment
and served as a member of the Provincial Development Commission of the Western
Cape Provincial Government. He currently serves on the Advisory Board of the
Institute of Directors Southern Africa, Investment Committee of BADISA and The
Cape Philharmonic Orchestra. He is a Chartered Director.
Johan Andries
Holtzhausen
(72)
.
Johan Holtzhausen was
appointed independent Non-executive Director in on April 25, 2014. He has more
than 42 years’ experience in the accounting profession, having served as a
senior partner at KPMG Services Proprietary Limited, and held the highest
Generally Accepted Accounting Principles (United States), Generally Accepted
Auditing Standards and Sarbanes-Oxley Act accreditation required to service
clients listed on stock exchanges in the United States. His clients included
major corporations listed in South Africa, Canada, the United Kingdom,
Australia and the United States. Johan currently serves as a voluntary
independent director and chairman of the Audit and Risk Committee of the
Tourism Enterprise Partnership. He also chairs the Audit and Risk Committee of
Tshipi é Ntle Manganese Mining Proprietary Limited. He is a Non-executive Director
of Caledonia Mining Corporation Plc, a Canadian corporation listed in the
United States, Canada and the United Kingdom, and he chairs its Audit and Risk
Committee.
Toko
Victoria Buyiswa Nomalanga Mnyango
(53). Toko Mnyango was appointed
independent Non-executive Director on December 1, 2016. Toko began her career
as a prosecutor for the KaNgwane homeland, before becoming a legal advisor for
the Eastern Cape Development Corporation. She has held directorships on company
boards including Gijima, EOH Mthombo Proprietary Limited, AllPay Eastern Cape
Proprietary Limited, a subsidiary of ABSA Limited, and the Ryk Neethling
Foundation. She currently holds the position of CEO of Vitom Technologies
Proprietary Limited and Vitom Brands Communication Proprietary Limited.
Senior Management
Wilhelm Jacobus Schoeman (44)
(Dip Analytical Chemistry,
BTech Analytical Chemistry). Jaco Schoeman
joined DRDGOLD in 2011 as Executive Officer: Business Development to focus on
expanding the Group’s surface retreatment business and extracting maximum value
from existing resources. In July 2014, he was appointed Operations Director:
Ergo Mining Operations Proprietary Limited.
Henry Gouws (49)
Managing Director: Ergo. Henry Gouws has 29
years’ experience in the mining industry. He graduated from Technikon
Witwatersrand and obtained a National Diploma in Extraction Metallurgy in 1990
and a National Higher Diploma in Extraction Metallurgy in 1991. He completed a
Management Development Program in 2003 through Unisa School of Business
Leadership and an Executive Development Programme in 2012 through the
University of Stellenbosch Business School. He was appointed Operations Manager
of Crown in January 2006 and General Manager in July 2006. He was appointed to
his current position in October 1, 2011.
Mark Burrell (56)
Financial Director: Ergo. Mark Burrell holds a BComm Accounting
degree and has completed a Management Development Programme (MDP) and has 19
years’ experience in the mining sector. He joined DRDGOLD in 2004 on a
consulting basis and later that year, was appointed as Financial Manager of the
Blyvooruitzicht operation. He was appointed as Financial Director of Ergo in January
2012. Mark serves as an alternate director to Charles Symons on the Board of
Rand Refinery Proprietary Limited.
Charles Methley Symons (64
) (BCom, MBL, Dip Extractive Metallurgy).
Charles Symons started his career in the
mining industry in February 1977 and joined Crown Gold Recoveries Proprietary
Limited in January 1986. He joined DRDGOLD as General Manager in 1995 and was
appointed Executive Officer: Surface Operations on January 1, 2008 before he
became Executive Officer: Operations on May 11, 2010. On October 1, 2011, he
was appointed Chief Operating Officer. Following restructuring of senior
management in July 2014, Charles assumed the role of Chairman of the Oversight
Committee: Ergo Mining Operations Proprietary Limited. He was appointed
director of Ergo Mining Operations Proprietary Limited in August 2014. Charles’
fixed term contract concluded on July 31, 2016, but he remains in a
non-executive oversight role, which role terminates on December 25, 2018.
Reneiloe Masemene (37)
(LLB, LLM). Reneiloe
Masemene, a qualified attorney, joined DRDGOLD in January 2009 as a legal
advisor. She was appointed to the position of Senior Legal Advisor in October
2011 and Prescribed Officer of Ergo Mining Proprietary Limited in June 2012.
She was appointed to the position of Group Legal Counsel in August 2014 and
Company Secretary in March 2016. Reneiloe has significant experience in all
areas of mining law, as well as in the corporate, commercial, contractual,
employment and litigious aspects related to mining
.
There are no family relationships between any
of our non-executive directors, executive directors or members of the group
executive and senior management. There are no arrangements or understandings
between any of our directors or executive officers and any other person by
which any of our directors or executive officers has been so elected or
appointed. Furthermore, none of the non-executive directors, executive
directors, group executive and senior management members or other key
management personnel are elected or appointed under any undertaking by,
arrangement or understanding with any major shareholder, customer, supplier or
otherwise
.
6B. COMPENSATION
Our
MOI provide that the directors' fees should be determined from time to time in
a general meeting or by a quorum of Non-Executive Directors. The total amount
of directors' remuneration paid and or accrued for the year ended June 30, 2018
was R21.4 million.
Non-Executive Directors received the following fees
for fiscal year 2018:
·
Base fee as Non-Executive Chairman of R1,388,518
per annum;
·
Base fee as Lead Independent Non-Executive
Director of R640,261 per annum;
·
Base fee as Non-Executive Directors of R617,119
per annum;
·
Annual fee for Audit and Risk Committee
Chairman of R30,856 (excluding fee received as a committee member);
·
Annual fee for Audit and Risk Committee
member of R30,856;
·
Annual fee for the chairman of Remuneration
and Nominations Committee and Social and Ethics Committee of R23,142 (excluding
fee received as a committee member);
·
Annual fee for members of Remuneration
Committee and Social and Ethics Committee of R23,142 each;
·
Daily fee of R23,142;
·
Hourly rate of R3,086;
·
Half-day fee for participating by telephone
in special board meetings of R11,571; and
·
The Chairman of the board, Lead Independent Non-Executive
Director and other Non-Executive Directors to receive committee fees.
|
The
following table sets forth the compensation for our directors and prescribed
officers for the year ended June 30, 2018
|
|
|
|
|
|
|
|
Directors
/ Prescribed Officer
|
Total remuneration paid during the year
|
Short Term Incentives related to this
cycle
|
Long term Incentives paid during this
cycle
|
Total remuneration related to this cycle
|
|
R'000
|
R'000
|
R'000
|
R'000
|
|
Executive
directors
|
|
|
|
|
|
D J
Pretorius
|
6 104
|
4 697
|
-
|
10 801
|
|
A J
Davel
|
3 429
|
2 639
|
250
|
6 318
|
|
|
9 533
|
7 336
|
250
|
17 119
|
|
Non-executive
directors
|
|
|
|
|
|
G C
Campbell
|
1 446
|
-
|
-
|
1 446
|
|
J Turk
|
655
|
-
|
-
|
655
|
|
E A
Jeneker
|
805
|
-
|
-
|
805
|
|
J
Holtzhausen
|
718
|
-
|
-
|
718
|
|
T B V
N Mnyango
|
651
|
-
|
-
|
651
|
|
|
4 275
|
-
|
-
|
4 275
|
|
Prescribed
officers (1)
|
|
|
|
|
|
W J
Schoeman
|
3 308
|
2 013
|
250
|
5 571
|
|
R
Masemene
|
2 402
|
808
|
124
|
3 334
|
|
|
5 710
|
2 821
|
374
|
8 905
|
|
|
|
|
|
|
|
Total
|
19 518
|
10 157
|
624
|
30 299
|
|
|
|
|
|
|
(1)
The Companies Act, 2008 (Act 71 of
2008), under section 30, requires the remuneration of prescribed officers, as
defined in regulation 38 of Company Regulations 2008, to be disclosed with
that of directors of the company. A person is a prescribed officer if they
have general executive authority over the company, general responsibility for
the financial management or management of legal affairs, general managerial
authority over the operations of the company or directly or indirectly
exercise or significantly influence the exercise of control over the general
management and administration of the whole or a significant portion of the
business and activities of the company.
|
|
|
|
|
|
|
|
See
also Item 6E. Share Ownership for details of share options held by directors.
|
Compensation of key management
Refer to
Item 18. ‘‘Financial
Statements – Note 18.2 – Related party transactions’’ for the total
compensation paid to key management (including executive and non-executive
directors as well as prescribed officers).
Short term incentives in respect of Executive Directors are paid
based upon performance against predetermined key performance indicators. Should
an Executive Director meet all the targets set in terms of such predetermined
key performance indicators, he will be entitled to a short term incentive of up
to 100% of his remuneration package, depending on his particular agreement.
Should an Executive Director not meet all the targets set in terms of the
predetermined key performance indicators, he will be entitled to a lesser bonus
as determined at the discretion of the Remuneration Committee.
Service Agreements
Service contracts negotiated with each executive and non-executive
director incorporate their terms and conditions of employment and are approved
by our Remuneration Committee.
The Company’s current executive directors, Mr. D.J. Pretorius and
Mr. A.J. Davel, entered into agreements of employment with us, on January 1,
2009 and January 1, 2015, respectively. These agreements regulated the
employment relationship with Messrs. D.J. Pretorius and A.J. Davel during the
year ended June 30, 2018.
On July 1, 2015 Mr. D.J. Pretorius entered into a new agreement of
employment for a period of 3 years and thereafter it continues indefinitely
until terminated by either party on not less than three months’ written notice.
Under the employment agreement effective up to June 30, 2018 Mr. D.J. Pretorius
receives from us a guaranteed remuneration package of R5.5 million per annum.
Mr. D.J. Pretorius was eligible under his employment agreement, for an
incentive bonus of up to 100% of his annual remuneration package in respect of
one bonus cycle per annum over the duration of his appointment, on condition
that DRDGOLD achieves certain key performance indicators. In addition, he is
eligible to participate in the long term incentive scheme and was awarded
2,323,009 phantom shares during November 2015.
Mr. A.J. Davel entered into an employment agreement effective from
January 1, 2015 for a period of 3 years and thereafter it continues
indefinitely until terminated by either party on not less than three months’
prior written notice. Mr. A.J. Davel receives from us a guaranteed remuneration
package of R3.1 million per annum. Mr. A.J. Davel is eligible under his
employment agreement, for a short term incentive of up to 100% of his annual
remuneration package in respect of one bonus cycle per annum over the duration
of his appointment, on condition that DRDGOLD achieves certain key performance
indicators. He is eligible to participate in the long term incentive scheme. He
was issued 205,207 phantom shares under the long term incentive scheme on his
joining DRDGOLD and 1,305,033 phantom shares during November 2015.
Messrs. G.C. Campbell and E.A. Jeneker each have
service agreements which run for fixed periods until October 31, 2019. Mr. J
Turk has a service agreement which runs until October 31, 2018. Mr. J.A
Holtzhausen has a service agreement which runs for a fixed period until April
25, 2018.
Mrs. TVBN Mnyango
has a service
agreement which runs for a fixed period until November 30, 2018. After
expiration of the initial two year periods, the agreements continue
indefinitely until terminated by either party on not less than three months’
prior written notice.
The Company does not administer any pension,
retirement or other similar scheme in which the directors receive a benefit.
Each service agreement with our directors provides
for the provision of benefits to the director where the agreement is terminated
by us in the case of our executive officers, except where terminated as a
result of certain action on the part of the director, upon the director
reaching a certain age, or by the director upon the occurrence of a change of
control. A termination of a director's employment upon the occurrence of a
change of control is referred to as an “eligible termination.” Upon an eligible
termination, the director is entitled to receive a payment equal to at least
one year's salary or fees, but not more than three years' salary for Executive
Directors or two years’ fees for Non-Executive Directors, depending on the
period of time that the director has been employed.
6C. BOARD PRACTICES
Board of Directors
As at
September 30, 2018, the board of directors comprises two Executive Directors
(Mr. D.J. Pretorius and Mr. A.J. Davel), and five Non-Executive
Directors (Messrs. G.C. Campbell, J. Turk, E.A. Jeneker, J.A.
Holtzhausen and Mrs. TVBN Mnyango). The Non-Executive Directors are independent
under the New York Stock Exchange, or NYSE, requirements (as affirmatively
determined by the Board of Directors) and the South African King IV Report.
In accordance with the King IV Report on corporate governance, as
encompassed in the JSE Listings Requirements, and in accordance with the United
Kingdom Combined Code, the responsibilities of Chairman and Chief Executive
Officer are separate. Mr. G.C. Campbell is the Non-Executive Chairman, Mr. D.J.
Pretorius is the Chief Executive Officer and Mr. A.J Davel is the Chief
Financial Officer. The board has established a Remuneration and Nominations
committee, and it is our policy for details of a prospective candidate to be
distributed to all directors for formal consideration at a full meeting of the
board. A prospective candidate would be invited to attend a meeting and be
interviewed before any decision is taken. In compliance with the NYSE rules a
majority of independent directors will select or recommend director nominees.
The board’s main roles are to create value for shareholders, to
provide leadership of the Company, to approve the Company’s strategic
objectives and to ensure that the necessary financial and other resources are
made available to management to enable them to meet those objectives. The board
retains full and effective control over the Company, meeting on a quarterly
basis with additional ad hoc meetings being arranged when necessary, to review
strategy and planning and operational and financial performance. The board
further authorizes acquisitions and disposals, major capital expenditure,
stakeholder communication and other material matters reserved for its
consideration and decision under its terms of reference. The board also
approves the annual budgets for the various operational units.
The board is responsible for monitoring the activities of
executive management within the company and ensuring that decisions on material
matters are referred to the board. The board approves all the terms of
reference for the various subcommittees of the board, including special
committees tasked to deal with specific issues. Only the executive directors
are involved with the day-to-day management of the Company.
To assist new directors, an induction program has been established
by the Company, which includes background materials, meetings with senior
management, presentations by the Company’s advisors and site visits. The
directors are assessed annually, both individually and as a board, as part of
an evaluation process, which is driven by an independent consultant. In
addition, the Remuneration and Nominations Committees formally evaluate the
executive directors on an annual basis, based on objective criteria.
All directors, in accordance with the Company’s MOI, are subject
to retirement by rotation and re-election by shareholders. In addition, all
directors are subject to election by shareholders at the first annual general
meeting following their appointment by directors. The appointment of new
directors is approved by the board as a whole. The names of the directors
submitted for re-election are accompanied by sufficient biographical details in
the notice of the forthcoming annual general meeting to enable shareholders to
make an informed decision in respect of their re-election.
All directors have access to the advice and services of the
Company Secretary, who is responsible to the board for ensuring compliance with
procedures and regulations of a statutory nature. Directors are entitled to
seek independent professional advice concerning the affairs of the Company at
the Company’s expense, should they believe that course of action would be in
the best interest of the Company.
Board meetings are held quarterly in South Africa and abroad. The
structure and timing of the Company’s board meetings, which are scheduled over
two days, allows adequate time for the Non-Executive Directors to interact
without the presence of the Executive Directors. The board meetings include the
meeting of the Audit and Risk Committee, Remuneration and Nominations Committee
and Social and Ethics Committee which act as subcommittees to the board. Each
subcommittee is chaired by one of the Independent Non-Executive Directors, each
of which provides a formal report back to the board. Each subcommittee meets
for approximately half a day. Certain senior members of staff are invited to
attend the subcommittee meetings.
The board sets the standards and values of the Company and much of
this has been embodied in the Company’s Code of Conduct, which is available on
our website at www.drdgold.com. The Code of Conduct applies to all directors,
officers and employees, including the principal executive, financial and
accounting officers, in accordance with Section 406 of the US Sarbanes-Oxley
Act of 2002, the related US securities laws and the NYSE rules. The Code
contains provisions for employees to report violations of Company policy or any
applicable law, rule or regulation, including US securities laws.
A description of the significant ways in which our corporate
governance practices differ from practices followed by U.S. companies listed on
the NYSE can be found in Item 16G. Corporate Governance.
Directors' Terms of Service
The following table shows the date of appointment,
expiration of term and number of years of service with us of each of the
directors as at June 30, 2018:
Director
|
Title
|
Year
first
appointed
|
Term of current
office
|
Unexpired term of
current
office
|
D.J. Pretorius
|
Chief
Executive Officer
|
2008
|
3 years
|
* 12 months
|
A.J. Davel
|
Chief
Financial Officer
|
2015
|
3 years
|
* 12 months
|
G.C. Campbell
|
Non-Executive
Director
|
2002
|
2 years
|
16 months
|
E.A. Jeneker
|
Non-Executive
Director
|
2007
|
2 years
|
16 months
|
J. Turk
|
Non-Executive
Director
|
2004
|
1 year
|
4 months
|
J. Holtzhausen
|
Non-Executive
Director
|
2014
|
2 years
|
22 months
|
T.V.B.N. Mnyango
|
Non-Executive
Director
|
2016
|
2 years
|
5 months
|
|
|
|
|
|
*
Renewal of the term of office was deferred to the October 2018 board meeting
at which the contracts of D.J. Pretorius and A.J. Davel were extended to June
30, 2019.
|
|
|
|
|
|
Executive Committee
As at June 30, 2018, the Executive Committee
consisted of Mr. D.J. Pretorius (Chairman), Mr. A.J. Davel, Mr. W.J. Schoeman
and Ms. R. Masemene.
The Executive Committee meets on a weekly
basis to review current operations, develop strategy and policy proposals for
consideration by the board of directors. Members of the Executive Committee,
who are unable to attend the meetings in person, are able to participate via
teleconference facilities, to allow participation in the discussion and
conclusions reached.
Board Committees
The board has established a number of standing committees to
enable it to properly discharge its duties and responsibilities and to
effectively fulfill its decision-making process. Each committee acts within
written terms of reference which have been approved by the board and under which
specific functions of the board are delegated. The terms of reference for all
committees can be obtained by application to the Company Secretary at the
Company’s registered office. Each committee has defined purposes, membership
requirements, duties and reporting procedures. Minutes of the meetings of these
committees are circulated to the members of the committees and made available
to the board.
Remuneration of Non-Executive Directors
for their services on the committees concerned is determined by the board. The
committees are subject to regular evaluation by the board with respect to their
performance and effectiveness. The following information reflects the
composition and activities of these committees.
Committees of the Board of Directors
Remuneration and Nominations Committee
As at June 30, 2018 the
Remuneration and Nominations Committee
consisted of
G C Campbell (Chairman: nominations), E A Jeneker
(Chairman: remuneration), J A Holtzhausen and J Turk.
In August 2014, the Remuneration Committee and the Nominations
Committee were combined into the Remuneration and Nominations Committee. The
committee meets on an
ad hoc
basis. All members of this committee are
independent NEDs. It is chaired by the board chairman when matters relating to
nominations are discussed and by an independent NED when matters relating to
remuneration are discussed.
The primary remuneration role of the committee is to execute the
following functions:
·
Ensure the establishment of a formal process
for the appointment of directors;
·
ensure that inexperienced directors are
developed through a mentorship programme;
·
ensure that directors receive regular
briefings on changes in risks, laws and the appropriate contribution;
·
drive an annual process to evaluate the
board, board committees and individual directors;
·
ensure that formal succession plans for the
board, chief executive officer and senior management appointments are developed
and implemented.
The committee has an obligation to offer competitive packages that
will attract and retain executives of the highest caliber and encourage and
reward superior performance. Industry surveys are provided for comparative
purposes, and to assist the
committee
in the formulation of remuneration policies that are market related.
The key nominations responsibilities of the committee include the
following:
·
make recommendations to the board on the
appointment of new directors;
·
make recommendations on the composition of
the board and the balance between executive and NEDs appointed to
the board;
·
review board structure, size and composition
on a regular basis;
·
make recommendations on directors eligible to
retire by rotation; and
·
apply the principles of good corporate
governance and best practice in respect of nominations matters.
Audit and Risk Committee
In August 2014, the board combined the Audit Committee and the
Risk Committee to form the Audit and Risk Committee.
As at June 30, 2018 the
Audit and Risk Committee
consisted of
J A Holtzhausen (Chairman), J Turk and E A Jeneker.
All members of the Audit and Risk Committee are independent
according to the definition set out in the NYSE Rules. See Item 16G. Corporate
Governance. The committee’s charter deals with all the aspects relating to its
functioning.
The
Audit and Risk Committee charter was revised in April 2017 and sets out the
committee’s terms of reference.
Responsibilities
include:
·
External auditors, audit process and
financial reporting;
·
Internal audit;
·
integrated reporting and assurance model;
·
oversee the development and annual review of
a policy and plan for risk management;
·
ensure that risk management assessments are
performed on a continuous basis;
·
ensure that reporting on risk management
assessment is complete, timely, accurate and accessible;
·
ensure that frameworks and methodologies are
implemented to increase the possibility of anticipating unpredictable risks;
·
ensure that continuous risk monitoring by
management takes place.
The Audit and Risk Committee meets each quarter with the external
auditors, the company’s manager: risk and internal audit, and the CFO. The
committee reviews the audit plans of the internal auditors to ascertain the
extent to which the scope of the audits can be relied upon to detect weaknesses
in internal controls. It also reviews the annual and interim financial
statements prior to their approval by the board.
The committee is responsible for making recommendations to
appoint, reappoint or remove the external auditors, and the designated external
audit partner as well as determining their remuneration and terms of
engagement. In accordance with its policy, the committee preapproves all audit
and non-audit services provided by the external auditors. KPMG Inc. was
reappointed by shareholders at the
2017
AGM to perform DRDGOLD’s external audit function.
The internal audit function is performed in-house, with the assistance
of Pro-Optima Audit Services Proprietary Limited. Internal audits are performed
at all DRDGOLD operating units and are aimed at reviewing, evaluating and
improving the effectiveness of risk management, internal controls and corporate
governance processes.
Significant deficiencies, material weaknesses, instances of
non-compliance and exposure to high risk and development needs are brought to
the attention of operational management for resolution. The committee members
have access to all the records of the internal audit team.
DRDGOLD’s internal and external auditors have unrestricted access
to the chairman of the Audit and Risk Committee and, where necessary, to the
chairman of the board and the CEO. All significant findings arising from audit
procedures are brought to the attention of the committee and, if necessary, to
the board.
Section 404 of SOx stipulates that management is required to
assess the effectiveness of the internal controls surrounding the financial
reporting process. The results of this assessment are reported in the form of a
management attestation report that is filed with the SEC as part of the Form 20-F.
Additionally, DRDGOLD’s external auditors are required to express an opinion on
the effectiveness of internal controls over financial reporting, which is also
contained in the Company’s Form 20-F.
An important aspect of risk management is the transfer of risk to
third parties to protect the company from disaster. DRDGOLD’s major assets and
potential business interruption and liability claims are therefore covered by
the group insurance policy, which encompasses all the operations. Most of these
policies are held through insurance companies operating in the United Kingdom,
Europe and South Africa. The various risk-management initiatives undertaken
within the group as well as the strategy to reduce costs without compromising
cover have been successful and resulted in substantial insurance cost savings
for the Group.
Social and Ethics Committee
As at June 30,
2018
, the
Social and Ethics Committee consisted of Mr. E.A. Jeneker (Chairman), Mr. D.J.
Pretorius and Mrs. TVBN Mnyango.
The Social and Ethics Committee was established to enable DRDGOLD
to achieve the triple bottom line recommended by local guidance on best
practice in corporate governance and to reach the empowerment goals to which the
Company is committed. Its terms of reference were approved by the board in
April 2017 and its objectives are to:
·
promote transformation within the Company and
economic empowerment of previously disadvantaged communities, particularly
within the areas where the company conducts business;
·
strive towards achieving equality at all
levels of the company, as required by the South African constitution and other
legislation, taking into account the demographics of the country; and
·
conduct business in a manner that is
conducive to the attainment of internationally acceptable environmental and
sustainability standards.
The following terms of reference were approved by the board to
enable the committee to function effectively. These are to make recommendations
to the board:
·
to monitor the company’s activities with
regard to the 10 principles set out in the United Nations Global Compact
Principles and the OECD recommendations regarding Corruption, the Employment
Equity Act and the Broad Based Black Economic Empowerment Act;
·
records of sponsorship, donations and
charitable giving;
·
the environment, health and public safety,
including the impact of the company’s activities and of its products or
services;
·
labour and employment
·
review and recommend the company’s code of
ethics;
·
review and recommend any corporate
citizenship policies;
·
review significant cases of employee
conflicts of interests, misconduct or fraud, or any other unethical activity by
employees or the Company
6D. EMPLOYEES
Employees
The
total number of employees at June 30, 2018, of 2 304 comprises 1 426
specialized service providers and 878 employees who are directly employed by
us and our subsidiary companies. As of September 30, 2018, we had 2,463 employees
(including 1,424 contract employees). The increase in the number of employees
was due to the addition of 172 employees resulting from the acquisition of the
WRTRP Assets effective on July 31, 2018.
All of our employees are based at our operations
that operate exclusively in South Africa.
Labor
Relations
As at June 30, 2018, approximately
91% of our South African employees are members of trade unions or employee
associations. South Africa's labor relations environment remains a platform for
social reform. The National Union of Mineworkers, or NUM, one of the main South
African mining industry unions, is influential in the tripartite alliance
between the ruling African National Congress, the Congress of South African
Trade Unions, or COSATU, and the South African Communist Party as it is the
biggest affiliate of COSATU. The relationship between management and labor
unions remains cordial. The organized labor coordinating forum meets regularly
to discuss matters pertinent to both parties.
On April 9, 2018, Ergo signed
a one year extension of the 2016/18 Wage Agreement with the Majority Unions for
a wage increase
ranging from 7-10% per annum depending on worker job
category, averaging 8.2% per annum across our workforce
. The next round of wages and conditions of employment
negotiations will commence in June 2019.
The Company places a great emphasis on its
Corporate Social Responsibility by staying actively involved in appropriate
projects that give effect to the ideals of the Mining Charter and good
corporate governance. During the last 5 calendar years (2013-2017) the Company
has spent in excess of R62 million in fulfilling its Social & Labour Plan
which is a statutory requirement of the Mineral & Petroleum Resources
Development Act.
We recognize the need for transformation and have
put systems and structures in place to address this at both management and
board level.
Safety statistics
Due to the importance of our
labor force, we continuously strive to create a safe and healthy working
environment. The following are our 2018 overall safety statistics for our
operations:
(Per million man hours)
|
Year ended June 30,
|
|
2018
|
2017
|
Lost time injury frequency rate (LTIFR)
(1)
|
2.92
|
2.91
|
Reportable incidence
(1)
|
1.55
|
1.53
|
Fatalities
|
-
|
1
|
|
|
|
(1)
Calculated as follows: actual number of instances divided by the total number
of man hours worked multiplied by one million.
|
6E. SHARE OWNERSHIP
To the best of our knowledge, we believe that
our ordinary shares held by executive officers, in aggregate, do not exceed one
percent of the Company’s issued ordinary share capital. For details of share
ownership of directors and prescribed officers see Item 7A. Major Shareholders.
As of June 30, 2018, directors and prescribed
officers do not hold any options to purchase ordinary shares.
Closed
periods apply to share trading by directors and other employees, whenever
certain employees of the Company become or could potentially become aware of
material price sensitive information, such as information relating to an
acquisition, bi-annual results etc., which is not in the public domain. When
these employees have access to this information an embargo is placed on share
trading for those individuals concerned. The embargo need not involve the
entire Company in the case of an acquisition and may only apply to the board of
directors, executive committee, and the financial and new business teams, but
in the case of interim and year-end results the closed-period is group-wide.
DRDGOLD Phantom Share Scheme (before amendment)
The phantom share scheme is operated as an incentive tool for our
executive directors, excluding the CEO, and senior employees whose skills and
experience are recognized as being essential to the Company’s performance. The
scheme is cash settled. In terms of the phantom share scheme rules, 50% of the
phantom shares granted will be valued based on the Group meeting certain
pre-determined performance criteria and the remaining 50% to defined retention
periods. The maximum incentive pay-out per annum to any single employee may not
exceed 75% of that employee’s gross remuneration package. The participants in
the scheme are fully taxed at their marginal rate on any gains realized on the
exercise of their phantom shares.
The phantom share granted has a zero strike price, however the
number of phantom shares granted by the Remuneration Committee is determined by
the price in respect of each share which is the subject of the phantom share, the
volume weighted average price of a share on the JSE for the seven days on which
the JSE is open for trading, preceding the day on which the employee is granted
a phantom share. The allocation date will be the date when the directors
approve allocation of the phantom shares. Each phantom share remains in force
until the date of vesting, subject to the terms of the scheme rules. Phantom
shares granted under the phantom share scheme vest primarily according the
following schedule over a maximum of a three year period:
Percentage vested in each
period grant:
|
|
Period
after the original date of grant
|
|
|
of the
option:
|
Performance
criteria
|
Retention
criteria
|
|
33%
|
0%
|
one
year
|
33%
|
50%
|
two
years
|
33%
|
50%
|
three
years
|
The phantom shares granted before the November 2015 amendment
described below were not affected by the said amendment and continued to vest
under the original terms of the grant. The last tranche of these phantom shares
vested and were paid during fiscal year 2018.
DRDGOLD Phantom Share Scheme (Amended November 2015)
During fiscal year 2017, DRDGOLD’s REMCO approved a revised
long-term incentive scheme. On November 4, 2015, REMCO approved an allocation
of 20,527,978 phantom shares which is driven by share price performance and
individual performance, and is based on phantom share allocations. The vesting
of any shares allocated is staggered over a five-year period commencing in the
third year after the allocation is granted in line with King recommendations.
The objectives of the revised scheme are to drive the longer-term strategies of
DRDGOLD, to align participants’ interests with shareholders’ interest, to
incentivise and motivate participants, to attract and retain scarce human
resources and to reward superior performance by the Company and participants.
REMCO has the authority to amend in part or in its entirety or withdraw the
long-term incentive scheme at any time.
No phantom shares were granted during fiscal year 2018 or 2017. 20 527 978
phantom shares were granted during fiscal year 2016. 20 189 467
phantom shares were outstanding on June 30, 2018 (2017:
21 144 534).
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7A. MAJOR SHAREHOLDERS
As of September 30, 2018, our issued capital consisted of:
·
696,429,767
ordinary shares of no par value; and
·
5,000,000 cumulative preference shares.
To our knowledge, as of 30 June 2018, we were not
directly or indirectly owned or controlled by another corporation or any person
or foreign government.
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 for a period of 2 years from the effective date of the acquisition
at a 10% discount to the prevailing market value.
Other than the above there are no arrangements, the operation of
which may at a subsequent date result in a change in control of us.
Based on information available to us, as of
September 30, 2018:
·
there were 5,758 record holders of our
ordinary shares in South Africa, who held 461,189,130 or approximately 66.2% of
our ordinary shares;
·
there was one record holder of our cumulative
preference shares in South Africa, who held 5,000,000 ordinary shares or 100%
of our cumulative preference shares;
·
there were 22 US record holders of our
ordinary shares, who held approximately 20,070,838 ordinary shares or
approximately 2.88% of our ordinary shares excluding those shares held as part
of our ADR program; and
·
there were 720 registered holders of our ADRs
in the United States, who held approximately 216,938,320 shares (21,693,832
ADRs) or approximately 31.2% of our ordinary shares.
The following table sets forth information
regarding the beneficial ownership of our ordinary shares as of September 30,
2018, by:
·
each of our directors and prescribed
officers; and
·
any person whom the directors are aware of as
at September 30, 2018 who is interested directly or indirectly in 1% or more of
our ordinary shares. There was significant change in the percentage ownership
of the major shareholders over the preceding three years.
|
Shares Beneficially owned
|
Holder
|
Number
|
Percent of outstanding ordinary
shares
|
Directors/prescribed officers
|
|
|
D.J. Pretorius
|
690 188
|
*
|
A.J. Davel
|
100 000
|
*
|
J. Turk
|
243,000
|
*
|
G.C. Campbell
|
200,000
|
*
|
|
|
|
Other
|
|
|
Sibanye-Stillwater
|
265 000 000
|
38.05%
|
Ruffer, LLP
|
49 894 680
|
7.16%
|
Van Eck Associates Corporation
|
32 521 120
|
4.67%
|
Khumo Gold SPV Proprietary Limited
|
16 326 007
|
2.34%
|
Renaissance Technologies, LLC
|
12 101 130
|
1.74%
|
|
|
|
*
Indicates share ownership of less than 1% of our outstanding ordinary shares.
|
|
|
As of September 30, 2018, we are not aware of anyone owning 5% or
more of our ordinary shares other than described above. No shareholder has
voting rights which differ from the voting rights of any other shareholder.
Cumulative Preference
Shares
Randgold and Exploration Company Limited, or
Randgold, owns 5,000,000 (100%) of our cumulative preference shares. Randgold's
registered address is Suite 25, Katherine & West Building, Corner of
Katherine and West Streets, Sandown, Sandton, 2196.
The holders of cumulative preference shares do not
have voting rights unless any preference dividend is in arrears for more than
six months. The terms of issue of the cumulative preference shares are that
they carry the right, in priority to the Company's ordinary shares, to receive
a dividend equal to 3% of the gross future revenue generated by the exploitation
or the disposal of the Argonaut mineral rights acquired from Randgold in
September 1997. Additionally, holders of cumulative preference shares may
vote on resolutions which adversely affect their interests and on the disposal
of all, or substantially all, of our assets or mineral rights. There is
currently no active trading market for our cumulative preference shares.
Holders of cumulative preference shares will only obtain their potential voting
rights once the Argonaut Project becomes an operational gold mine, and
dividends accrue to them. The prospecting rights have since expired and the
Argonaut Project terminated.
The development of the project
is not expected to materialise and therefore no dividend is expected to be
paid.
7B. RELATED PARTY TRANSACTIONS
Remuneration paid
to key management is disclosed in
Item
18. ‘‘Financial Statements - Note 18.2 – Key management personnel
remuneration’’
7C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8A. CONSOLIDATED STATEMENTS AND OTHER
FINANCIAL INFORMATION
1.
Please refer to Item 18. Financial Statements.
2.
Please refer to Item 18. Financial
Statements.
3.
Please refer to Item 18. Financial Statements.
4.
The last year of audited financial statements
is not older than 15 months.
5.
Not applicable.
6.
Not applicable.
7.
See under Item 4D. Property, plant and
equipment—Ongoing Legal Proceedings.
8.
Please see Item 10B. Memorandum of
Incorporation.
8B. SIGNIFICANT CHANGES
Significant
changes that have occurred since June 30, 2018, the date of the last audited
financial statements included in this Annual Report, are discussed in the
relevant notes to the financial statements under Item 18. Financial Statements.
ITEM 9. THE OFFER AND LISTING
9A. OFFER AND LISTING DETAILS
The following tables set forth, for the periods indicated, the
high and low market sales prices and average daily trading volumes of our
ordinary shares on the JSE and ADSs on the New York Stock Exchange.
|
Price Per
|
Price Per
|
Average Daily
|
Ordinary Share
|
ADS
|
Trading
|
R
|
$
|
Volume
|
Year Ended
|
High
|
|
High
|
Low
|
Ordinary
|
ADSs
|
Low
|
Share
|
June 30, 2014
|
6.64
|
2.45
|
6.47
|
2.39
|
709 433
|
117 380
|
June 30, 2015
|
4.03
|
1.79
|
3.65
|
1.35
|
510 455
|
149 298
|
June 30, 2016
|
9.49
|
1.49
|
6.05
|
1.10
|
1 378 955
|
273 317
|
June 30, 2017
|
12.62
|
3.70
|
9.10
|
2.84
|
1 145 751
|
513 707
|
June 30, 2018
|
5.52
|
2.69
|
4.11
|
2.23
|
392 848
|
98 559
|
|
|
|
|
|
|
|
|
Price Per
|
Price Per
|
Average Daily
|
Ordinary Share
|
ADS
|
Trading
|
R
|
$
|
Volume
|
Quarter Ended
|
High
|
|
High
|
Low
|
Ordinary
|
ADSs
|
Low
|
Share
|
Q1 July – September 2016
|
12.62
|
6.50
|
9.10
|
4.74
|
1 343 395
|
685 864
|
Q2 October – December 2016
|
7.51
|
5.25
|
5.61
|
3.70
|
1 194 444
|
583 354
|
Q3 January – March 2017
|
8.96
|
5.76
|
6.67
|
4.59
|
1 406 611
|
412 828
|
Q4 April – June 2017
|
7.14
|
3.70
|
5.23
|
2.84
|
610 710
|
368 449
|
|
|
|
|
|
|
|
Q1 July – September 2017
|
5.44
|
3.90
|
4.11
|
2.91
|
458 841
|
160 321
|
Q2 October – December 2017
|
5.52
|
3.59
|
4.00
|
2.90
|
393 487
|
86 269
|
Q3 January – March 2018
|
4.20
|
3.00
|
3.38
|
2.65
|
388 638
|
74 887
|
Q4 April – June 2018
|
4.10
|
2.69
|
2.23
|
2.23
|
329 352
|
72 421
|
Q1 July – September 2018
|
3.75
|
2.66
|
2.68
|
1.76
|
207 279
|
97 516
|
|
|
|
|
|
|
|
|
Price Per
|
Price Per
|
Average Daily
|
Ordinary Share
|
ADS
|
Trading
|
R
|
$
|
Volume
|
Month Ended
|
High
|
|
High
|
Low
|
Ordinary
|
ADSs
|
Low
|
Share
|
April 30, 2018
|
3.50
|
2.69
|
2.87
|
2.25
|
400 420
|
90 520
|
May 31, 2018
|
3.60
|
2.88
|
2.79
|
2.23
|
291 835
|
62 117
|
June 30, 2018
|
4.10
|
3.27
|
2.95
|
2.50
|
304 357
|
65 116
|
July 31, 2018
|
3.75
|
3.00
|
2.68
|
2.33
|
108 504
|
38 405
|
August 31, 2018
|
3.67
|
2.80
|
2.57
|
2.02
|
205 826
|
53 370
|
September 30, 2018
|
3.40
|
2.66
|
2.52
|
1.76
|
323 332
|
216 289
|
The cumulative preference shares are not
traded on any exchange.
There have been no trading
suspensions with respect to our ordinary shares on the JSE during the past
three years ended June 30, 2018, nor have there been any trading suspensions
with respect to our ADRs on the New York Stock Exchange since our listing on
that market.
9B.
PLAN OF DISTRIBUTION
Not
applicable.
9C. MARKETS
Nature of Trading Markets
The principal trading market for our equity securities is the JSE
(symbol: DRD) and our ADSs that trade on the New York Stock Exchange (symbol:
DRD). The ADRs are issued by The Bank of New York Mellon, as depositary. Each
ADR represents one ADS and each ADS represents ten of our ordinary shares.
Until July 23, 2007, each ADS represented one of our ordinary shares.
9D. SELLING SHAREHOLDERS
Not
applicable.
9E. DILUTION
Not
applicable.
9F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10A. SHARE CAPITAL
Not applicable.
10B. MEMORANDUM OF
INCORPORATION
As
of June 30, 2018, we had authorized for issuance 1,500,000,000 ordinary shares
of no par value (as of September 30, 2018: 1,500,000,000), and 5,000,000
cumulative preference shares of R0.10 par value (as of September 30, 2018:
5,000,000). On this date, we had issued 431,429,767 ordinary shares (as of
September 30, 2018: 696,429,767) and 5,000,000 cumulative preference shares (as
of September 30, 2018: 5,000,000).
Set out below are brief summaries of certain
provisions of our Memorandum of Incorporation, or our MOI, the Companies Act of
South Africa and the JSE Listings Requirements, all as in effect on September
30, 2018. The summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the full text of the MOI, the
Companies Act, and the JSE Listings Requirements.
We are registered under the Companies Act of South
Africa under registration number 1895/000926/06. As set forth in our Memorandum
of Incorporation, the main object and business of our company is mining and
exploration for gold and other minerals.
Borrowing Powers
Our directors may from time to time borrow for the
purposes of the company, such sums as they think fit and secure the payment or
repayment of any such sums, or any other sum, as they think fit, whether by the
creation and issue of securities, mortgage or charge upon all or any of the
property or assets of the company. The directors shall procure that the
aggregate principal amount at any one time outstanding in respect of monies so
borrowed or raised by the company and all the subsidiaries for the time being
of the company shall not exceed the aggregate amount at that time authorized to
be borrowed or secured by the company or the subsidiaries for the time being of
the company (as the case may be).
Share Ownership Requirements
Our directors are not required to hold any shares
to qualify or be appointed as a director.
Voting by Directors
A director may authorize any other director to vote
for him at any meeting at which neither he nor his alternate director appointed
by him is present. Any director so authorized shall, in addition to his own
vote, have a vote for each director by whom he is authorized.
The quorum necessary for the transaction of the
business of the directors is a majority of the directors present at a meeting
before a vote may be called at any meeting of directors.
Directors are required to notify our board of
directors of interests in companies and contracts. If a director has a personal
financial interest in respect of a matter to be considered at a meeting of the
board he or she must disclose the interest and its nature, any material
information relating to the matter and thereafter leave the meeting immediately
after making the disclosure. Such director must not take part in consideration
of the matter. He is not to be regarded as being present for the purpose of
determining whether a resolution has sufficient support to be adopted.
The King Report on Corporate Governance for South
Africa (King IV Report) which came into effect on April 1, 2017, sets out
guidelines to promote the highest standards of corporate governance among South
African companies. The board of directors believes that our business should be
conducted according to the highest legal and ethical standards. In accordance
with the board practice, all remuneration of executive directors is approved by
the Remuneration and Nominations Committee, and the shareholders approve
remuneration of non-executive directors.
DRDGOLD commits itself to observing the provision
of the King IV Report and enforcing these to the extent possible within the
context of the report’s ‘apply and explain’ principle.
Under South African common law, directors are
required to comply with certain fiduciary duties to the company and to exercise
proper care and skill in discharging their responsibilities. These common law
duties have now been codified by the Companies Act.
Age Restrictions
There is no age limit for directors.
Election of Directors
Each director shall be appointed by election by
way of an ordinary resolution of shareholders at a general or annual meeting of
company (“elected director (s)”) and no appointment of a director by way of a
written circulated shareholders resolution in terms of section 60 of the
Companies Act shall be competent.
One third of our directors, on a rotating basis,
are subject to re-election at each annual general shareholder’s meeting.
Retiring directors usually make themselves available for re-election. An amendment
to the MOI which also subjects executive directors to re-election by rotation
was approved by shareholders at the 2014 annual general meeting.
General Meetings
On the request of any shareholder or shareholders
holding not less than 10 percent of our share capital which carries the right
of voting at general meetings, we shall issue a notice to shareholders
convening a general meeting for a date not less than 15 days from the date
of the notice. Directors may convene general meetings at any time.
Our annual general meeting and a meeting of our
shareholders for the purpose of passing a special resolution may be called by
giving 15 days advance written notice of that meeting. For any other
general meeting of our shareholders, 15 days advance written notice is
required.
Our MOI provides that if at a meeting convened upon
request by our shareholders, a quorum is not present within fifteen minutes
after the time selected for the meeting, such meeting shall be postponed for
one week. However the chairman has the discretion to extend the fifteen minutes
for a reasonable period on certain grounds. The necessary quorum is three
members present with sufficient voting powers in person or by proxy to exercise
in aggregate 25% of the voting rights.
Voting Rights
The holders of our ordinary shares are generally
entitled to vote at general meetings and on a show of hands have one vote per
person and on a poll have one vote for every share held. The holders of our
cumulative preference shares are not entitled to vote at a general meeting
unless any preference dividend is in arrears for more than six months at
the date on which the notice convening the general meeting is posted to the
shareholders. Additionally, holders of cumulative preference shares may vote on
resolutions which adversely affect their interests and on resolutions regarding
the disposal of all or substantially all of our assets or mineral rights. When
entitled to vote, holders of our cumulative preference shares are entitled to
one vote per person on a show of hands and that portion of the total votes
which the aggregate amount of the nominal value of the shares held by the
relevant shareholder bears to the aggregate amount of the nominal value of all
shares issued by us.
Dividends
We may, in a general meeting,
or our directors may, from time to time, declare a dividend to be paid to the
shareholders in proportion to the number of shares they each hold. No dividend
shall be declared except out of our profits. Dividends may be declared either
free or subject to the deduction of income tax or duty in respect of which we
may be charged. Holders of ordinary shares are entitled to receive dividends as
and when declared by the directors.
Ownership Limitations
There are no limitations imposed by our MOI or South
African law on the rights of shareholders to hold or vote on our ordinary
shares or securities convertible into our ordinary shares.
Winding-up
If we are wound-up, then the assets remaining after
payment of all of our debts and liabilities, including the costs of
liquidation, shall be applied to repay to the shareholders the amount paid up
on our issued capital and thereafter the balance shall be distributed to the
shareholders in proportion to their respective shareholdings. On a winding up,
our cumulative preference shares rank, in regard to all arrears of preference
dividends, prior to the holders of ordinary shares. As of September 30, 2018,
no such dividends have been declared. Except for the preference dividend and as
described in this Item our cumulative preference shares are not entitled to any
other participation in the distribution of our surplus assets on winding-up.
Reduction of Capital
We may, by special resolution,
reduce the share capital authorized by our MOI, or reduce our issued share
capital including, without limitation, any stated capital, capital redemption
reserve fund and share premium account by making distributions and buying back
our shares.
Amendment of the
MOI
Our MOI may be altered by the
passing of a special resolution or in compliance with a court order. The
Company may also amend the MOI by increasing or decreasing the number of
authorized shares, classifying or reclassifying shares, or determining the terms
of shares in a class. A special resolution is passed when the shareholders
holding at least 25% of the total votes of all the members entitled to vote are
present or represented by proxy at a meeting and, if the resolution was passed
on a show of hands, at least 75% of those shareholders voted in favor of the
resolution and, if a poll was demanded, at least 75% of the total votes to
which those shareholders are entitled were cast in favor of the resolution. An
amendment to the MOI to increase the number of authorized shares was approved
by shareholders at the 2018 general meeting.
Consent of the Holders of Cumulative
Preference Shares
The rights and conditions attaching to the
cumulative preference shares may not be cancelled, varied or added, nor may we
issue shares ranking, regarding rights to dividends or on winding up, in
priority to or equal with our cumulative preference shares, or dispose of all
or part of the Argonaut mineral rights without the consent in writing of the
registered holders of our cumulative preference shares or the prior sanction of
a resolution passed at a separate class meeting of the holders of our
cumulative preference shares.
Distributions
We are authorized to make payments in cash or in
specie to our shareholders in accordance with the provisions of the Companies
Act and other consents required by law from time to time. We may, for example,
in a general meeting, upon recommendation of our directors, resolve that any
surplus funds representing capital profits arising from the sale of any capital
assets and not required for the payment of any fixed preferential dividend, be
distributed among our ordinary shareholders. However, no such profit shall be
distributed unless we have sufficient other assets to satisfy our liabilities
and to cover our paid up share capital. We also need to consider the solvency
and liquidity requirements stated in the Companies Act of South Africa.
Directors’ power to vote compensation to
themselves
The remuneration of non-executive directors may not
exceed in aggregate in any financial year the amount fixed by the Company in
general meeting. The Companies Act requires that remuneration to non-executive
directors may be paid only in accordance with a special resolution approved by
shareholders within the previous two years.
Time limit for dividend entitlement
All unclaimed monies that are due to any
shareholder/s shall be held by the company in trust for an indefinite period
until lawfully claimed by such shareholder/s, subject to the Prescription Act,
1968 as amended or any other law which governs the law of prescription.
Staggered director elections & cumulative
voting
At each annual general meeting of the Company
one-third of the directors shall retire and be eligible for re-election. No
provision is made for cumulative voting.
Sinking fund
provisions and liability to further capital calls
There are no sinking fund provisions in the MOI
attaching to any class of the company shares, and the company does not subject
shareholders to liability to further capital calls.
Provision that would delay/prevent change of
control
The Companies Act provides that companies which
propose to merge or amalgamate must enter into a written agreement setting out
the terms thereof. They must prove that upon implementation of the amalgamation
or merger each will satisfy the solvency and liquidity test. Companies involved
in disposals, amalgamations or mergers, or schemes of arrangement must obtain a
compliance certificate from the Takeover Regulation Panel, pass special
resolutions and in some instances they must obtain an independent expert
report.
10C. MATERIAL
CONTRACTS
Acquisition of FWGR (WRTRP Assets) from
Sibanye-Stillwater
Sibanye-Stillwater Exchange Agreement
On November 22, 2017, Sibanye-Stillwater, WRTRP Proprietary
Limited and the Company entered into the Sibanye-Stillwater Exchange Agreement.
Under the Sibanye-Stillwater Exchange Agreement, Sibanye-Stillwater agreed to
dispose certain gold surface processing assets and tailing storage facilities
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 required for the future development of a central processing
plant, regional tailings storage facility and return water dam (together, the
“WRTRP Assets”) to WRTRP Proprietary Limited in exchange for the issuance of
999 shares of WRTRP Proprietary Limited shares (comprising the entire share
capital of WRTRP Proprietary Limited) to Sibanye-Stillwater, subject to certain
limitations that include the consummation of certain agreements such as the DRD
Exchange Agreement, DRD Guarantee and DRD Option Agreement, among others.
DRD Exchange Agreement
Additionally, on November 22, 2017, pursuant to the
Sibanye-Stillwater Exchange Agreement, the Company and Sibanye-Stillwater
entered into the DRD Exchange Agreement, under which Sibanye-Stillwater agreed
to transfer all of the shares of WRTRP Proprietary Limited to the Company in
exchange for 265,000,000 ordinary shares of the Company, which represents
38.05% of our ordinary shares in issue (including any of our ordinary shares
held as treasury shares). A
director
nominated by Sibanye
‑
Stillwater will be appointed as a
non-executive director of the Board subject to the terms of DRDGOLD’s MOI and
shareholders’ approval
.
DRD Guarantee
In connection with the Sibanye-Stillwater Agreement and the DRD
Exchange Agreement, on November 22, 2017, the Company issued a guarantee to and
in favor of Sibanye-Stillwater. Under the DRD Guarantee, the Company
irrevocably and unconditionally guaranteed and agreed to: (i) undertake as a
principal and an independent obligation to and in favor of Sibanye-Stillwater
the due, punctual and full payment and performance which WRTRP Proprietary
Limited has, or may from time to time have, to Sibanye-Stillwater in terms of
any agreements to give effect to the transactions contemplated by the DRD
Exchange Agreement (the “Guaranteed Obligation”); (ii) undertake that whenever
WRTRP Proprietary Limited does not pay any Guaranteed Obligation when due, the
Company shall, immediately on demand, pay that amount as if it was the
principal obligor; (iii) undertake that whenever WRTRP Proprietary Limited does
not perform punctually any Guarantee Obligation, it shall, immediately on
demand, perform such obligation as if it was the principal obligor; (iv)
indemnify (as a separate and primary obligation) Sibanye-Stillwater immediately
on demand against any and all losses, liabilities, damages, costs or expenses
(but excluding any indirect, special, consequential or incidental loss or
damage) suffered by Sibanye-Stillwater if any indebtedness, payment obligation
or other obligation guaranteed by the Company under certain enumerated events;
and (v) undertake that if any Guaranteed Obligation is or becomes
unenforceable, invalid or illegal, the Company shall, as an independent and
primary obligation, indemnify Sibanye-Stillwater, subject to a monetary limit.
Option Agreement
In addition, on November 22, 2017, Sibanye-Stillwater and the
Company entered into the Option Agreement. Under the Option Agreement, the
Company granted Sibanye-Stillwater the irrevocable right and option to call on
the Company to allot and issue additional ordinary shares to
Sibanye-Stillwater, resulting in Sibanye-Stillwater holding 50.1% of all
ordinary shares of the Company (including any of the Company’s ordinary shares
held as treasury shares), subject to the condition that such option be
exercised within 24 months of the closing of the Transaction and subject to
Sibanye-Stillwater not having disposed of all or any of the Consideration
Shares during the Option Period. The Option must be exercised in whole anytime
within the Option Period. The price of such shares would be set at the 30-day
volume weighted average price per DRDGOLD's ordinary share on the Johannesburg
Stock Exchange preceding the exercise date minus 10%. During the period between
the date upon which the option is exercised and the closing date, the Company
agreed that it shall not issue any ordinary shares, and not issue any ordinary
shares and/or any securities convertible into the Company’s ordinary shares,
and/or grant any options and/or rights to
require the
issue of the Company’s ordinary shares or securities convertible into the
Company’s ordinary shares at any time or on or after the closing of the
exchange transactions, subject to certain limitations.
Closing and Amending Agreement
On July 31, 2018, Sibanye-Stillwater, WRTRP Proprietary Limited
and the Company entered into the Closing and Amending Agreement in connection
with the Transaction. Under the Closing and Amending Agreement, the parties
agreed to amend the Sibanye-Stillwater Exchange Agreement to, among other
things, confirm the fulfilment of or alternatively the waiver of conditions
precedent to the Transaction and provide for a revised closing process for the
Sibanye-Stillwater Exchange Agreement.
The description of the Sibanye-Stillwater Exchange Agreement, DRD
Exchange Agreement, DRD Guarantee, Option Agreement and Closing and Amending
Agreement is qualified by reference to the Sibanye-Stillwater Exchange
Agreement, DRD Exchange Agreement, DRD Guarantee, Option Agreement and Closing
and Amending Agreement filed herewith as Exhibits.
ZAR300 million Revolving Credit Facility
On August 1, 2018, DRDGOLD Limited entered into a ZAR300 million revolving
credit facility (“RCF”) secured with ABSA Bank Limited (acting through its
Corporate and Investment Banking division). The purpose of the RCF was to
finance the development of Phase 1 of FWGR and working capital requirements,
replacing the R100 million overdraft facility that was in place during the year
ended 30 June 2018.
The RCF bears interest at JIBAR plus a margin of 325 basis points
nominal annual compounded quarterly. The borrowers are required to pay a
commitment fee of 35% of the applicable margin per annum. There is a debt
origination fee of 1% of the available commitment.
Relevant covenants include that, during any rolling 12
month period, (i) the interest cover
(1)
shall not be less than 4
times and (ii) net debt
(2)
to EBITDA Ratio shall not exceed 2 times.
(1) Interest cover means the ratio of EBITDA to Total
Net Interest (interest charged on Financial Indebtedness after deducting all
interest received on Cash and cash equivalents (excluding interest received on
restricted cash)).
(2) Means Total Debt after deducting Cash and cash
equivalents (excluding restricted cash)
The final repayment
date of the RCF is August 1, 2020.
The description of the
RCF is qualified by reference to the RCF filed herewith as an Exhibit.
10D.
EXCHANGE CONTROLS
The following is a summary of the material South African exchange
control measures, which has been derived from publicly available documents. The
following summary is not a comprehensive description of all the exchange
control regulations. The discussion in this section is based on the current law
and positions of the South African Government. Changes in the law may alter the
exchange control provisions that apply, possibly on a retroactive basis.
Introduction
Dealings in foreign currency, the export of capital
and revenue, payments by residents to non-residents and various other exchange
control matters in South Africa are regulated by the South African exchange
control regulations, or the Regulations. The Regulations form part of the
general monetary policy of South Africa. The Regulations are issued under
Section 9 of the Currency and Exchanges Act, 1933 (as amended). In terms
of the Regulations, the control over South African capital and revenue
reserves, as well as the accruals and spending thereof, is vested in the
Treasury (Ministry of Finance), or the Treasury.
The Treasury has delegated the administration of
exchange controls to the Exchange Control Department of the South African
Reserve Bank, or SARB, which is responsible for the day to day administration
and functioning of exchange controls. SARB has a wide discretion. Certain banks
authorized by the Treasury to co-administer certain of the exchange controls,
are authorized by the Treasury to deal in foreign exchange. Such dealings in
foreign exchange by authorized dealers are undertaken in accordance with the
provisions and requirements of the exchange control rulings, or Rulings, and
contain certain administrative measures, as well as conditions and limits
applicable to transactions in foreign exchange, which may be undertaken by
authorized dealers. Non-residents have been granted general approval, in terms
of the Rulings, to deal in South African assets, to invest and disinvest in
South Africa.
The Regulations provide for restrictions on
exporting capital from the Common Monetary Area consisting of South Africa,
Namibia, and the Kingdoms of Lesotho and Swaziland. Transactions between
residents of the Common Monetary Area are not subject to these exchange control
regulations.
There are many inherent disadvantages to exchange
controls, including distortion of the price mechanism, problems encountered in
the application of monetary policy, detrimental effects on inward foreign
investment and administrative costs associated therewith. The South African
Finance Minister has indicated that all remaining exchange controls are likely
to be dismantled as soon as circumstances permit. Since 1998, there has been a
gradual relaxation of exchange controls. The gradual approach to the abolition
of exchange controls adopted by the Government of South Africa is designed to
allow the economy to adjust more smoothly to the removal of controls that have
been in place for a considerable period of time. The stated objective of the
authorities is equality of treatment between residents and non-residents with
respect to inflows and outflows of capital. The focus of regulation, subsequent
to the abolition of exchange controls, is expected to favor the positive
aspects of prudential financial supervision.
The present exchange control
system in South Africa is used principally to control capital movements. South
African companies are not permitted to maintain foreign bank accounts without
SARB approval and, without the approval of SARB, are generally not permitted to
export capital from South Africa or hold foreign currency. In addition, South
African companies are required to obtain the approval of the SARB prior to
raising foreign funding on the strength of their South African statements of
financial position, which would permit recourse to South Africa in the event of
defaults. Where 75% or more of a South African company's capital, voting power,
power of control or earnings is directly or indirectly controlled by
non-residents, such a corporation is designated an “affected person” by the
SARB, and certain restrictions are placed on its ability to obtain local
financial assistance. We are not, and have never been, designated an “affected
person” by the SARB.
Foreign investment and outward loans by South
African companies are also restricted. In addition, without the approval of the
SARB, South African companies are generally required to repatriate to South
Africa profits of foreign operations and are limited in their ability to
utilize profits of one foreign business to finance operations of a different
foreign business. South African companies establishing subsidiaries, branches,
offices or joint ventures abroad are generally required to submit financial
statements on these operations as well as progress reports to the SARB on an
annual basis. As a result, a South African company's ability to raise and
deploy capital outside the Common Monetary Area is restricted.
Although exchange controls have been gradually
relaxed since 1998, unlimited outward transfers of capital are not permitted at
this stage. Some of the more salient changes to the South African exchange control
provisions over the past few years have been as follows:
·
corporations wishing to invest in countries
outside the Common Monetary Area, in addition to what is set out below, apply
for permission to enter into corporate asset/share swap and share placement
transactions to acquire foreign investments. The latter mechanism entails the
placement of the locally quoted corporation's shares with long-term overseas
holders who, in payment for the shares, provide the foreign currency abroad
which the corporation then uses to acquire the target investment;
·
corporations wishing to establish new
overseas ventures are permitted to transfer offshore up to R500 million to
finance approved investments abroad and up to R500 million to finance approved
new investments in African countries on an annual bases. Approval from the SARB
is required in advance for investments in excess of R500 million. On
application to the SARB, corporations are also allowed to use part of their
local cash holdings to finance up to 10% of approved new foreign investments
where the cost of these investments exceeds the current limits;
·
as a general rule, the SARB requires that
more than 10% of equity of the acquired off-shore venture is acquired within a
predetermined period of time, as a prerequisite to allowing the expatriation of
funds. If these requirements are not met, the SARB may instruct that the equity
be disposed of. In our experience the SARB has taken a commercial view on this,
and has on occasion extended the period of time for compliance; and
·
remittance of directors' fees payable to
persons permanently resident outside the Common Monetary Area may be approved
by authorized dealers, in terms of the Rulings.
Authorized dealers in foreign exchange may, against
the production of suitable documentary evidence, provide forward cover to South
African residents in respect of fixed and ascertained foreign exchange
commitments covering the movement of goods.
Persons who emigrate from South Africa are entitled
to take limited amounts of money out of South Africa as a settling-in allowance.
The balance of the emigrant's funds will be blocked and held under the control
of an authorized dealer. These blocked funds may only be invested in:
·
blocked current, savings, interest bearing
deposit accounts in the books of an authorized dealer in the banking sector;
·
securities quoted on the JSE and financial
instruments listed on the Bond Exchange of South Africa which are deposited
with an authorized dealer and not released except temporarily for switching
purposes, without the approval of the SARB. Authorized dealers must at all
times be able to demonstrate that listed or quoted securities or financial
instruments which are dematerialized or immobilized in a central securities
depository are being held subject to the control of the authorized dealer
concerned; or
·
mutual funds.
Aside from the investments referred to above,
blocked rands may only be utilized for very limited purposes. Dividends
declared out of capital gains or out of income earned prior to emigration
remain subject to the blocking procedure. It is not possible to predict when
existing exchange controls will be abolished or whether they will be continued
or modified by the South African Government in the future.
Sale of Shares
Under present exchange control regulations in South
Africa, our ordinary shares and ADSs are freely transferable outside the Common
Monetary Area between non-residents of the Common Monetary Area. In addition,
the proceeds from the sale of ordinary shares on the JSE on behalf of
shareholders who are not residents of the Common Monetary Area are freely
remittable to such shareholders. Share certificates held by non-residents will
be endorsed with the words “non-resident,” unless dematerialized.
Dividends
Dividends declared in respect of shares held by a
non-resident in a company whose shares are listed on the JSE are freely
remittable.
Any cash dividends paid by us are paid in rands.
Holders of ADSs on the relevant record date will be entitled to receive any
dividends payable in respect of the shares underlying the ADSs, subject to the
terms of the deposit agreement entered on August 12, 1996, and as amended and
restated, between the Company and The Bank of New York, as the depository.
Subject to exceptions provided in the deposit agreement, cash dividends paid in
rand will be converted by the depositary to dollars and paid by the depositary
to holders of ADSs, net of conversion expenses of the depositary, in accordance
with the deposit agreement. The depositary will charge holders of ADSs, to the
extent applicable, taxes and other governmental charges and specified fees and
other expenses.
Voting rights
There are no limitations
imposed by South African law or by our MOI on the right of non-South African
shareholders to hold or vote our ordinary shares.
10E.
TAXATION
Material South African Income Tax
Consequences
The following is a summary of
material income tax considerations under South African income tax law. No
representation with respect to the consequences to any particular purchaser of
our securities is made hereby. Prospective purchasers are urged to consult their
tax advisers with respect to their particular circumstances and the effect of
South African or other tax laws to which they may be subject.
South Africa imposes tax on worldwide income of
South African residents. Generally, individuals not resident in South Africa do
not pay tax in South Africa except in the following circumstances:
Income Tax and Withholding Tax on Dividends
Non-residents will pay income tax on any amounts
received by or accrued to them from a source within (or deemed to be within)
South Africa. Interest earned by a non-resident on a debt instrument issued by
a South African company will be regarded as being derived from a South African
source but will be regarded as exempt from taxation in terms of
Section 10(1)(i) of the South African Income Tax Act, 1962 (as amended),
or the Income Tax Act. This exemption applies to so much of any interest and
dividends (which are not otherwise exempt) received from a South African source
not exceeding (a) R34,500 if the taxpayer is 65 years of age or older or (b)
R23,800 if the taxpayer is younger than 65 years of age at the end of the
relevant tax year.
No withholding tax is deductible in respect of
interest payments made to non-resident investors.
Section 64F of the amendments to the Income Tax Act as set out in
Part VIII in Chapter II of the Income Tax Act sets out beneficial owners who
are exempt from the dividend tax which includes resident companies receiving a dividend
after the effective date, being April 1, 2012. The Convention between the
United States of America and the Republic of South Africa for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and Capital Gains, or the Tax Treaty, would limit the rate of this tax
with respect to dividends paid on ordinary shares or ADSs to a U.S. resident
(within the meaning of the Tax Treaty) to 5% of the gross amount of the
dividends if such U.S. resident is a company which holds directly at least 10%
of our voting stock and 20% of the gross amount of the dividends in all other
cases.
The above provisions shall not apply if the
beneficial owner of the dividends is resident in the United States, carries on
business in South Africa through a permanent establishment situated in South
Africa, or performs in South Africa independent personal services from a fixed
base situated in South Africa, and the dividends are attributable to such
permanent establishment or fixed base.
In fiscal years 2018 and 2017, the corporate tax
rates for taxable mining and non‑mining income, to which the Companies in
the Group is subject, were 34% and 28%, respectively.
The
formula for determining the South African gold mining tax rate for fiscal years
ended
2018
and
2017
is: Y = 34 – 170/X. Where Y is the percentage rate of tax
payable and X is the ratio of taxable income, net of any qualifying capital
expenditure that bears to mining income derived, expressed as a percentage.
With effect from
April 1, 2014,
Section 8F of the Income Tax Act results in
any amount of interest which is
incurred in respect of a “
hybrid debt instrument
” is
deemed
to be a dividend
in specie
declared by the payor and received by the recipient which is
exempt from income tax, as opposed to interest which is taxable. The terms of
some of our intercompany loans
cause the affected loans to be
deemed as
“
hybrid
debt instruments
” and the interest thereof to be deemed to be an exempt
dividend
in specie
. This characterization of the affected loans as a “
hybrid
debt instrument
” was not impacted by
subsequent amendments to Section 8F of the Income Tax Act that
became effective in fiscal year
2017
.
U.S. Federal Income Tax Considerations
The following discussion is a
summary of the U.S. federal income tax considerations to U.S. holders of the
ownership and disposition of ordinary shares or ADSs. It deals only with U.S. holders
who hold ordinary shares or ADSs as capital assets for U.S. federal income tax
purposes. This discussion is based upon the provisions of the Internal Revenue
Code of 1986, as amended, or the Code, published rulings, judicial decisions
and the Treasury regulations, all as currently in effect and all of which are
subject to change, possibly on a retroactive basis. This discussion has no
binding effect or official statU.S. of any kind; we cannot assure holders that
the conclusions reached below would be sustained by a court if challenged by
the Internal Revenue Service.
This discussion does not address all aspects of U.S.
federal income taxation that may be applicable to holders in light of their
particular circumstances and does not address special classes of U.S. holders
subject to special treatment (such as dealers in securities or currencies,
partnerships or other pass-through entities, banks and other financial
institutions, insurance companies, tax-exempt organizations, certain
expatriates or former long-term residents of the United States, persons holding
ordinary shares or ADSs as part of a “hedge,” “conversion transaction,”
“synthetic security,” “straddle,” “constructive sale” or other integrated
investment, persons who acquired the ordinary shares or ADSs upon the exercise
of employee stock options or otherwise as compensation, persons whose
functional currency is not the U.S. dollar, or persons that actually or
constructively own ten percent or more of the voting power or value of our
shares. This discussion addresses only U.S. federal income tax considerations
and does not address the effect of any state, local, or foreign tax laws that
may apply, the alternative minimum tax, the Medicare tax or the application of
the federal estate or gift tax.
For purposes of this discussion, a “U.S. holder”
is a beneficial owner of ordinary shares or ADSs who or that is, for U.S. federal
income tax purposes:
·
a citizen or individual resident of the United
States;
·
a corporation (or any entity treated as a
corporation for U.S. federal income tax purposes) created or organized under
the laws of the United States or any political subdivision thereof;
·
an estate, the income of which is subject to U.S.
federal income tax without regard to its source; or
·
a trust, if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial
decisions of the trust or if the trust has made a valid election to be treated
as a U.S. person.
If a partnership (or an entity treated as a partnership
for U.S. federal income tax purposes) holds any ordinary shares or ADSs, the
tax treatment of a partner will generally depend on the statU.S. of the partner
and on the activities of the partnership. Partners in partnerships holding any
ordinary shares or ADSs are urged to consult their tax advisors.
Because individual circumstances may differ, U.S. holders
of ordinary shares or ADSs are urged to consult their tax advisors concerning
the U.S. federal income tax considerations applicable to their particular
situations as well as any considerations to them arising under the tax laws of
any foreign, state or local taxing jurisdiction.
Ownership of Ordinary Shares or ADSs
For purposes of the Code, a U.S. holder of ADSs
will be treated for U.S. federal income tax purposes as the owner of the
ordinary shares represented by those ADSs. Exchanges of ordinary shares for
ADSs and ADSs for ordinary shares generally will not be subject to U.S. federal
income tax.
Subject to the discussion below under the heading
“Passive Foreign Investment Company”, distributions with respect to the
ordinary shares or ADSs, other than distributions in liquidation and
distributions in redemption of stock that are treated as exchanges, will be
taxed to U.S. holders as ordinary dividend income to the extent that the
distributions do not exceed our current and accumulated earnings and profits.
For U.S. federal income tax purposes, the amount of any distribution received
by a U.S. holder will equal the dollar value of the sum of the South African
rand payments made (including the amount of South African income taxes, if any,
withheld with respect to such payments), determined at the “spot rate” on the
date the dividend distribution is includable in such U.S. holder's income,
regardless of whether the payment is in fact converted into dollars. Generally,
any gain or loss resulting from currency exchange fluctuations during the
period from the date a U.S. holder includes the dividend payment in income to
the date such holder converts the payment into dollars will be treated as
ordinary income or loss. Distributions, if any, in excess of our current and
accumulated earnings and profits will constitute a non-taxable return of
capital and will be applied against and reduce the holder's basis in the
ordinary shares or ADSs.
To the extent that these distributions exceed the U.S.
holder's tax basis in the ordinary shares or ADSs, as applicable, the excess
generally will be treated as capital gain, subject to the discussion below
under the heading “Passive Foreign Investment Company”. We do not intend to
calculate our earnings or profits for U.S. federal income tax purposes. U.S. holders
should therefore assume that any distributions with respect to our ordinary
shares or ADSs will constitute dividend income.
“Qualified dividend income” received by individual U.S.
holders (as well as certain trusts and estates) generally will be taxed at a
maximum U.S. federal income tax rate applicable to capital gains
.
This reduced rate generally would apply to dividends paid by U.S. if,
at the time such dividends are paid, either (i) we are eligible for
benefits under a qualifying income tax treaty with the United States or
(ii) our ordinary shares or ADSs with respect to which such dividends were
paid are readily tradable on an established securities market in the United
States. However, this reduced rate is subject to certain important requirements
and exceptions, including, without limitation, certain holding period
requirements and an exception applicable if we are treated as a passive foreign
investment company as discussed under the heading “Passive Foreign Investment Company”.
U.S. holders are urged to consult their tax advisors regarding the U.S. federal
income tax rate that will be applicable to their receipt of any dividends paid
with respect to the ordinary shares and ADSs.
For purposes of this discussion, the “spot rate”
generally means a rate that reflects a fair market rate of exchange available
to the public for currency under a “spot contract” in a free market and
involving representative amounts. A “spot contract” is a contract to buy or
sell a currency on or before two business days following the date of the
execution of the contract. If such a spot rate cannot be demonstrated, the U.S.
Internal Revenue Service has the authority to determine the spot rate.
Dividend income derived with respect to the
ordinary shares or ADSs will not be eligible for the dividends received
deduction generally allowed to a U.S. corporation under Section 243 of the
Code. Dividend income will be treated as foreign source income for foreign tax
credit and other purposes. In computing the separate foreign tax credit
limitations, dividend income should generally constitute “passive category
income,” or in the case of certain U.S. holders, “general category income.”
Passive Foreign
Investment Company
A special and adverse set of U.S. federal income
tax rules apply to a U.S. holder that holds stock in a passive foreign
investment company, or PFIC. We would be a PFIC for U.S. federal income tax
purposes if for any taxable year either (i) 75% or more of our gross
income, including our pro rata share of the gross income of any company in
which we are considered to own 25% or more of the shares by value, were passive
income or (ii) 50% or more of our average total assets (by value),
including our pro rata share of the assets of any company in which we are
considered to own 25% or more of the shares by value, were assets that produced
or were held for the production of passive income. If we were a PFIC, U.S. holders
of the ordinary shares or ADSs would be subject to special rules with respect
to (i) any gain recognized upon the disposition of the ordinary shares or
ADSs and (ii) any receipt of an excess distribution (generally, any
distributions to a U.S. holder during a single taxable year that is greater
than 125% of the average amount of distributions received by such U.S. holder
during the three preceding taxable years in respect of the ordinary shares or
ADSs or, if shorter, such U.S. holder's holding period for the ordinary shares
or ADSs). Under these rules:
·
the gain or excess distribution will be
allocated ratably over a U.S. holder's holding period for the ordinary shares
or ADSs, as applicable;
·
the amount allocated to the taxable year in
which a U.S. holder realizes the gain or excess distribution will be taxed as
ordinary income;
·
the amount allocated to each prior year
(other than a pre-PFIC year), with certain exceptions, will be taxed at the
highest tax rate in effect for that year; and
·
the interest charge generally applicable to
underpayments of tax will be imposed in respect of the tax attributable to each
such year (other than a pre-PFIC year).
Although we generally will be treated as a PFIC as
to any U.S. holder if we are a PFIC for any year during a U.S. holder's holding
period, if we cease to satisfy the requirements for PFIC classification, the U.S.
holder may avoid PFIC classification for subsequent years if such holder elects
to recognize gain based on the unrealized appreciation in the ordinary shares
or ADSs through the close of the tax year in which we cease to be a PFIC.
A U.S. holder of a PFIC are required to file an
annual report with the Internal Revenue Service containing such information as
the U.S. Secretary of Treasury may require.
A U.S. holder of the ordinary shares or ADSs that
are treated as “marketable stock” under the PFIC rules may be able to avoid the
imposition of the special tax and interest charge described above by making a
mark-to-market election. Pursuant to this election, the U.S. holder would
include in ordinary income or loss for each taxable year an amount equal to the
difference as of the close of the taxable year between the fair market value of
the ordinary shares or ADSs and the U.S. holder's adjusted tax basis in such
ordinary shares or ADSs. Losses would be allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election
for prior taxable years. If a mark-to-market election with respect to ordinary
shares or ADSs is in effect on the date of a U.S. holder's death, the tax basis
of the ordinary shares or ADSs in the hands of a U.S. holder who acquired them
from a decedent will be the lesser of the decedent's tax basis or the fair
market value of the ordinary shares or ADSs. U.S. holders desiring to make the
mark-to-market election are urged to consult their tax advisors with respect to
the application and effect of making the election for the ordinary shares or
ADSs.
In the case of a U.S. holder who holds ordinary
shares or ADSs and who does not make a mark-to-market election, the special tax
and interest charge described above will not apply if such holder makes an
election to treat U.S. as a “qualified electing fund” in the first taxable year
in which such holder owns the ordinary shares or ADSs and if we comply with
certain reporting requirements. However, we do not intend to supply U.S. holders
with the information needed to report income and gain pursuant to a “qualified
electing fund” election in the event that we are classified as a PFIC.
We believe that we were not a PFIC for our
fiscal year ended June 30,
2018
. However, under the PFIC rules income and assets are require to be
measured and classified in accordance with U.S. federal income tax principles.
Our analysis is based on our financial statements as prepared in accordance
with IFRS, which may substantially differ from U.S. federal income tax
principles. Therefore, no assurance can be given that we were not a PFIC.
Furthermore, the tests for determining whether we would be a PFIC for any
taxable year are applied annually and it is difficult to make accurate
predictions of future income and assets, which are relevant to this
determination. In addition, certain factors in the PFIC determination, such as
reductions in the market value of our capital stock, are not within our control
and can cause U.S. to become a PFIC. Accordingly, there can be no assurance
that we will not become a PFIC.
The rules relating to PFICs are very complex.
U.S. holders are urged to consult their tax advisors regarding the application
of the PFIC rules to their investments in our ordinary shares or ADSs.
Disposition of Ordinary Shares or ADSs
Subject to the discussion
above under the heading “Passive Foreign Investment Company”, upon a sale,
exchange, or other taxable disposition of ordinary shares or ADSs, a U.S. holder
will recognize gain or loss in an amount equal to the difference between the U.S.
dollar value of the amount realized on the sale or exchange and such holder's
adjusted tax basis in the ordinary shares or ADSs. Subject to the application
of the “passive foreign investment company” rules discussed above, such gain or
loss generally will be capital gain or loss and will be long-term capital gain
or loss if the U.S. holder has held the ordinary shares or ADSs for more than
one year. The deductibility of capital losses is subject to limitations. Gain
or loss recognized by a U.S. holder on the taxable disposition of ordinary
shares or ADSs generally will be treated as U.S.‑source gain or loss for U.S.
foreign tax credit purposes.
In the case of a cash basis U.S.
holder who receives rands in connection with the taxable disposition of
ordinary shares or ADSs, the amount realized will be based on the spot rate as
determined on the settlement date of such exchange. A U.S. holder who receives
payment in rand and converts rand into U.S. dollars at a conversion rate other
than the rate in effect on the settlement date may have a foreign currency
exchange gain or loss that would be treated as ordinary income or loss.
An accrual basis U.S. holder
may elect the same treatment required of cash basis taxpayers with respect to a
taxable disposition of ordinary shares or ADSs, provided that the election is
applied consistently from year to year. Such election may not be changed
without the consent of the Internal Revenue Service. In the event that an
accrual basis holder does not elect to be treated as a cash basis taxpayer,
such U.S. holder may have a foreign currency gain or loss for U.S. federal
income tax purposes because of the differences between the U.S. dollar value of
the currency received prevailing on the trade date and the settlement date. Any
such currency gain or loss will be treated as ordinary income or loss and would
be in addition to gain or loss, if any, recognized by such U.S. holder on the
disposition of such ordinary shares or ADSs.
Information with respect to Foreign Financial
Assets
Certain U.S. holders may be required to report on
Internal Revenue Service Form 8938 information relating to an interest in
ordinary shares or ADSs, subject to certain exceptions (including an exception
for assets held in accounts maintained by certain financial institutions,
although the account itself may be reportable if held at a non-U.S. financial
institution). U.S. holders should consult their tax advisers regarding the
effect, if any, of this reporting requirement on their acquisition, ownership
and disposition of ordinary shares or ADSs. U.S. holders should consult their
tax advisors regarding application of the information reporting and backup
withholding rules.
10F. DIVIDENDS AND PAYING AGENTS
Not
applicable
10G. STATEMENT BY
EXPERTS
Not
applicable.
10H. DOCUMENTS ON
DISPLAY
You may request a copy of our US Securities and Exchange
Commission filings, at no cost, by writing or calling us at DRDGOLD Limited,
P.O. Box 390, Maraisburg, Johannesburg, South Africa 1700. Attn: Group
Company Secretary. Tel No. +27-11-470-2600. A copy of each report
submitted in accordance with applicable United States law is available for
public review at our principal executive offices at DRDGOLD Limited, 1 Sixty
Jan Smuts Building, 2nd Floor - North Tower, 160 Jan Smuts Avenue, Rosebank,
2196, South Africa.
10I. SUBSIDIARY
INFORMATION
Not
applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
In the normal course of our operations, we are
exposed to market risk, including commodity price, foreign currency, interest
and credit risks. During fiscal 2018 we do not hold or issue derivative
financial instruments for speculative purposes, nor did we hedge forward gold
sales.
Refer to Item 18. ‘‘Financial Statements -
Note 26 - Financial instruments’’ of the consolidated financial statements for
a qualitative and quantitative discussion of our exposure to these market
risks.
Our long-term strategy is to remain unhedged
and to keep borrowings to a minimum. However, the need for medium-term
borrowings for the first-phase development of FWGR introduced some liquidity
risk. To mitigate this liquidity risk, we entered into a zero-cost collar to
provide price protection against a possible decrease in the Rand gold price
while borrowings are in place. 50 000 ounces of gold is committed to this
zero-cost collar, spread equally over nine months commencing September 2018
with a floor of R 565 000/kg and a ceiling of just under R609 000/kg and will
be settled in cash at the end of each month.
Commodity price risk
The rand market price of gold has a significant
effect on our results of operations, our ability and the ability of our
subsidiaries to pay dividends and undertake capital expenditures, and the
market price of our ordinary shares or ADSs. Historically, rand gold prices
have fluctuated widely and are affected by numerous industry factors over which
we have no control. The aggregate effect of these factors on the rand gold
price is impossible for us to predict. The rand price of gold may not remain at
a level allowing us to economically exploit our reserves.
It is our long-term policy not to hedge this
commodity price risk. However, in instances where we need to incur medium-term borrowings
to finance growth projects that introduce some liquidity risk to the Group, we
may mitigate this liquidity risk by entering into an arrangement to provide
price protection against a possible decrease in the Rand gold price while
borrowings are in place.
Concentration of credit risk
Credit risk is the risk of financial loss to
us if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from our receivables from customers
and investment securities
.
The Group manages its exposure to credit risk on
trade receivables by maintaining a short term cycle to settlement of 2 days.
The Group manages its exposure to credit risk on other receivables by dealing
with a number of counterparties, ensuring that these counterparties are of good
credit standing and transacting on a secured or cash basis where considered
required. Receivables are regularly monitored and assessed for recoverability.
Foreign currency risk
Our reporting currency is South African rand.
Although gold is sold in US dollars, the Company is obliged to convert this
into rands. We are thus exposed to fluctuations in the US dollar/rand exchange
rate. Foreign exchange fluctuations affect the cash flow that we will realize
from our operations as gold is sold in US dollars, while production costs are
incurred primarily in rands. Our results are positively affected when the US
dollar strengthens against the rand and adversely affected when the US dollar
weakens against the rand. Our cash and cash equivalent balances are held in US
dollars and rands. Holdings denominated in other currencies are insignificant.
Long-term
debt
|
|
Set
out below is an analysis of our debt as at June 30, 2018. All of our
long-term debt is denominated in South African rand.
|
|
Interest rate
|
|
|
|
|
Fixed rate
|
|
|
17.90%
|
|
Weighted average interest rate
|
|
|
17.90%
|
|
|
|
|
R'm
|
|
Repayment period
|
|
|
|
|
2019
|
|
|
3.6
|
|
2020
|
|
|
11.1
|
|
Total
|
|
|
14.7
|
|
|
|
|
|
Based
on our fiscal year 2018 financial results, a hypothetical 100 basis points
(increase)/decrease in interest rate activity would (increase)/decrease our
interest expense by R0.1 million.
|
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
12A. DEBT SECURITIES
Not applicable
.
12B. WARRANTS AND
RIGHTS
Not applicable.
12C. OTHER SECURITIES
Not applicable.
12D. AMERICAN
DEPOSITARY SHARES
Depositary Fees and Charges
DRDGOLD’s American Depository Shares, or ADSs, each
representing ten of DRDGOLD’s ordinary shares, are traded on the New York Stock
Exchange, or NYSE under the symbol “DRD” (until December 29, 2011 our ADSs were
traded on the Nasdaq Capital Market under the symbol “DROOY”). The ADSs are
evidenced by American Depository Receipts, or ADRs, issued by The Bank of New
York Mellon, as Depository under the Amended and Restated Deposit Agreement
dated as of August 12, 1996, as amended and restated as of October 2, 1996, as
further amended and restated as of August 6, 1998, as further amended and
restated July 23, 2007, among DRDGOLD Limited, The Bank of New York Mellon and
owners and beneficial owners of ADRs from time to time. ADR holders may have to
pay the following service fees to the Depositary:
Service
|
|
Fees (USD)
|
Issuance of ADSs, including issuances
resulting from a distribution of ordinary shares or rights
|
$5.00 (or less) per 100 ADSs (or portion
thereof)
1
|
Cancellation of ADSs for the purpose of
withdrawal, including if the Deposit Agreement terminates
|
$5.00 (or less) per 100 ADSs (or portion
thereof)
1
|
Distribution of cash dividends or other
cash distributions
|
2 cents (or less) per ADS (or portion
thereof)
|
Distribution of securities distributed to
holders of deposited securities which are distributed by the Depositary to
ADS registered holders
|
$5.00 (or less) per 100 ADSs (or portion
thereof)
|
|
|
|
|
In addition, ADR holders are responsible
for certain fees and expenses incurred by the Depositary on their behalf
including (1) taxes and other
|
governmental charges, (2) such
registration fees as may from time to time be in effect for the registration
of transfers of ordinary shares generally on the share register and
applicable to transfers of ordinary shares to the name of the Depositary or
its nominee or the Custodian or its nominee on the making of deposits or
withdrawals, (3) such cable, telex and facsimile transmission expenses as are
expressly provided in the Deposit Agreement, and (4) such expenses as are
incurred by the Depositary in the conversion of foreign currency to U.S.
Dollars.
|
|
|
|
[1]
These fees are typically paid to the
Depositary by the brokers on behalf of their clients receiving the newly-issued
ADSs from the Depositary or delivering the ADSs to the Depositary for
cancellation. The brokers in turn charge these transaction fees to their
clients.
|
The Depositary collects its fees for delivery
and surrender of ADSs directly from investors depositing or surrendering ADSs
for the purpose of withdrawal or from intermediaries acting for them. The
Depositary, collects fees for making distributions to investors by deducting
those fees from the amounts distributed or by selling a portion of
distributable property to pay the fees. The Depositary may collect its annual
fee for depositary services by deductions from cash distributions or by
directly billing investors or by charging the book-entry system accounts of
participants acting for them. The Depositary may generally refuse to provide
fee-attracting services until its fees for those services are paid.
Depositary Payments
The Bank of New York Mellon, as Depositary,
has agreed to reimburse DRDGOLD an annual amount of $75,000 mainly consisting
of accumulated contributions towards the Company’s investor relations
activities (including investor meetings, conferences and fees of investor
relations service vendors). After the deduction of other fees, the annual
reimbursement for the year ended June 30, 2018 amounts to approximately $5,974
(June 30, 2017: $44,509, (June 30, 2016: $43,400). DRDGOLD is also entitled to
a 25% share of the dividend fees which amounts to approximately $20,195 for the
year ended June 30, 2018 (June 30, 2017: $24,813).