ITEM 4. INFORMATION ON THE
COMPANY
4A. HISTORY AND DEVELOPMENT OF THE COMPANY
Introduction
DRDGOLD
Limited, or DRDGOLD, is a South African domiciled company that holds assets
engaged in surface gold tailings retreatment in South Africa including
exploration, extraction, processing and smelting.
We
are a public limited liability company, incorporated on February 16, 1895,
as Durban Roodepoort Deep, Limited. On December 3, 2004, the company changed
its name from Durban Roodepoort Deep Limited to DRDGOLD Limited. Our operations
focus on South Africa's West Witwatersrand Basin, which has been a gold
producing region for over 120 years.
Our
shares and/or related instruments trade on the JSE, and the New York Stock
Exchange.
Our
registered office and business address is 1 Sixty Jan Smuts Building, 2nd Floor
- North Tower, 160 Jan Smuts Avenue, Rosebank, 2196, South Africa. The postal
address is P.O. Box 390, Maraisburg, 1700, South Africa. Our telephone
number is (+27 11) 470-2600 and our facsimile number is (+27 86)
524-3061. We are registered under the South African Companies Act
71, 2008 under registration number 1895/000926/06. For our ADSs, the Bank of
New York Mellon, at 101 Barclay Street, New York, NY 10286, United States, has
been appointed as agent.
All
of our operations are conducted in South Africa.
Our operations primarily consist of Ergo and FWGR. Our Ergo
operations include the historic Crown operations (which were restructured into
Ergo during fiscal year 2012 and have substantially been rehabilitated as at
the end of fiscal year 2018) and the East Rand Proprietary Mines
Limited's (“ERPM”) underground mining
infrastructure which is currently under care and maintenance.
On July 31, 2018, we acquired certain gold surface
processing assets and tailing storage facilities that included Driefontein 3
and 5, Kloof 1, Venterspost North and South, Libanon, Driefontein 4,
Driefontein 2 plant, Driefontein 3 plant, WRTRP pilot plant, and land required
for the future development of a central processing plant, regional tailings
storage facility and return water dam (together, the “WRTRP Assets”) associated
with Sibanye-Stillwater’s WRTRP, to be known going forward as FWGR. This
acquisition represented a significant increase in our assets, which impacted our results in fiscal 2019 and will impact
our results in future years. In connection with the acquisition, we issued to
Sibanye-Stillwater new shares equal to 38.05% of outstanding shares and granted
Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the
acquisition at a 10% discount to the prevailing market value. For more information regarding this acquisition please see our
Form 6-K, dated November 22, 2017 "Proposed Transaction to acquire the
WRTRP assets from Sibanye-Stillwater, waiver of mandatory offer and cautionary announcement",
incorporated by reference herein and Item 10C. Material Contracts.
For a detailed description of the assets acquired see Item 4D. Property, Plant and Equipment.
Ergo
Ergo
was formed in June 2007. Ergo is the surface tailings retreatment
operation consisting of what was historically the Crown Gold Recoveries
Proprietary Limited (“Crown”), ERPM Cason Dump operation and the
ErgoGold business units which are now collectively referred to as Ergo. On July 1, 2012, Ergo acquired the mining assets
and certain liabilities of Crown and all the surface assets and liabilities of
ERPM as part of the restructuring of our surface operations. Also as part of
this restructuring, Ergo acquired DRDGOLD's 35% interest in ErgoGold.
The
flotation and fine-grind (“FFG”) project, commissioned during fiscal
year 2014, is designed to improve extraction efficiencies which are derived
from the separation of gold contained within the sulfides of the tailings
material by subjecting the treated material to a flotation circuit, further
regrinding and a leach circuit. The operation of the FFG circuit was temporarily halted in the
first quarter of fiscal 2020 to perform an evaluation and compare the additional
revenues earned from extracting additional gold from the most recently
integrated reclamation sites compared to the cost incurred to operate the FFG
circuit. The evaluation also includes considering alternative configurations of
the FFG circuit and alternative means of extracting gold using the FFG circuit.
At the date of this report, the evaluation is ongoing.
Capital
expenditure for the Ergo projects is
mainly financed through cash resources and operational cash flows while
financing for significant growth projects may be obtained through specific
financing arrangements if required.
Brakpan/Withok TSF
expansion
In order to extend the
life of our Ergo operation, it is necessary to increase residue tailings
deposition capacity at our Brakpan/Withok TSF.
A legal review of the existing
authorizations was undertaken for increasing the deposition capacity of the
Brakpan/Withok TSF. The results indicated that most of the current
authorizations are sufficient, however certain documentation would need to be
amended. We expect this
could increase the
potential deposition capacity by approximately 800Mt, and thus, our life of
mine from 11 years to more than 20 years. For
further information on
other capital investments, divestures, capital expenditure and capital
commitments, see Item 4D. Property, Plant and Equipment, and Item 5B. Liquidity
and Capital Resources.
ERPM
ERPM,
which consists of an underground mine which has been under care and maintenance
since fiscal year 2009, and ERPM Extension 1 and 2 exploration tenements, were
acquired in October, 2002. Underground mining at ERPM was halted in
October 2008. On July 1, 2012, ERPM sold its surface mining assets and its 65%
interest in ErgoGold to Ergo in exchange for shares in Ergo as part of the
restructuring of our surface operations.
In
December 2018, ERPM concluded revised agreements to dispose certain of its underground
assets to OroTree Limited (“Orotree”). The revised agreements consisted
of a disposal of ERPM's underground mining and prospecting rights and an option
agreement, at the sole discretion of Orotree, to purchase the underground
mining infrastructure exercisable on or before 30 June 2019. The disposal of
the underground mining and prospecting rights were concluded in the second half
of the financial year ended 30 June 2019. Orotree’s option to purchase the
underground mining infrastructure lapsed on June 30, 2019 when it did not
exercise the option to such underground mining infrastructure.
Crown
Crown
was acquired on September 14, 1998. Due to the depletion of
ore reserves in the western Witwatersrand, the Crown plant ceased operation in
March 2017.
4B. BUSINESS OVERVIEW
We are a South African company that
holds assets engaged in surface gold tailings retreatment including
exploration, extraction, processing and smelting. Our
surface tailings retreatment operations, including the requisite infrastructure
and metallurgical processing plants, are located in South Africa. Our operating
footprint is unique in that it involves some of the largest concentration of
gold tailings deposits in the world, situated within the city boundaries of
Johannesburg and its suburbs.
The success of DRDGOLD’s long-term goal to extract as much gold as
possible and economically viable from its assets depends,
to a large extent, on how effectively it continues to manage its capitals.
DRDGOLD uses sustainable development to direct its strategic thinking. We seek
sustainable benefits in respect to financial, manufactured, natural, social and
human capitals, each of which is essential to our operations.
We
also aim to align and overlap the interests of each of these capitals in such a
manner that an investment in any one translates into value-added increases in
as many of the others as possible. We therefore seek to achieve an enduring and
harmonious alignment between them, and we pursue these criteria in the
feasibility analysis of each investment. The board intends to explore
opportunities made possible by technology, which could entail further
investment in research and development (“R&D”) to improve gold recoveries
even further over the long term.
On July 31, 2018, we acquired the gold assets
associated with Sibanye-Stillwater’s WRTRP, to be known going forward as FWGR.
This acquisition represented a significant increase in our assets.
During the fiscal years presented in this Annual Report, all of
our operations took place in one geographic region, namely South Africa.
Description
of Our Mining Business
Surface tailings
retreatment
Surface
tailings retreatment involves the extraction of gold from old mine dumps and
slimes dams, comprising the waste material from earlier underground
gold mining activities. This is done by reprocessing sand dumps and slimes dams.
Sand dumps are the result of the less efficient stamp-milling process employed
in earlier times. They consist of coarse-grained particles which generally
contain higher quantities of gold. Sand dumps are reclaimed mechanically using
front end loaders that load sand onto conveyor belts. The sand is fed onto a
screen where water is added to wash the sand into a sump, from where it is
pumped to the plant. Most sand dumps have already been retreated using more
efficient milling methods. Lower grade slimes dams were the product of the
“tube and ball mill” recovery process. This material has become economically
more viable to process owing to improved treatment methods. The material from
the slimes dams is broken down using monitor guns that spray jets of high
pressure water at the target area. The resulting slurry is then pumped to a
treatment plant for processing.
Exploration
Exploration activities are focused on the
extension of existing ore reserves and identification of new ore reserves both
at existing sites and at undeveloped sites. Once a potential site has been
identified, exploration is extended and intensified in order to enable clearer
definition of the site and the portions with the potential to be mined.
Geological techniques are constantly refined to improve the economic viability
of exploration and exploitation.
Our
Metallurgical Plants and Processes
A detailed review of the metallurgical
plants and processes is provided under Item 4D. Property, Plant and Equipment.
Gold
Market
The
gold market is relatively liquid compared to other commodity markets, and the
price of gold is quoted in dollars. Physical demand for gold is primarily for
manufacturing purposes, and gold is traded on a world-wide basis. Refined gold
has a variety of uses, including jewelry, electronics, dentistry, decorations,
medals and official coins. In addition, central banks, financial institutions
and private individuals buy, sell and hold gold bullion as an investment and as
a store of value.
The use of gold as a store of value and the large
quantities of gold held for this purpose in relation to annual mine production
have meant that historically the potential total supply of gold has been far
greater than demand. Thus, while current supply and demand play some part in
determining the price of gold, this does not occur to the same extent as in the
case of other commodities. Instead, the gold price has from time to time been
significantly affected by macro-economic factors such as expectations of
inflation, interest rates, exchange rates, changes in reserve policy by central
banks and global or regional political and economic crises. In times of
inflation and currency devaluation gold is often seen as a safe haven, leading
to increased purchases of gold and support for its price.
The average gold spot price decreased by 3% from $1,297
per ounce to $1,263 per ounce during fiscal year 2019 after
having increased by 3% from $1,257 per ounce to $1,297 per
ounce during the fiscal year 2018 and having
increased by 8% from $1,167 per ounce to $1,257 per
ounce during the fiscal year 2017. The
average gold price received by us for fiscal year 2019 increased by 8% to R577,483
per kilogram compared to the previous year at R534,368 per kilogram.
Looking ahead we believe that the global economic
environment, including escalating sovereign and personal levels of debt,
economic volatility and the oversupply of foreign currency, will again make
gold attractive to investors. The supply of gold
has shrunk in recent years and is likely
to shrink even more due to the significantly reduced capital expenditure and
development occurring in the sector. We believe that this, coupled with global
economic uncertainty, is likely to provide support to the gold price in the
long term.
All of
our revenue is generated in South Africa. Our total revenue for fiscal year
ended June 30, 2019 amounted to R2,762.1 million (2018: R2,490.4 million and 2017:
R2,339.9 million).
All
gold we produce is sold on our behalf by Rand Refinery Proprietary Limited
(Rand Refinery) in accordance with a refining agreement entered into in
October 2001 and updated in July 2018. The gold bars which we produce
consist of approximately 85% gold, 7-8% silver and the balance comprises copper
and other common elements. The gold bars are sent to Rand Refinery for assaying
and final refining where the gold is purified to 99.9% and cast into troy ounce
bars of varying weights. The Group recognizes revenue from the sale of gold at
a point in time when Rand Refinery, acting as an agent for the sale of all gold
produced by the Group, delivers the Gold to the buyer. The sales price is fixed
at the London afternoon fixed dollar price on the day the Gold is delivered to
the buyer. The dollar proceeds are remitted to us within two days. In exchange
for this service we pay Rand Refinery a variable refining fee plus fixed
marketing and administration fees. We own 11% (fiscal year 2018 and 2017:
11%) of Rand Refinery.
Ore
Reserves
Ore
Reserve estimates in this Annual Report are reported in accordance with the
requirements of the SEC’s Industry Guide 7. Accordingly, as of the date of
reporting, all ore reserves are planned to be mined under the life of mine plan
within the period of our existing rights to mine, or within the time period of
assured renewal periods of our rights to mine. In addition, as of the date of
this report, all ore reserves are covered by required permits and governmental
approvals. See Item 4D. Property, Plant and Equipment for a description of the
rights in relation to each mine.
In South
Africa, we are legally required to publicly report Ore Reserves and Mineral
Resources in compliance with the South African Code for the Reporting of
Exploration Results, Mineral Resources and Mineral Reserves, or SAMREC Code.
The SEC’s Industry Guide 7 does not recognize Mineral Resources. Accordingly,
we do not include estimates of Mineral Resources in this Annual Report.
Ore
Reserve calculations are subject to a review conducted in accordance with SEC
Industry Guide 7. Ore Reserve tons, grade
and content are quoted as delivered to the gold plant. There are two types of
methods available to select ore for mining. The first is pay-limit, which
includes cash operating costs, including overhead costs, to calculate the
pay-limit grade. The second is the cut-off grade which includes cash operating
costs, excluding fixed overhead costs, to calculate the cut-off grade,
resulting in a lower figure than the full pay-limit grade. The cut-off grade is
based upon direct costs from the mining plan, taking into consideration
production levels, production efficiencies and the expected costs. We use the
pay-limit to determine which areas to mine as an overhead inclusive amount that
is indicative of the break-even position.
The
pay-limit approach is based on the minimum in-situ grade of reclamation sites,
for which the production costs, which includes all overhead costs, including
head office charges, are equal to a three-year historical average gold price
per ounce for that year. This calculation also considers the previous three
years’ mining and milling efficiencies, which includes metallurgical and other
mining factors and the production plan for the next twelve months. Only areas
above the pay-limit grade are considered for mining. The pay-limit grade is
higher than the cut-off grade, because this includes overhead costs, which
indicates the break-even position of the operation.
When
delineating the economic limits to the ore bodies, we adhere to the following
guidelines:
·
The potential ore to be mined is well defined by an
externally verified and approved geological model;
·
The potential ore, which is legally allowed to be mined,
is also confined by the mine's lease boundaries; and
·
A business plan is prepared to mine the potential ore.
Our
Ore Reserves figures are estimates, which may not reflect actual ore reserves
or future production. These figures are prepared in accordance with industry
practice, converting mineral deposits to an Ore Reserve through the preparation
of a mining plan. The Ore Reserve estimates contained herein inherently include
a degree of uncertainty and depend to some extent on statistical inferences.
Ore reserve estimates require revisions based on actual production experience
or new information. Should we encounter mineralization or formations different
from those predicted by past drilling, sampling and similar examinations, ore
reserve estimates may have to be adjusted and mining plans may have to be
altered in a way that might adversely affect our operations and actual gold recoveries may differ from those
indicated in our Ore Reserves. Moreover, if the
price of gold declines, or stabilizes at a price that is lower than recent
levels, or if our production costs increase or recovery rates decrease, it may
become uneconomical to recover Ore Reserves containing relatively lower grades
of mineralization.
Our
Ore Reserves are prepared using three year average rand gold prices. We prepare
business plans using the forecast rand gold price at the time of the ore
reserve determination.
Gold
prices and exchange rates used for Ore Reserves and for our business plan are
outlined in the following table.
|
June, 30
|
June, 30
|
June, 30
|
|
2019
|
2018
|
2017
|
|
Three-year average
|
Prevailing gold price
|
Three-year average gold price
|
Prevailing gold price
|
Three-year average gold price
|
Prevailing gold price
|
Reserve
gold price –$/oz
|
1,272
|
1,369
|
1,240
|
1,328
|
1,216
|
1,280
|
Reserve
gold price –R/kg
|
552,585
|
629,404
|
543,327
|
550,411
|
514,785
|
565,000
|
Exchange
rate –R/$
|
13.53
|
14.30
|
13.63
|
12.90
|
13.17
|
13.73
|
|
|
|
|
|
|
|
Our Ore Reserves
(imperial) changed in the past three fiscal years as follows:
·
Our
Ore Reserves (imperial) increased from 3.28 million ounces at June
30, 2018, to 5.77 million ounces at June 30, 2019, mainly because of the acquisition of the
gold assets associated with the Sibanye-Stillwater
WRTRP project, subsequently renamed FWGR, that added Ore Reserves of 2.72Moz.
The increase was offset by depletion through ongoing mining activities.
·
Our
Ore Reserves (imperial) increased from 2.99 million ounces at June
30, 2017, to 3.28 million ounces at June 30, 2018,
representing a 9.7% increase. The increase was mainly because of a drilling
program and PFS that commenced during September 2016 aimed at re-evaluating our
surface gold tailings. The drilling program continued in fiscal year 2019. The
increase was offset by depletion through ongoing mining activities and other
survey adjustments.
·
Our
Ore Reserves (imperial) increased from 1.8 million ounces at June
30, 2016, to 2.99 million ounces at June 30, 2017. The increase was mainly
because of a drilling program and PFS that commenced during September 2016. The
increase was offset by depletion through ongoing mining activities and other
survey adjustments.
The life
of mine for Ergo based on proven and probable ore reserves under Industry Guide
7 of the SEC as at June 30, 2019, was 11 years and the life of mine as at June 30, 2018, 12
years.
The life of mine for FWGR based on proven and probably
ore reserves under Industry Guide 7 of the SEC as at June 30, 2019 was 20 years.
DRDGOLD's Ore Reserves as of June 30,
2019 and 2018 are set forth in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore Reserves: Imperial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
At June 30, 2018
|
|
Proven Ore Reserves
|
Probable Ore Reserves
|
Proven Ore Reserves
|
Probable Ore Reserves
|
|
Tons
|
Grade
|
Gold Content
|
Tons
|
Grade
|
Gold Content
|
Tons
|
Grade
|
Gold Content
|
Tons
|
Grade
|
Gold Content
|
|
(mill)
|
(oz/ton)
|
('000 ozs)
|
(mill)
|
(oz/ton)
|
('000 ozs)
|
(mill)
|
(oz/ton)
|
('000 ozs)
|
(mill)
|
(oz/ton)
|
('000 ozs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface
|
|
|
|
|
|
|
|
|
|
|
|
|
Ergo
1
|
61,672
|
0.01
|
540
|
283,675
|
0.01
|
2,540
|
74.988
|
0.01
|
663
|
291,198
|
0.01
|
2,617
|
FWGR
1
|
194,883
|
0.01
|
2,070
|
74,106
|
0.01
|
620
|
-
|
-
|
-
|
-
|
-
|
-
|
Total1
|
256,555
|
0.01
|
2,610
|
357,781
|
0.01
|
3,160
|
74.988
|
0.01
|
663
|
291,198
|
0.01
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore reserves: Metric
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
At June 30, 2018
|
|
Proven Ore Reserves
|
Probable Ore Reserves
|
Proven Ore Reserves
|
Probable Ore Reserves
|
|
Tonnes
|
Grade
|
Gold Content
|
Tonnes
|
Grade
|
Gold Content
|
Tonnes
|
Grade
|
Gold Content
|
Tonnes
|
Grade
|
Gold Content
|
|
(mill)
|
(g/tonne)
|
(tonnes)
|
(mill)
|
(g/tonne)
|
(tonnes)
|
(mill)
|
(g/tonne)
|
(tonnes)
|
(mill)
|
(g/tonne)
|
(tonnes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface
|
|
|
|
|
|
|
|
|
|
|
|
|
Ergo
1
|
55.95
|
0.310
|
17.360
|
257.35
|
0.317
|
81.660
|
68.03
|
0.303
|
20.590
|
264.17
|
0.308
|
81.300
|
FWGR
1
|
176.80
|
0.365
|
64.580
|
67.23
|
0.285
|
19.130
|
-
|
-
|
-
|
-
|
-
|
-
|
Total1
|
232.75
|
0.352
|
81.940
|
324.58
|
0.311
|
100.790
|
68.03
|
0.303
|
20.590
|
264.17
|
0.308
|
81.300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The Ore Reserves listed in the above table are estimates of
what can be legally and economically recovered from operations, and, as
stated, are estimates of tons delivered to the plant.
|
The measurement and classification of our Proven and
Probable Ore Reserves are sensitive to an extent to the fluctuation of the rand
gold price. If we had used different rand gold prices than the three-year
average prices at the time of ore reserve determination, as of June 30, 2019
and 2018 respectively, we would not have had significantly different ore
reserves as of those dates. Using the same methodology and assumptions as were
used to estimate Ore Reserves but with different rand gold prices as detailed
below, our Ore Reserves as of June 30, 2019 and 2018 would be as follows:
Year
ended June 30, 2019
|
Three-year average gold price
|
Prevailing price
|
10% Below prevailing price
|
10% Above prevailing price
|
Rand
gold price per kilogram
|
552,585
|
629,404
|
566,464
|
692,344
|
Dollar
gold price per ounce
|
1,272
|
1,369
|
1,232
|
1,506
|
Ore
Reserves (million ounces)
|
5.77
|
5.77
|
5.77
|
5.77
|
|
|
|
|
|
Year
ended June 30, 2018
|
Three-year average gold price
|
Prevailing price
|
10% Below prevailing price
|
10% Above prevailing price
|
Rand
gold price per kilogram
|
543,527
|
550,411
|
495,370
|
605,452
|
Dollar
gold price per ounce
|
1,240
|
1,328
|
1,195
|
1,461
|
Ore
Reserves (million ounces)
|
3.28
|
3.28
|
3.28
|
3.28
|
|
The approximate mining recovery factors for the 2019 ore
reserves shown in the above table are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Metallurgical
|
|
|
|
|
|
Mine Call Factor
|
recovery factory
|
|
|
|
|
|
(%)
|
(%)
|
|
|
Ergo
|
|
|
100
|
47
|
|
|
FWGR
|
|
|
100
|
52
|
|
|
|
|
|
|
|
|
|
|
The approximate mining recovery factors for the 2018 ore
reserves shown in the above table are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Metallurgical
|
|
|
|
|
|
Mine Call Factor
|
recovery factory
|
|
|
|
|
|
(%)
|
(%)
|
|
|
Ergo
|
|
|
100
|
48
|
|
|
|
The following table shows the average drill/sample spacing
(rounded to the nearest foot), as at June 30, 2019 and 2018, for
|
each category of Ore Reserves at our mines calculated based on a
three year average dollar price of gold.
|
|
|
Proven
|
Probable
|
|
|
Reserves
|
Reserves
|
Ergo and FWGR
|
328 ft. by 328 ft.
|
328 ft. by 328 ft.
|
|
The pay-limit grades based on the three year average dollar
price for gold amounting to R552585 /kg and costs used to determine
|
reserves as of June 30, 2019, are as follows:
|
|
|
|
Costs used to determine pay-
|
|
|
Pay-limit grade (g/t)
|
limit grade (R/t)
|
Ergo
|
|
0.200
|
60.22
|
FWGR
|
|
0.220
|
61.12
|
|
|
|
|
|
The pay-limit grades based on the three year average dollar
price for gold amounting to R543,527 and costs used to determine
|
reserves as of June 30, 2018, are as follows:
|
|
|
|
Costs used to determine pay-
|
Ergo
|
|
Pay-limit grade (g/t)
|
limit grade (R/t)
|
|
|
0.224
|
58.41
|
|
|
|
|
|
We apply the pay-limit approach to the mineralized material
database of our business in order to determine the tonnage and
|
grade available for mining.
|
Governmental
regulations and their effects on our business
Common Law Mineral Rights and Statutory Mining Rights
Prior to the introduction of the Minerals
and Petroleum Resources Development Act, or MPRDA in 2002, ownership in mineral
rights in South Africa could be acquired through the common law or by statute.
With effect from May 1, 2004, all minerals have been placed under the
custodianship of the South African government under the provisions of the MPRDA
and old order proprietary rights were required to be converted to new order
rights of use within certain prescribed periods, as dealt with in more detail
below. Mine dumps create before the MPRDA became law fall
outside the MPRDA and do not require a mining license to be processed nor does
it require the extensive rehabilitation and closure guarantees that are a
feature of the MPRDA. Many of the activities to re-process a mine dump do fall
under the provisions of the National Environmental Management Act though, which
requires at it most basic the compilation and submission of an Environmental
Impact Assessment.
Conversion
of Rights under the Mineral and Petroleum Resources Development Act, 2002
Existing
old order rights were required to be converted into new order rights in order
to ensure exclusive access to the mineral for which rights existed at the time
of the enactment of the MPRDA. In respect of used old order mining rights, the
DMR is obliged to convert the rights if the applicant complies with certain
statutory criteria. These include the submission of a mining works program,
demonstrable technical and financial capability to give effect to the program,
provision for environmental management and rehabilitation, and compliance with
certain black economic empowerment criteria and a social and labor plan. These
applications had to be submitted within five years after the promulgation of
the MPRDA on May 1, 2004. Similar procedures apply where we hold
prospecting rights and a prospecting permit and conduct prospecting operations.
Under the MPRDA mining rights are not perpetual, but endure for a fixed period,
namely a maximum period of thirty years, after which they may be renewed for a
further period of thirty years. Prospecting rights are limited to five years,
with one further period of renewal of three years. Applications for conversion
of our old order rights were submitted to the DMR within the requisite time
periods. As at June 30, 2019 and September 30, 2019 respectively, all of our Ergo
operation’s old order mining rights have been converted into new order rights
under the terms of the MPRDA.
The
Broad Based Socio-Economic Empowerment Charter
In
order to promote broad based participation in mining revenue, the MPRDA
provides for a Mining Charter to be developed by the Minister within six months
of commencement of the MPRDA beginning May 1, 2004. The Mining Charter was
initially published in August 2004 and was subsequently amended in September
2010. Its objectives include:
·
increased direct and indirect ownership of mining
entities by qualifying parties as defined in the Mining Charter;
·
expansion of opportunities for persons disadvantaged by
unfair discrimination under the previous political dispensation;
·
expansion of the skills base of such persons, the
promotion of employment and advancement of the social and economic welfare of
mining communities; and
·
promotion of beneficiation.
The Mining Charter sets certain goals on equity
participation (amount of equity participation and time frames) by historically
disadvantaged South Africans of South African mining assets. It recommends that
these are achieved by, among other methods, disposal of assets by mining
companies to historically disadvantaged persons on a willing seller, willing
buyer basis at fair market value. The goals set by the Mining Charter require
each mining company to achieve 15 percent ownership by historically
disadvantaged South Africans of its South African mining assets within five
years and 26 percent ownership by May 1, 2014. It also sets out guidelines
and goals in respect of employment equity at management level with a view to
achieving 40 percent participation by historically disadvantaged persons
in management and ten percent participation by women in the mining industry,
each within five years from May 1, 2004. Compliance with these objectives is
measured on the weighted average “scorecard” approach in accordance with a
scorecard which was first published around August 2010.
The
Mining Charter and the related scorecard are not legally binding and, instead,
simply state a public policy. However, the DMR places significant emphasis on
the compliance therewith. The Mining Charter and scorecard, have a decisive
effect on administrative action taken under the MPRDA.
In
recognition of the Mining
Charter’s objectives of transforming the mining industry by increasing the
number of black people in the industry to reflect the country’s population
demographics, to empower and enable them to meaningfully participate in and
sustain the growth of the economy, thereby advancing equal opportunity and
equitable income distribution, we have achieved our
commitment to ownership compliance with the MPRDA through our existing black
economic empowerment structure with Khumo Gold and the DRDSA Empowerment Trust.
Our black economic empowerment partners, Khumo Gold and the DRDSA Empowerment
Trust, hold 4% and 2%, respectively, in DRDGOLD Limited. (See Item 4C.
Organizational Structure).
The
mining industry in South Africa is extensively regulated through legislation
and regulations issued by government’s administrative bodies. These involve
directives with respect to health and safety, mining and exploration of
minerals, and managing the impact of mining operations on the environment. A
change in regulatory or government policies could adversely affect our
business.
On
September 27, 2018 the Broad-Based Socio-Economic Empowerment Charter for the
Mining and Minerals Industry, 2018 (“Mining Charter 2018”) was published in
Government Gazette No. 41934 of Government Notice No. 639 on September 27, 2018
superseding and replacing all previous charters, including the Reviewed
Broad-Based Black Economic Empowerment Charter for the South African Mining and
Minerals Industry, 2016 (“Mining Charter III”).
Mining Charter 2018 requires an enduring
30% BEE interest in respect of new mining rights. It also has extensive
provisions in respect of HDP representation at board and management, as well
provisions relating to local procurement of goods and services. The procurement
target of the total spend on services from South African companies has been
pegged at 80% (up from 70% in Mining Charter III) and 60% of the aggregate
spend thereof must be apportioned to BEE entrepreneurs.
Key
provisions of Mining Charter 2018, which are welcomed by the industry are:
• The conditional acceptance of the
continued consequences of previous compliance of the BEE ownership threshold of
26% in respect of existing mining rights;
• Of the 30% HDP ownership component,
qualifying employees and communities are each to hold a 5% carried interest (as
opposed to a free carry interest as per Mining Charter III) the cost of which
may be recovered by the mining right holder from the development of the asset.
The community interest in turn may be offset by way of an equity equivalent;
• Removal
of the so-called 1% of EBITDA trickle dividend provided for in Mining Charter
III; and
• The
removal of provisions requiring community and employee representation at board
level.
Elements
of Mining Charter 2018 which we consider unfortunate, and which will be the
topic of ongoing discussion with the DMR, are:
• that
the continuing consequences of HDP ownership are not recognized for transfers
of mining rights; and
• that
a top up of HDP ownership back to 30% is required for the renewal of existing
rights.
DRDGOLD
is a member for the Minerals Council. DRDGOLD has noted a material improvement
on Mining Charter 2018, but still expresses concern on its ability to promote
growth and attract investment.
The
Minerals Council provided, on behalf of its members, its preliminary response
on October 3, 2018 and welcomed the publication of the Mining Charter and indirectly
that it broadly supports its purpose and content. The Minerals Council noted
that the Mining Charter is the product of substantial engagement between key
stakeholders and is a compromise that reflects different difficult choices that
have been made. This Mining Charter provides a better balance between the
mutually reinforcing concepts of promoting competitiveness and transformation.
Mine
Health and Safety Regulation
The
South African Mine Health and Safety Act, 1996 (as amended), or the Mine Health
and Safety Act, came into effect in January 1997. The principal object of
the Mine Health and Safety Act is to improve health and safety at South African
mines and, to this end, imposes various duties on us at our mines and grants
the authorities broad powers to, among other things, close unsafe mines and order
corrective action relating to health and safety matters. In the event of
any future accidents at any of our mines, regulatory authorities could take
steps which could increase our costs and/or reduce our production capacity. The
Act was amended in 2009 and
the amendments to the Act dealt with inter alia the stoppage of
production and increase punitive measures including increased financial fines
and legal liability of mine management. Some of the more important new
provisions in the 2009 amendment bill are the insertion of section 50(7A) that
obliges an inspector to impose a prohibition on the further functioning of a
site where a person’s death, serious injury or illness to a person or a health
threatening occurrence has occurred; a new section 86A(1) creating a new
offence for any person who contravenes or fails to comply with the provisions
of the Mine Health and Safety Act thereby causing a person’s death or serious
injury or illness to a person. Subsection (3) further provides that (a) the
“fact that the person issued instructions prohibiting the performance or an
omission is not in itself sufficient proof that all reasonable steps were taken
to prevent the performance or omission”; and that (b) “the defense of ignorance
or mistake by any person accused cannot be permitted”; or that (c) “the defense
that the death of a person, injury, illness or endangerment was caused by the
performance or an omission of any individual within the employ of the employer
may not be admitted”; section 86A(2) creating an offence of vicarious liability
for the employer where a Chief Executive Officer, manager, agent or employee of
the employer committed an offence and the employer either connived at or
permitted the performance or an omission by the Chief Executive Officer, manager,
agent or employee concerned; or did not take all reasonable steps to prevent
the performance or an omission. The maximum fines were also increased. Any
owner convicted in terms of section 86 or 86A may be sentenced to “withdrawal
or suspension of the permit” or to a fine of R3 million or a period of
imprisonment not exceeding five years or to both such fine and imprisonment,
while the maximum fine for other offences and for administrative fines have all
been increased, with the highest being R1 million.
Under
the South African Compensation for Occupational Injuries and Diseases Act, 1993
(as amended), or COID Act, employers are required to contribute to a fund
specifically created for the purpose of compensating employees or their
dependents for disability or death arising in the course of their work.
Employees who are incapacitated in the course of their work have no claim for
compensation directly from the employer and must claim compensation from the
COID Act fund. Employees are entitled to compensation without having to prove
that the injury or disease was caused by negligence on the part of the
employer, although if negligence is involved, increased compensation may be
payable by this fund. The COID Act relieves employers of the prospect of costly
damages, but does not relieve employers from liability for negligent acts
caused to third parties outside the scope of employment. In fiscal year 2019,
we contributed approximately R4.3 million under the COID Act (2018: R3.7
million and 2017: R3.6 million) to a multi-employer industry fund administered
by Rand Mutual Assurance Limited.
Under
the Occupational Diseases in Mines and Works Act, 1973 (as amended), or the
Occupational Diseases Act, the multi-employer fund pays compensation to
employees of mines performing “risk work,” usually in circumstances where the
employee is exposed to dust, gases, vapors, chemical substances or other
working conditions which are potentially harmful, or if the employee contracts
a “compensatable disease,” which includes pneumoconiosis, tuberculosis, or a
permanent obstruction of the airways. No employee is entitled to benefits under
the Occupational Diseases Act for any disease for which compensation has been
received or is still to be received under the COID Act. These payment
requirements are based on a combination of the employee costs and claims made
during the fiscal year.
Uranium
and radon are often encountered during the ordinary course of gold mining
operations in South Africa, and present potential risks for radiation exposure
of workers at those operations and the public to radiation in the nearby
vicinity. We monitor our uranium and radon
emissions for
compliance with all local laws and regulations pertaining to uranium and radon
management and under the current legislative exposure limits prescribed for
workers and the public, under the Nuclear Energy Act, 1999 (as amended) and
Regulations from the National Nuclear Regulator.
Environmental
Regulation
Managing the impact of mining on the environment is
extensively regulated by statute in South Africa. Recent statutory enactments
set compliance standards both generally, in the case of the National
Environmental Management Act, and in respect of specific areas of environment
impact, as in the case of the Air Quality Act 2004, the National Water Act
(managing effluent), and the Nuclear Regulator Act 1999. Liability for
environmental damage is also extended to impose personal liability on managers
and directors of mining corporations that are found to have violated applicable
laws.
The impact on the environment by mining operations is
extensively regulated by the MPRDA. The MPRDA has onerous provisions for
personal liability of directors of companies whose mining operations have an
unacceptable impact on the environment.
Mining companies are also required to demonstrate both
the technical and financial ability to sustain an ongoing environmental
management program, or EMP, and achieve ultimate rehabilitation, the
particulars of which are to be incorporated in an EMP. This program is required
to be submitted and approved by the DMR as a prerequisite for the issue of a
new order mining right. Various funding mechanisms are in place, including
trust funds, guarantees and concurrent rehabilitation budgets, to fund the
rehabilitation liability.
The MPRDA imposes specific, ongoing environmental
monitoring and financial reporting obligations on the holders of mining rights.
We
believe that our environmental risks have been addressed in EMPs which have
been submitted to the DMR for approval. Additionally, key environmental issues
have been prioritized and are being addressed through active management input
and support as well as progress measured in terms of activity schedules and
timescales determined for each activity.
Our
existing reporting and controls framework is consistent with the additional
reporting and assessment requirements of the MPRDA.
Amendment
Bill to the MPRDA
On
March 6, 2014 the South African Parliament approved an Amendment Bill to the
MPRDA. The Bill will come into effect once signed by the President of the
Republic of South Africa. Some of the more important changes introduced by the
Bill is to allow the holder of a Mining Right to also mine “associated
minerals” not specifically included in the Mining Right; it addresses
anti-competitive conduct by requiring the Minister of Minerals to refuse an
application for exploration rights if it will cause a “concentration of rights”
as defined in the Bill; historic and old mine dumps are to be included in the
definition of “residue stockpiles” and certain rehabilitation obligations are
created in respect of the discarded mines to which they pertain; and liability for
rehabilitation will extend beyond the issuance of a closure certificate and
financial provision for closed sites will be required to be maintained for a
period of 20 years after a site is closed.
The Bill was finally
withdrawn by the Minister of Mineral Resources on 22 August 2018, citing,
amongst other things, that there were no inherent inhibitions from the
subsistence of the MPRDA in current form.
Financial
Provision for Rehabilitation
We
are required to make financial provision for the cost of mine closure and
post-closure rehabilitation, including monitoring once the mining operations
cease. We fund these environmental rehabilitation costs by irrevocable
contributions to environmental trust funds that function under the authority of
trustees that have been appointed by, and who owe a statutory duty of trust to
the Master of the High Court of South Africa. The funds held in these trusts
are invested primarily in interest bearing debt securities. As of June 30, 2019,
we held a total of R508.9 million (2018: R118.0 million) in trust, the balance
held in each fund being R114.8 million (2018: R107.5 million) for Ergo, R382.9
million (2018: Rnil million) for FWGR and R11.3 million (2018:R10.5 million)
for ERPM. Trustee meetings are held as required and quarterly reports on the
financial status of the funds, are submitted to our board of directors. If any
of the operations are prematurely closed, the rehabilitation funds may be
insufficient to meet all the rehabilitation obligations of those operations.
Whereas
the old Minerals Act allowed for the establishment of a fully funded
rehabilitation fund over the operational life of mine, the MPRDA assumes a
fully compliant fund at any given time. Insurance instruments may also be
utilized to make up the shortfall in available cash funds subject to the DMR’s
consent. The Company has subsequently made use of approved insurance products
for a portion of its rehabilitation liabilities. As of June 30, 2019, we held a
total of R78.6 million (2018: R126.0 million) in funds held in insurance
instruments. As at June 30, 2019 guarantees amounting to R427.3 million (2018:
R427.3 million) were issued to the DMR.
The
provision for environmental rehabilitation for the group was R682.6 million at June
30, 2019, compared to R553.4 million at June 30, 2018 and R531.7 million at
2017.
New
Financial Provisioning Regulations (“FPR”) were promulgated on November 20,
2015 under the National Environmental Management Act, 107 of 1998 (“NEMA”) by the Department of
Environmental Affairs (“DEA”). Proposed amendments
to the FPRs were published for public comment GNR 1228 GG 41236 of 10 November
2017 (“Draft Regulations”), which seek to address some challenges relating to
the implementation thereof.
Under the FRPs to be implemented by the
DMR, existing environmental rehabilitation trust funds, of which DRDGOLD has
R508.9 million, may be used only for post closure activities and may no longer
be utilized for their intended purpose of concurrent and final rehabilitation
on closure. As a result, new provisions will have to be made for these activities.
Further
amendments to the FPR, (“Proposed Amendments”) were published in
September 2018, which extends the compliance therewith to 19 February 2020.
The
Proposed Amendments, in their current form and which are still subject to the
approval of the DMR and Treasury, allow under certain circumstances for the
withdrawal against financial provision (which is currently not contemplated in
the FPR). It is therefore uncertain whether these provisions relating to
withdrawal will remain in their current form, or at all, in the draft which the
DEA is aiming to publish for comment in November 2018.
Regulation
5(4) of the Proposed Amendments states that the determination of financial
provision must be undertaken by a specialist, which according to the definitions
listed in the Proposed Amendments is an “independent person”. Regulation 10 of
the Proposed Amendments further requires the annual review and re-assessment of
financial provision by an independent specialist, which in terms of Regulation
11 of the Proposed Amendments must also be audited by an independent auditor.
The Proposed Amendments do not require that the annual review and re-assessment
of financial provision be audited by a financial auditor.
4C. ORGANIZATIONAL STRUCTURE
The following
chart shows our principal subsidiaries as of June 30, 2019 and as of
September 30, 2019 respectively. All of our subsidiaries are incorporated in
South Africa. Our voting interest in each of our subsidiaries are equal to our
ownership interests. We hold the majority of the investments directly or
indirectly as indicated below. Refer to Exhibit 8.1 for a list of our
significant subsidiaries.
4D. PROPERTY, PLANT
AND EQUIPMENT
Description of Significant Subsidiaries' Properties and
Mining Operations, June 30, 2019 and September 30, 2019
Ergo
Overview
We
own 100% of Ergo. Ergo is a surface tailings retreatment operation operating across central and east Johannesburg. In order to improve synergies, effect cost savings
and establish a simpler group structure, DRDGOLD restructured the Group’s
surface operations (Crown, ERPM’s Cason Dump surface operation and ErgoGold) into Ergo with effect from July 1, 2012.
ERPM’s Cason Dump surface tailings retreatment operation was depleted in
the first half of fiscal year 2015. At June 30, 2019, Ergo employed 852 full-time
employees. In addition, specialist service providers deployed a further 1,362
employees to our operations bringing the total number of in-house and
outsourced employees to 2,214 at June 30, 2019 (at June 30, 2018: 2,288; at June 30, 2017:
2,215).
Properties
The
Ergo plant is located approximately 43 miles (70 kilometers) east of the
Johannesburg’s central business district in the province of Gauteng on land
owned by Ergo. Access to the Ergo plant is via the Ergo Road on the N17
Johannesburg-Springs motorway. As of June 30, 2019 and September 2019, no
encumbrances exist on Ergo's property.
Following the restructuring of the Crown operations,
which consisted of three separate locations, City Deep, Crown Mines and Knights,
into a single surface retreatment operation in Ergo, these mining rights were
transferred to Ergo in March 2014.
Our ore reserves in the western Witwatersrand had become
depleted. We therefore took a decision to close the Crown Mines plant which operated
as a pump/milling station feeding the metallurgical plants until March 2017. By
the end of fiscal year 2018, the Crown sites had been cleared and the
rehabilitation of the Crown plant site was substantially completed.
The
City Deep operation is located on the West Wits line within the Central
Goldfields of the Witwatersrand Basin, approximately 3 miles (5 kilometers)
south-east of the Johannesburg central business district in the province of
Gauteng. Access is via the Heidelberg Road on the M2 Johannesburg-Germiston
motorway. The City Deep plant continues to operate as a pump/milling station
feeding the metallurgical plants.
The
Knights operation is located at Stanley and Knights Road Germiston off the R29
Main Reef Road. The Knights plant continues to operate as a metallurgical
plant.
Mining and Processing
Ergo
undertakes the retreatment of surface tailings.
Material
processed by Ergo is sourced from primary surface sources namely, sand and
slime. The surface sources have generally undergone a complex depositional
history resulting in grade variations associated with improvements in plant
recovery over the period the material was deposited. Archive material is a
secondary source of gold bearing material. This material is generally made up
of old gold metallurgical plant sites.
Our
two gold producing metallurgical plants, Ergo and Knights have an installed capacity
to treat approximately 25 million tons of material per year based on 92%
availability
and are fully operational. All
of the plants have undergone various modifications during recent years
resulting in significant changes to the processing circuits. The City Deep
plant continues to operate as a pump/milling station feeding the metallurgical
plants.
Ergo’s
assets include: access to tailings deposited across the western, central and
eastern Witwatersrand; a 50km pipeline; and tailings deposition facilities
including the significant Brakpan/Withok TDF.
The
feed stock is made up of sand and slime which are reclaimed separately. Sand is
reclaimed using mechanical front-end loaders, re-pulped with water and pumped
to the plant. Slime is reclaimed using high pressure water monitoring guns also
known as hydraulic reclamation. The re-pulped slime is pumped to the plant and
the reclaimed material is treated using screens, cyclones, ball mills as well
as floatation and fine grind, or FFG, and Carbon-in-Leach, or CIL, technology
to extract the gold.
Set
forth below is a description of each of our plants in operation:
Ergo Plant: Commissioned by Anglo
American Corporation in 1977, became part of AngloGold Ashanti in 1998 from
which it was acquired for a consideration of R42.8 million in 2007. The
remaining five CIL tanks were refurbished during fiscal year 2015 to increase
capacity to treat up to 25.2Mt per year. The Ergo FFG project is designed to
assist in liberating the gold particles currently encapsulated in the sulphides
and to achieve a targeted improvement in gold recovery efficiencies of between
16% and 20%.
Knights Plant: Commissioned in 1988, this surface/underground plant
comprises a circuit including screening, primary cycloning, milling in closed
circuit with hydrocyclones, thickening, oxygen preconditioning, CIL, elution,
electro-winning and smelting to doré. The Knights plant, although historically
part of the Crown operation, is located further east and considerably closer to
the Brakpan TDF.
Due to the location of the Knights
plant it is able to access the Brakpan TDF to deposit waste. The Knights plant
has an installed capacity to treat an estimated 3.6Mt per year.
City Deep Plant: Commissioned in 1987, this surface/underground plant
comprises a circuit including screening, primary, secondary and tertiary
cycloning in closed circuit milling, thickening, oxygen preconditioning, CIL,
elution and zinc precipitation followed by calcining and smelting to doré.
Retreatment continued at the City Deep Plant until the plant was decommissioned
in August 2013 to operate as a milling and pump station and is currently
pumping material to the Ergo Plant for the final extraction of gold.
As of June 30, 2019, the net book value of Ergo’s mining
assets was R1,300.4 million (2018: R 1,410.7 million).
Capital Expenditure
For a discussion of
capital expenditures in fiscal years 2017, 2018 and 2019, see "Item 5.A.
Operating and Financial Review and Prospects—Capital expenditure".
Currently there are
no material plans to construct or further expand Ergo’s facilities other than
optimising and maintaining existing facilities. Capital
expenditure is financed through cash resources and operational cash flows while
financing for significant growth projects may be obtained through specific
financing arrangements if required. For a summary of capital expenditure, see
Item 5A. Operating Results.
Exploration and Development
Exploration and development
activity at Ergo involves the drilling of surface dumps and evaluating the
potential gold bearing surface material.
Environmental and Closure Aspects
Municipal
infrastructure as well as commercial and residential developments have encroached
towards the Ergo operation. The major environmental risks are associated with
dust from various reclamation sites, and effective management of relocated
process material on certain tailings dams. The impact of windblown dust on the
surrounding environment and community is addressed through a scientific
monitoring and evaluation process, with active input from Professor H. Annagran
from the Cape Peninsula
University of Technology and appropriate
community involvement. Environmental management programs, addressing a wide
range of environmental issues, have been prepared by specialist environmental
consultants, which are audited annually. Water pollution is controlled by means
of a comprehensive system of return water dams which allow for used water to be
recycled for use in Ergo’s metallurgical plants. Overflows of return water dams
may, depending on their location, pollute surrounding streams and wetlands.
Ergo has an ongoing monitoring program to ensure that its water balances (in
its reticulation system, on its tailings and its return water dams) are
maintained at levels that are sensitive to the capacity of return water dams.
Dust
pollution is controlled through an active environmental management program for
the residue disposal sites and chemical and organic dust suppression on
recovery sites. Short-term dust control is accomplished through ridge ploughing
the top surface of dormant tailings dams. Additionally, environmentally
friendly dust suppressants are applied. Dust fall-out is monitored through an
extensive dust monitoring network monthly, and is utilized as a management
measure to ensure the effectiveness of mitigation measures employed. In the
long-term, dust suppression and water pollution is managed through a program of
progressive vegetation of the tailings followed by the application of lime, to
reduce the natural acidic conditions, and fertilizer to assist in the growth of
vegetation planted on the tailings dam.
A
program of environmental restoration that provides for the rehabilitation of
areas affected by mining operations during the life of the mine is in place.
The surface reclamation process at Ergo has several environmental merits as it
removes potential pollution sources and opens up land for development.
Environmental management and compliance is further
assisted by the in–house developed electronic monitoring system (Compliance
Management Tool) that incorporates all existing Environmental Impact
Assessments (“EIAs”), EMPs, Mining Right Conversions, Performance Assessments and
Social and Labor Plans (“SLPs”) associated with each mining right. The existing
and most recent studies are used to supplement the management components with
regards to the mining right boundaries and its required compliance parameters.
The individual management items are integrated to provide a holistic overview
of the state of each of the mining right areas. Spatial data pertaining to the
mining right boundaries is stored onto a central database and is utilized to
create a live map which illustrates the mining right area and various
environmental monitoring systems. This map depicts the mining right boundaries,
roads, rails, mine dumps, plants, rivers, pipeline routes, servitudes, way
leaves, municipal services and other spatial data relevant to our mining
operations.
While the ultimate amount of rehabilitation costs to be
incurred is uncertain, we have estimated that the total cost for Ergo, in
current monetary terms as at June 30, 2019 is approximately R485.3 million. As
at June 30, 2019, a total of R114.8 million (2018: R107.5 million) is held in
the Ergo Rehabilitation Trust Fund, previously called the Crown Rehabilitation
Trust Fund, which is an irrevocable trust, managed by specific responsible
people who we nominated and who are appointed as trustees by the Master of the
High Court of South Africa. In addition, a total of R56.2 million (2018: R52.2
million) is held in insurance instruments.
Ore
Reserves
As
at June 30, 2019, our Proven and Probable Ore Reserves of Ergo was 3.08 million
ounces, down from 3.28 million ounces at June 30, 2018 due to depletion. A
Mineral Resource competent person is appointed at each operation to review our
Ore Reserve calculations for accuracy. For Ergo, Mr. Gary Viljoen is the
designated competent person in terms of the SAMREC Code responsible for the
compilation and
reporting of ore reserves. Ore
reserves were independently reviewed by Red Bush Geoservices Proprietary
Limited (Red Bush) for compliance with the SAMREC Code, the National Instrument
43-101 and the United States Securities and Exchange Commission (SEC) Industry
Guide 7.
Production
For
fiscal year 2019, production decreased to 144,453 ounces from 150,433 ounces in
fiscal year 2019 mainly due the volume
throughput that decreased from 24,281Mt to to 23,162Mt. The impact of this
decrease was mitigated by the increase in the
average yield from 0.193g/t to 0.194g/t.
Cash
operating costs in fiscal year 2019 increased $6.0 per ounce from $1,118 in
fiscal year 2018 to $1,124 per ounce mainly due to the decrease in production.
|
The
following table details certain production and financial results of Ergo for
the past three fiscal years.
|
|
|
2019
|
2018
|
2017
|
Production (imperial)
|
|
|
|
Ore
milled ('000 tons)
|
23,162
|
24,281
|
24,958
|
Recovered
grade (oz/ton)
|
0.006
|
0.006
|
0.005
|
Gold
produced (ounces)
|
144,453
|
150,433
|
137,114
|
Results
of Operations
|
|
|
|
Revenue (R million)
|
2,577.5
|
2,490.4
|
2,339.9
|
Cost of sales (R million)
|
2,414.7
|
2,339.2
|
2,307.0
|
Cash operating cost (R million)
|
2,311.1
|
2,159.7
|
2,087.9
|
Cash operating costs (R/kilogram)1
|
512,439
|
458,866
|
489,549
|
All-in sustaining costs (R/kilogram) 1
|
521,907
|
505,622
|
530,930
|
All-in cost (R/kilogram) 1
|
527,624
|
524,651
|
552,243
|
1
Cash operating cost, cash operating costs per kilogram, all-in sustaining
costs per kilogram and all-in costs per kilogram are financial measures of
performance that we use to determine cash generating capacities of the mines
and to monitor performance of our mining operations. These are all non-IFRS
measures. For a reconciliation of these measure see Item 5A.: “Operating
Results - Reconciliation of cash cost per kilogram, all-in sustaining costs
per kilogram and all-in costs per kilogram.”
|
FWGR
Overview
On July
31, 2018, we acquired surface gold processing assets and tailing storage
facilities in Carletonville in the West Rand Goldfield of
Gauteng, 30km from Johannesburg, that include Driefontein 3 and 5, Kloof 1, Venterspost North and
South, Libanon, Driefontein 4, Driefontein 2 plant, Driefontein 3 plant, WRTRP
pilot plant, and land for the development of a central processing plant,
regional tailings storage facility and return water dam (together, the “WRTRP
Assets”) associated with Sibanye-Stillwater’s WRTRP, subsequently renamed
as FWGR. This acquisition represents a significant increase in our assets,
which will impact our results in future years. In connection with the
acquisition, we issued to Sibanye-Stillwater new shares equal to 38.05% of
outstanding shares and granted Sibanye-Stillwater an option to acquire up to a
total of 50.1% of our shares within a period of 2 years from the effective date of the
acquisition at a 10% discount to the prevailing market value. We acquired the
following assets as a result of the acquisition:
Asset (incl properties)
|
Description
|
Additional tailings dams
|
Movable surface
tailings dams which form part of the gold assets of the WRTRP Assets and
which include Driefontein Dumps 3 and 5, Kloof 1, Venterspost North and South
and Libanon Dump.
|
DP2 Plant
|
The Driefontein 2
Plant which is located on Portion 6 of Farm Blyvooruitzicht No 116
Registration Division I.Q. and Remainder of Portion 1 of the Farm Driefontein
No 113, Registration Division I.Q., Gauteng Province.
The DP2 Plant
processed surface rock dumps (“SRD”) material, which was delivered by
rail and truck. Throughput is achieved through two Semi-Autogenous Grinding
(“SAG”) mills and a ball milling circuit, cyanide leaching and a
Carbon-in-Pulp (“CIP”) plant. A Carbon-in-leach circuit was commissioned
in 2014 at DP2 Plant to improve recoveries by replacing the aging CIP
circuit.
|
DP3 Plant
|
The Driefontein 3
Plant which is located on Portion 6 of Farm Blyvooruitzicht No 116,
Registration Division I.Q., Gauteng Province. The DP3 Plant was originally
designed as a uranium plant, but was converted to process low-grade
surface rock in 1998. Similar to DP2 Plant, SRD ore was delivered by rail and
truck. This plant has four SAG mills followed by cyanide leaching and a CIP
circuit.
|
Driefontein 4
|
The current active
tailings deposition facility which forms part of the gold assets of the WRTRP
Assets.
|
|
|
Pilot Plant
|
The moveable LogiProc
pilot plant established to test the processes, techniques and assumptions
made in the definitive level design of the full scale retreatment of dumps as
part of the WRTRP Assets and located at Driefontein 1 Plant.
|
Plan and Materials
|
Any and all drawings,
plans, studies (including feasibility studies of a geological or geotechnical
nature), surveys, reports (including sampling and assaying reports), maps
(including geophysical, geological and/or drill maps), statements, schedules and other
data in whatever form of a financial, technical, labour, marketing, administrative,
accounting or other matters pertaining to the WRTRP Assets.
|
Transferring Land
|
The land upon which:
· the proposed Central Processing Plant (“CPP”)
will be located after the subdivision of the Farm Rietfontein No 347 Registration Division
I.Q. Portion 35 and 73, Gauteng Province; and
· the Regional Tailing Storage Facility and Return
Water Dam will be located.
|
|
|
Active Tailings Dams
|
The Driefontein 1 and
2, Kloof 2 and Leeudoorn currently active tailings dams are also required to be
transferred under the acquisition agreement, for no additional consideration,
once they have been decommissioned by Sibanye-Stillwater.
|
Licences to Operate
|
All the licences,
permits, permissions, management plans and reports, as well as amendments,
variations or modifications thereof from time to time necessary for
Sibanye-Stillwater to operate the WRTRP Assets lawfully.
|
Access Rights
|
The grant of access
to DRDGOLD of the:
· Driefontein 10 shaft;
· Kloof 10 shaft located in the Kloof mining area that
is subject to the Kloof Mining Right, for the purpose of pumping and
supplying, at the cost of WRTRP, the required quantities of water, as licenced,
for the WRTRP Assets;
· rights, servitudes and agreements for installation,
supply and distribution and maintenance of power supply; existing and
proposed pipeline routes; servitudes; wayleaves and surface right permits;
and
· Driefontein 1 Gold Plant for the
purpose of accessing the Pilot Plant.
|
As of June 30, 2019 and September 30, 2019, no encumbrances exist on FWGR's property.
At June 30, 2019, the net book value of FWGR’s
mining assets was R1,443.6 million.
At June 30, 2019, FWGR employed 152
full-time employees. In addition, specialist service providers deployed a
further 229 employees to our operations bringing the total number of in-house
and outsourced employees to 381.
Mining and
Processing
FWGR undertakes the retreatment of
surface tailings.
Material processed by FWGR is sourced
from Driefontein Dump 5. The surface sources
have generally undergone a complex depositional history resulting in grade
variations associated with improvements in plant recovery over the period the
material was deposited.
The DP2 gold producing metallurgical plant was
reconfigured to have an installed capacity to treat approximately 6 million
tons of material per year based on 92% availability and are fully operational. The plant has undergone
reconfiguration resulting in significant changes to the processing circuits.
Slime is reclaimed using high
pressure water monitoring guns also known as hydraulic reclamation. The
re-pulped slime is pumped to the plant and the reclaimed material is treated
using screens, cyclones, ball mills and Carbon-in-Leach, or CIL, technology to
extract the gold.
FWGR entered into a smelting agreement with
Sibanye-Stillwater to smelt and recover gold from gold loaded carbon produced
at the DP2 plant, and deliver the gold to Rand Refinery. In exchange for this
service, Sibanye-Stillwater receives a fee based on the smelting costs plus 10%
of the smelting costs. Rand Refinery performs the final refinement of all gold
produced. FWGR also engaged its fellow subsidiary, Ergo Mining Proprietary
Limited, to act as its agent and representative and to enter into a refining
services arrangement with Rand Refinery for the sale, marketing and export of
the refined gold of the Company. This agreement is expected to be in place
until the Company obtains its own refining license.
FWGR is currently operating under the
Sibanye-Stillwater Kloof mining right – new order mining right
GP30/5/1/2/2/66MR issued in 2007 and valid until 2027. FWGR is also operating
under the Driefontein mining right – new order mining right GP30/5/1/2/2/51MR
issued in 2007 and valid until 2037. Sibanye is entitled to mine all declared
material falling within this mining right and has all necessary statutory requirements
in place. A section 102 amendment to these mining rights in terms of the MPRDA
Amendment Act of 2014, has been submitted by Sibanye-Stillwater to permit the
reclamation activities of FWGR. We believe that the surface rights agreements
over both the Driefontein and Kloof rights for the TSFs and processing plant
sites are adequate for the Sibanye-Stillwater operations and would therefore be
applicable to FWGR.
Capital Expenditure
For a discussion of
capital expenditures in fiscal year 2019, see "Item 5.A. Operating and
Financial Review and Prospects—Capital expenditure".
Financing for
significant growth projects may be obtained through specific financing
arrangements if required. Capital expenditure incurred on the development of
Phase 1 of FWGR, of approximately R324.4 were financed through a combination of
borrowings (refer to the Revolving Credit Facility described in Item 10C. Material Contracts) and cash
resources and operational cash flows of the Group. For a summary of capital
expenditure, see Item 5A. Operating Results.
Exploration and Development
Exploration and
development activity at FWGR involves the drilling of surface dumps and
evaluating the potential gold bearing surface material, as well as exploratory and development activities around
Phase 2 of the project.
Environmental and Closure Aspects
The major environmental risks are associated with dust
from various reclamation sites, and effective management of relocated process
material on certain tailings dams. The impact of nuisance dust fallout on the surrounding
environment and community is addressed through a comprehensive monitoring
network, with active input from Professor H. Annagran from the Cape Peninsula University of Technology and appropriate community involvement. Environmental
management programs, addressing a wide range of environmental issues, have been
prepared by independent specialist environmental consultants, which are audited
annually. Water pollution where appropriate is controlled by means of a
comprehensive system of return water dams which allow for used process water to
be returned for use in FWGR’s metallurgical plant and hydraulic reclamation.
FWGR has an ongoing monitoring program to ensure that its water balances (in
its reticulation system, on its tailings and its return water dams) are
maintained at levels that are sensitive to the capacity of return water dams.
Nuisance
dust fallout is controlled through active mitigation measures described in the
environmental management program for the management of our activities. These
mitigation measures include environmentally friendly dust suppressants applied
to high impact areas, active wetting of access roads by water bowsers, a
network of high velocity sprayers on our active TSF. Dust fall-out is monitored
through an extensive dust monitoring network monthly and is utilized as a
management measure to ensure the effectiveness of mitigation measures employed.
In the long-term, dust suppression and water pollution will be managed through
concurrent rehabilitation of the tailings dam, thus reducing water ingress and
dust from exposed areas.
FWGR
will undertake concurrent rehabilitation of areas affected by mining operations
during the life of the mine. The surface
reclamation
process at FWGR has several environmental merits as it removes pollution
sources and opens up land for development.
Environmental
management and compliance is further assisted by the in–house developed
electronic monitoring system (Compliance Management Tool) that details the
commitments made within the EMPs and Water Use Licenses to aid in keeping the
operation compliant to its statutory obligations. The existing and most recent
specialist studies are used to supplement the management components with
regards to the compliance parameters. The individual management items are
integrated to provide a holistic overview of the state of the operation.
Spatial data pertaining to the operation is stored on a Geographical
Information System (GIS) which provides a spatial overview of the operation
which includes environmental monitoring systems, rightboundaries, roads, rails,
mine dumps, plants, rivers, wetlands, pipeline routes, servitudes, way leaves,
municipal services and other spatial data relevant to our mining operations.
While the ultimate amount of rehabilitation costs to be
incurred is uncertain, we have estimated that the total cost for FWGR, in
current monetary terms as at June 30, 2019 is approximately R179.8 million. As
at June 30, 2019, a total of R382.9 million is held in the Ergo Rehabilitation
Trust Fund for the benefit of FWGR’s rehabilitation. The Ergo Rehabilitation
Trust Fund is an irrevocable trust, managed by specific responsible people who
we nominated and who are appointed as trustees by the Master of the High Court
of South Africa.
Ore
Reserves
As
at June 30, 2019, our Proven and Probable Ore Reserves of FWGR was 2.69 million
ounces. A Mineral Resource competent person is appointed to review our Ore
Reserve calculations for accuracy. For FWGR, Mr. Vaughn Duke is the
designated competent person in terms of the SAMREC Code responsible for the
compilation and reporting of ore reserves.
Production
Construction of Phase 1 commenced during August 2018 with R330.7
million spent on, inter alia, the reconfiguration of the DP2 plant and
relevant infrastructure to process tailings from the Driefontein 5 slimes dam
and deposit residues on the Driefontein 4 Tailings Storage Facility. During
this construction phase, some gold was produced at the adjacent Driefontein 3
plant (“DP3”). Early-stage commissioning of the DP2 plant commenced on December
6, 2018 with the pumping of reclaimed tailings into the carbon in leach (“CIL”)
circuit. Testing of the reconfigured plant and ramp-up of production continued
during the third quarter of the fiscal year ended 30 June 2019. Management
considered, inter alia, the design capacity of the plant, recoveries and
the ability to sustain production in determining the date of commercial
production. The date of commercial production for Phase 1 (excluding the
milling section) was determined to be April 1, 2019.
FWGR’s
DP2 plant achieved gold production of 4,855oz before the date of commercial
production of Phase 1 (excluding the milling section).
R93.7 million working costs and R88.9 million proceeds from the sale of gold
produced were capitalized to additions to property, plant and equipment as
pre-production costs.
FWGR
achieved gold production from its DP2 plant subsequent
to April 1, 2019 as well as its DP3 plant of
10,706 ounces at an average yield of 0.261g/t. Volume
throughput during fiscal year 2019 was 1,277Mt.
Cash
operating costs in fiscal year 2019 were $688 per ounce.
|
The
following table details certain production and financial results of FWGR
since July 31, 2018, the date we commenced operations at FWGR.
|
|
|
2019
|
Production (imperial)
|
|
Ore
milled ('000 tons)
|
1,277
|
Recovered
grade (oz/ton)
|
0.008
|
Gold
produced (ounces)
|
10,706
|
Results
of Operations
|
|
Revenue (R million)
|
184.6
|
Cost of sales (R million)
|
131.3
|
Cash operating cost (R million)
|
111.8
|
Cash operating costs (R/kilogram)1
|
313,443
|
All-in sustaining costs (R/kilogram) 1
|
450,820
|
All-in cost (R/kilogram) 1
|
1,533,443
|
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
In
December 2018, ERPM concluded revised agreements to dispose certain of its
underground assets to OroTree Limited (“OroTree”). The revised
agreements consisted of a disposal of ERPM's underground mining and prospecting
rights and an option agreement, at the sole discretion of OroTree, to purchase
the underground mining infrastructure exercisable on or before June 30, 2019. The
disposal of the underground mining and prospecting rights were concluded in the
second half of the financial year ended June 30, 2019. OroTree’s option to
purchase the underground mining infrastructure lapsed on June 30, 2019 when it did
not exercise said option. The underground mining infrastructure remains under
care and maintenance until final rehabilitation is completed.
At
June 30, 2019, ERPM had no employees. The financial results and remaining assets
and liabilities of these halted underground operations are included in
‘Corporate office and other reconciling items’ in the financial statements for
segmental reporting purposes for all three years presented.
Property
ERPM
is situated on the Central Rand Goldfield located within and near the northern
margin of the Witwatersrand Basin in the town of Boksburg, 20 miles (32
kilometers) east of Johannesburg on land owned by ERPM. Access is via Jet Park
Road on the N12 Boksburg-Benoni highway. Historically underground mining and
recovery operations comprised relatively shallow remnant pillar mining in the
central area and conventional longwall mining in the south-eastern area. Until
underground mining was halted in October 2008, the mine exploited the
conglomeratic South Reef, Main Reef Leader and Main Reef in the central area
and the Composite Reef in the south-eastern area. ERPM concluded the disposed its underground mining and prospecting
rights in the second half of the financial year ended June 30, 2019.
Surface
reclamation operations including the treatment of sand from ERPM’s Cason Dump,
was conducted through the Knights metallurgical plant, tailings deposition
facilities and associated facilities until ERPM’s surface mining assets were
transferred to Ergo as part of the restructuring which took place on July 1,
2012.
As of June 30, 2019, and September 30, 2019, no
encumbrances exist on ERPM's property.
At June
30, 2019, the net book value of ERPM’s mining assets was zero.
Mining
and Processing
ERPM’s
underground gold mining infrastructure is under care and maintenance. Surface reclamation operations and
surface mining assets were transferred to Ergo as part of the restructuring
which took place on July 1, 2012.
Exploration and Development
ERPM
disposed prospecting right ERPM Extension 1 covering an area of 1,252ha (3,094
acres) of the adjacent Sallies mine and ERPM Extension 2, for an additional
area of 5,500ha (13,590 acres) to OroTree Limited during the second half of the fiscal year ended
June 30, 2019.
Environmental
and Closure Aspects
There
is a regular ingress of water into the underground workings of ERPM, which was
contained by continuous pumping from the underground section. Studies on the
estimates of the probable rate of rise of water have been inconsistent, with
certain theories suggesting that the underground water might reach a natural
subterranean equilibrium, whilst other theories maintain that the water could
decant or surface.
The
government has appointed Trans-Caledon Tunnel Authority (TCTA) to construct a
partial treatment plant (neutralisation plant) to prevent the ground water
being contaminated. TCTA completed the construction of the neutralisation plant
for the Central Basin and commenced treatment during July 2014. As part of the
Heads of agreement signed in December 2012 between EMO, Ergo, ERPM and TCTA,
sludge emanating from this plant is co-disposed onto the Brakpan/Withok 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, 2019 the present discounted
value of the total cost of rehabilitation for ERPM is approximately R17.4
million (2018: R15.8 million). A total of R11.3 million (2018: R10.5 million) is
held in the Ergo Rehabilitation Trust Fund (previously called the Crown
Rehabilitation Trust Fund) for the benefit of ERPM and R22.4 million (2018: R73.7
million) is held in insurance instruments and is available for the settlement
of these rehabilitation costs. The Ergo Rehabilitation Trust Fund is an
irrevocable trust, managed by specific responsible people who we nominated and
who are appointed as trustees by the Master of the High Court of South Africa.
Ongoing
Legal Proceedings
Ekurhuleni
Metropolitan Municipality (“Municipality”) Electricity Tariff Dispute
Refer to Item 18. ‘‘Financial
Statements - Note 26 – Contingent Assets and Liabilities”.
Silicosis
Litigation
Refer to Item 18. ‘‘Financial
Statements - Note 26 – Contingent Assets and Liabilities”.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This
section should be read in conjunction with, our audited financial statements
and the other financial information contained elsewhere in this Annual Report.
Our financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). Our discussion contains forward
looking information based on current expectations that involve risks and
uncertainties, such as our plans, objectives and intentions. Our actual results
may differ from those indicated in such forward looking statements.
Comparison of
financial performance for the fiscal year ended June 30, 2018 with fiscal year
ended June 30, 2017
This
comparison analysis can be found in Item 5A of the Company’s annual report on
Form 20-F for the fiscal year ended June 30, 2018.
5A. OPERATING RESULTS
Business overview
We are a South African gold mining company engaged in surface gold tailings retreatment,
including exploration, extraction, processing and smelting. All our surface
tailings retreatment operations, including the requisite infrastructure and
metallurgical processing plants, are located in South Africa.
The success of DRDGOLD’s long-term goal to extract as much gold as
possible and economically viable 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 2019 increased compared to fiscal 2018, mainly due to,
inter alia, the following:
·
gold production increased by 3% mainly due to the maiden
contribution made by FWGR of 333kg, mitigating the impact of Ergo’s gold
production that decreased by 4%;
·
the average rand gold price received increased by 8%;
·
profit for fiscal year 2018 included non-recurring
transactions costs on the acquisition of the WRTRP assets from
Sibanye-Stillwater of R9.0 million incurred in fiscal 2018;
·
profit for fiscal year 2019 included profit on disposal
of property, plant and equipment amounting to R5.8 million; and
·
a non-recurring credit of R60.0 relating primarily to a
change in estimate of Ergo’s provision for environmental rehabilitation.
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 represented a significant increase in our assets, which impacted our results in fiscal year 2019 and will impact our results in future years. In connection with the
acquisition, we issued to Sibanye-Stillwater new shares equal to 38.05% of
outstanding shares, and granted Sibanye-Stillwater an option to acquire up to a
total of 50.1% of our shares within a period of 2
years from the effective date of the acquisition at a 10% discount to the
prevailing market value.
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.
The following table indicates
data relating to the dollar gold spot prices for the 2019 and 2018 fiscal
years:
|
2019 fiscal year
|
2018 fiscal year
|
Change
|
|
$ per ounce
|
$ per ounce
|
%
|
Closing
gold spot price on June 30,
|
1,409
|
1,252
|
13
|
Lowest
gold spot price during the fiscal year
|
1,160
|
1,204
|
(4)
|
Highest
gold spot price during the fiscal year
|
1,439
|
1,366
|
5
|
Average
gold spot price for the fiscal year
|
1,263
|
1,297
|
(3)
|
|
|
|
|
All our operations and gold production is based in South Africa,
and as a result, the impact of movements in relevant exchange rates is
significant to our operating results. The average gold
price in rand (based on average spot prices for the year) decreased by 3% from R17,094 per ounce in 2017
to R16,662 per ounce in 2018, and increased
by 8%
to R17,914 per ounce in 2019.
An increase/(decrease) of 10% in the rand gold price throughout
fiscal year 2019 would have increased/(decreased) revenue by approximately R276.2
million (2018: R249.0 million).
Gold production
In
fiscal year 2019, gold production increased to 155,159 ounces (produced from 24.4
million tonnes milled at an average yield of 0.197g/t) from 150,433 ounces in
fiscal year 2018 (produced from 24.3 million tonnes milled at an average yield
of 0.193g/t). This was mainly due to the
maiden gold production of FWGR of 10,706 ounces,
mitigating the impact of Ergo’s gold production which decreased to 144,453
ounces in fiscal year 2019 (produced from 23.2 million tonnes milled at an
average yield of 0.194g/t) from 150,433 ounces in fiscal year 2018 (produced
from 24.3 million tonnes milled at an average yield of 0.193g/t).
In fiscal year 2018, gold produced increased to 150,433 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 fiscal
year 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.
Cash
operating costs
Cash
operating costs is a non-IFRS
financial measure of performance that is reported to the group’s chief operating decision maker (CODM) and is used to monitor performance – refer
to Item 18. ‘‘Financial Statements - Note 23
– Operating Segments”. For a reconciliation of this measure see Item
5A.: “Reconciliation of cash cost per kilogram, all-in sustaining costs per
kilogram and all-in costs per kilogram”.
Cash
operating costs include consumables, labor, specialized service providers,
electricity and other related costs incurred in the production of gold.
Consumables, water and electricity, labor, specialized service providers and
other costs are the largest components of cash operating costs. A breakdown of
cash operating costs into these costs is described in Item 5A.: “Comparison
of financial performance for the fiscal year ended June 30, 2019 with fiscal
year ended June 30, 2018”
General economic factors
We are exposed to a number of factors, which could affect our
profitability, such as exchange rate fluctuations, inflation and other risks
relating to South Africa. In conducting mining operations, we are subject to
the inherent risks and uncertainties of the industry, and the wasting nature of
the assets.
Effect
of exchange rate fluctuations
For the fiscal years 2019, 2018 and 2017, 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 2019 the Rand gold price received increased by 8%
compared to fiscal year 2018 due to the combined impact of the average Dollar
gold price which decreased by 2% and the
average exchange rate of the rand against the dollar that weakened by 10%.
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). For example in fiscal 2019 we entered into a hedging instrument in
the form of a collar in respect of 50,000 ounces of gold that expired at the
end of May 2019.
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,
|
2019
|
2018
|
2017
|
(%)
|
(%)
|
(%)
|
The
average rand/dollar exchange rate (strengthened)/weakened by
|
10
|
(5)
|
(6)
|
CPI
(inflation rate)
|
4.5
|
4.6
|
5.1
|
Recent
developments
Evaluation of FFG
circuit
The
operation of the FFG circuit was temporarily halted in the first quarter of
fiscal 2020 to perform an evaluation and compare the additional revenues earned
from extracting additional gold from the most recently integrated reclamation
sites compared to the cost incurred to operate the FFG circuit. The evaluation
also includes considering alternative configurations of the FFG circuit and
alternative means of extracting gold using the FFG circuit. At the date of this
report, the evaluation is ongoing.
Commissioning of
Mills at FWGR Phase 1
FWGR
achieved the 500 000tpm planned throughput from Phase 1 for the quarter ended
September 30, 2019 and successfully started operating their mills at the
beginning of September 2019.
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 fiscal years 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,
|
|
2019
|
2018
|
Revenue
(R'm)
|
2,762.1
|
2,490.4
|
Gold
production (ounces)
|
155,159
|
150,433
|
Gold
production (kilograms)
|
4,826
|
4,679
|
Gold
sold (ounces)
|
153,777
|
149,597
|
Gold
sold (kilograms)
|
4,783
|
4,653
|
Average
spot gold price (R/kilogram)
|
575,954
|
535,696
|
Average
gold price received (R/kilogram)
|
577,483
|
534,368
|
Cost
of sales (R'm)
|
2,553.9
|
2,347.7
|
Operating
costs (R'm)
|
2,471.1
|
2,207.1
|
Cash
operating costs (R'm) (1)
|
2,422.9
|
2,159.7
|
Cash operating
costs (R/kilogram) (1)
|
499,749
|
458,866
|
All-in
sustaining costs (R/kilogram) (1)
|
524,713
|
505,622
|
All-in costs (R/kilogram) (1)
|
600,941
|
524,651
|
Additions
to property, plant and equipment (R'm)
|
353.8
|
126.1
|
Ore
Reserves (ounces)
|
5,770,000
|
3,280,000
|
(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 the nearest IFRS
measure is included in Item 5A.: “Operating Results - Reconciliation of cash
cost per kilogram, all-in sustaining costs per kilogram and all-in costs per
kilogram.”
|
Revenue
Revenue
increased by 11% to R2,762.1 million in fiscal year 2019 from R2,490.4 million
in fiscal year 2018 mainly due to the impact of gold sold that increased by 3% from 4,653 kilograms in fiscal
2018 to 4,783 kilograms in fiscal 2019 and the average rand gold price received
that increased by 8% to R577,483 per kilogram.
Refer to Item 5A:. “Operating results:
Key drivers of our operating results and principal factors affecting our
operating results” for a discussion regarding the gold price received and
production levels.
Ore
Reserves
As at
June 30, 2019, our Ore Reserves (imperial)
were
estimated at 5.77 million ounces, as compared to 3.28 million ounces at June
30, 2018. The increase was due to the acquisition of FWGR which added
surface Ore Reserves of 2.72Moz. The increase was offset by depletion through
ongoing mining activities and other survey adjustments.
|
Year ended June 30,
|
|
2019
|
2018
|
Ore
Reserves
|
Ounces
|
Kilograms
|
Ounces
|
Kilograms
|
|
‘000
|
|
‘000
|
|
Ergo
|
3,080
|
99,024
|
3,280
|
105,454
|
FWGR
|
2,690
|
86,517
|
-
|
-
|
Total
Ore Reserves
|
5,770
|
185,541
|
3,280
|
105,454
|
Capital expenditure
During
fiscal year 2019 capital expenditure increased by R221.5 million to R347.4 million
from R125.9 million in fiscal year 2018. Capital expenditure increased primarily
as a result of R324.4 million incurred on the development of Phase 1 of FWGR.
During
fiscal year 2018 capital expenditure increased by R15.3 million to R125.9 million
from R110.6 million in fiscal year 2017. 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.
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, judgements are subject to an inherent degree of uncertainty.
Accounting assumptions, estimates and judgements are reviewed on an ongoing
basis. Revisions to reported amounts are recognized in the period in which the
revision is made and in any future periods affected. Actual results may differ
from these estimates.
Management 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:
·
Acquisition of Assets and Liabilities
·
Depreciation of property, plant and equipment
·
Impairment of property, plant and equipment
·
Estimation of future environmental rehabilitation costs
·
Income tax
·
Payments made under protest
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:
·
Acquisition of Assets and Liabilities
·
Date of commercial production
·
Payments made under protest
·
Contingent assets and 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”.
Acquisition of Assets and Liabilities
The IFRS
applicable for this transaction is IFRS 2 Share-based payment, as it represents
a receipt of goods (assets) in exchange for equity instruments of DRDGOLD. The
consequence thereof is that the assets and liabilities are recognised at their
fair value using principles under IFRS 13 Fair Value Measurement. A
corresponding increase in equity is also recognised. No deferred tax is
recognised on the transaction as it has not been accounted for as a business
combination under IFRS 3 Business Combinations, and therefore the initial
recognition exemption applies in terms of IAS 12 Income Taxes.
The assessment of whether the acquisition of the assets
and liabilities by DRDGOLD Limited (DRDGOLD) constituted an acquisition of
assets under IFRS 2 or a business combination under IFRS 3 required the
exercise of judgement due to the application of the business definition under
IFRS 3 to the nature of the assets. Key judgements made in the conclusion that
the acquisition did not meet the definition of a business under IFRS 3 include
that DP2 required decommissioning and reconfiguration from processing hard rock
material to tailings material, thus outputs couldn’t be produced at acquisition
date; the workforce acquired did not have the required skill or ability to
process tailings and were required to be trained with DRDGOLD’s intellectual
property; and that Sibanye-Stillwater did not process any tailings through the
DP2 or DP3 plants and neither could DRDGOLD at acquisition date, without
reconfiguring the assets acquired.
The fair
value of the assets was determined using the income approach present value
technique by applying a nominal discounted future cash flow model which was
based on the Phase 1 and Phase 2 project plan for the assets, determined with
the assistance of an independent expert. These calculations require use of
assumptions and estimates and are inherently uncertain and could materially
change over time. These assumptions and estimates include mineral reserves and
resource estimates, production estimates, spot and future gold prices, foreign
currency exchange rates, discount rates, estimates of costs to produce, future
capital expenditure and the timing of cash flows in determining the fair value.
The model was based on a forward-looking gold price of R562 481 per kilogram in
year one and operating costs escalating at an average of approximately 5.7% a year
over a discount period of 20 years and a risk adjusted discount rate based on
the nominal weighted average cost of capital of 15.03%. The discounted cash
flow model is highly sensitive to changes in the forward-looking gold price and
discount rate.
The fair
value of the future environmental cost was determined with the assistance of an
independent expert and was based on environmental management plans of Phase 1
and Phase 2 of the project which were developed in accordance with regulatory
requirements. An average discount rate of 8.65% and average inflation rate of
5.7% and a discount period of 14 years, were used in the calculation of the
estimated net present value of the rehabilitation liability.
Date of commercial production
The
Company assesses the stage of the construction project to determine when the
project moves into the production stage. The criteria used to assess the start
date are determined based on the unique nature of each construction project.
The Company considers various relevant criteria to assess when the construction
project is substantially complete, ready for its intended use and moves into
the production stage. Some of the criteria would include, but are not limited
to the following:
• the
level of capital expenditure compared to the construction cost estimates;
•
the required technical specifications of assets being constructed;
•
ability to produce metal in saleable form (within specifications); and
•
ability to sustain commercial levels of production of metal.
Depreciation of property, plant and equipment
Depreciation
of mine plant facilities and equipment, as well as mining property and
development (including mineral rights) are calculated using the units of
production method which is based on the life-of-mine of each site. The
life-of-mine is primarily based on proved and probable mineral reserves. It
reflects the estimated quantities of economically recoverable gold that can be
recovered from reclamation sites based on the estimated gold price. Changes in the
life-of-mine will impact depreciation on a prospective basis. The life-of-mine
is prepared using a methodology that takes account of current information to
assess the economically recoverable gold from specific reclamation sites and
includes the consideration of historical experience.
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, or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If any such indication exists, the
asset’s recoverable amount is estimated. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (CGUs). The key assets of a surface
retreatment operation which constitutes a CGU are a reclamation site, a
metallurgical plant and a tailings storage facility. These key assets operate
interdependently to produce gold. The Ergo and FWGR operations each have
separately managed and monitored reclamation sites, metallurgical plants and
tailings storage facilities and are therefore separate CGUs.
The recoverable amount of an asset or CGU is the greater
of its value in use and its fair value less costs to sell. The recoverable
amount was determined by estimating the value in use. The estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. An impairment loss is recognised in profit or loss if
the carrying amount of an asset or CGU exceeds its recoverable amount.
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 increases the effective tax rate with an increase in forecast
future profitability, and vice versa, the tax rate can vary significantly year
on year and can move contrary to current period financial performance.
Payments
made under protest
The assessment to
develop and apply the relevant accounting policy for payments made under
protest that arise from the Municipality Electricity Tariff Dispute (refer note
26) (“Payments made under protest“) requires the exercise of significant
judgement about the outcome of future events that are not wholly under the
control of the Group.
The judicial
proceedings that impact the Payments made under protest are inherently complex
legal issues that are subject to uncertainties and complexities and are subject
to interpretation.
The discounted
amount of the Payments made under protest is determined using assumptions about
the future that are inherently uncertain and can change materially over time
and includes the discount rate and discount period.
These assumptions
about the future include estimating the timing of concluding on the main
application, i.e. the discount period, the ultimate settlement terms (refer
note 26), the discount rate applied and the assessment of recoverability.
Recognition and measurement
The
asset that arises from the Ekhurhuleni electricity dispute (refer note 26) and
that are payments made under protest is initially
measured
at a discounted amount and any difference between the face value of payments
made under protest and the discounted amount on initial recognition is recognised
in profit or loss as a finance expense. Subsequent to initial recognition, the
Payments made under protest is measured using the effective interest method to
unwind the discounted amount to the original face value less any write downs
for recovery. Unwinding of the carrying value and changes in the discount
period are recognised in the statement of profit or loss.
Assessment
of recoverability
The
discounted amount of the payments under protest is assessed at each reporting
date to determine whether there is any objective evidence that the full amount
is no longer expected to be recovered. The Group considers the reasonable and
supportable information related to the creditworthiness of Ekurhuleni
Metropolitan Municipality and events surrounding the outcome of the Main
Application (refer note 26). Any write down is recognised in the statement of
profit or loss.
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.
New
standards, amendments to standards and interpretations
Refer
to Item 18. ‘‘Financial Statements - Note 3 – New standards, amendments to standards
and interpretations” for a discussion of relevant standards, amendments to
standards and interpretations that may be applicable to the business of the
Group and may have an impact on future consolidated financial statements.
Comparison of
financial performance for the fiscal year ended June 30, 2019 with fiscal year
ended June 30, 2018
Revenue
The
following table illustrates the year-on-year change in revenue for fiscal year 2019
in comparison to fiscal year 2018:
R million
|
Total
|
Impact of change in amount of gold sold
|
Impact of change in gold price
|
Net change
|
Total
|
revenue
|
revenue
|
2018
|
2019
|
Ergo
|
2,490.4
|
(93.5)
|
180.3
|
86.7
|
2,577.5
|
FWGR
|
-
|
184.6
|
-
|
184.6
|
184.6
|
Consolidated
|
2,490.4
|
91.1
|
180.3
|
271.3
|
2,762.1
|
Revenue increased
by R271.7 million, or 11%, to R2,762.1 million during fiscal year 2019.
This was mainly due to the average rand gold
price received which increased by 8% to R577,483 per kilogram as well as gold
sold having increased by 3%, reflecting the 3% increased gold production mainly due to the maiden contribution made by FWGR of
333kg gold sold, mitigating the impact of Ergo’s
gold production which decreased by 4%.
Cost of
sales
Cost
of sales amounted to R2,553.9 million in fiscal 2019, consisting mainly of
operating costs of R2,471.1 million, depreciation of R169.1 million and a positive movement in both change in estimate
of environmental rehabilitation of R60.0 million
and gold in process of R32.6 million. These are
discussed as follows:
Operating
costs
Operating
costs were R2,471.1 million for fiscal year 2019 compared
to R2,207.1 million for fiscal year 2018. The
increase was mainly due to inflationary increases.
Depreciation
Depreciation
charges were R169.1 million for fiscal year 2019
compared to R168.0 million for fiscal year 2018.
Change
in estimate of environmental rehabilitation
As
of June 30, 2019, we estimate our total rehabilitation provision, being the
discounted estimate of future costs, to be R682.6 million as compared to R553.4 million at June 30, 2018. A change in estimate of environmental rehabilitation of R60.0
million was recognized due to updated vegetation and
machine hire rates to recent service level agreements and actual rates
incurred, as well as, in line with the Group’s strategy to reduce
externally sourced potable water, alternative water sources found to be viable
to meet the Crown Complex post closure water requirements.
A total
of R508.9 million was invested in our various
environmental trust funds as at the end of fiscal year 2019, as compared to R118.0 million
at the end of fiscal year 2018. The increase is attributable primarily due to
the receipt of R360.4 million as a result of the acquisition of FWGR of as well
as R30.5 million interest received on these funds
during fiscal year 2019. A total of R78.6 million
(2018: R126.0 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 R7.9
million interest received on these funds during fiscal year 2019. As at June 30, 2019 guarantees amounting to R427.3 million were in issue to the DMR (2018: 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 2019 amounted to a increased of R32.6 million mainly due to an increase in the lock up
of gold in process at the DP 2 plant at FWGR as at June 30, 2019.
Administration
expenses and general costs
Administration
expenses and general costs increased by R0.8 million from R90.1 million
in fiscal year 2018 to R90.9 million in fiscal
year 2019. Administration expenses and general costs in fiscal year 2019
included long-term incentives of R21.4 million and legal costs amounting to
R2.8 million. In fiscal year 2018, administration
expenses and general costs included long-term incentives of R17.2 million and
legal costs amounting to R6.1 million.
Finance
income
Finance
income increased from R38.8 million in fiscal
year 2018 to R58.3 million in fiscal year 2019, mainly
due to higher environmental trust fund balances during the year
as a result of the acquisition of FWGR.
Finance expenses
Finance
expenses increased from R58.4 million in fiscal
year 2018 to R78.4 million in fiscal year 2019, mainly
attributable to the increase in the unwinding of the provision for
environmental rehabilitation and a discount recognised on Payments made under
protest of R6.5 million (including a change in the timing of cash flows).
Income
tax
Income
tax amounted to a charge of R26.6 million for
fiscal year 2019 compared to an income tax charge of R25.9 million for
fiscal year 2018) and consisted of a current tax benefit of R1.7 million, mostly relating to non-mining
income, and a deferred tax charge for fiscal year 2019 of R28.3 million, mostly relating to mining income.
The income tax charge resulted from our profit
before tax in fiscal year 2019 as well as a charge of R15.0 million relating to
the forecast weighted average deferred tax rate that increased from 20.3% in
fiscal year 2018 to 22.0% in fiscal year 2019 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.
Non-IFRS Measures
Set
forth below is a discussion of non-IFRS measures presented in this report, including
a reconciliation of such measures to the nearest measure under IFRS, as well as
an explanation as to why we believe that presentation of such information
provides useful information to investors and additional purposes, if any, for
which we use such measures.
Adjusted earnings
before interest, interest, depreciation and amortization (“Adjusted EBITDA”)
Set
forth below is a presentation of our Adjusted EBITDA, which is a non-IFRS
measure, including the items included in this measure and a reconciliation to
profit for the year. Our calculation of Adjusted EBITDA is based on the calculation of
this measure as included in our
RCF agreement,
and may not be comparable to similarly titled measures of other companies.
Adjusted EBITDA is not a measure of performance under IFRS and should be
considered in addition to, and not as a substitute for, other measures of
financial performance and liquidity. We consider Adjusted EBITDA for the purpose of evaluating
compliance with the covenants imposed by the Company’s borrowing agreements
entered into on August 1, 2019 to finance the development of Phase 1 of FWGR
and working capital requirements of the Group. The Group considers the
presentation of Adjusted EBITDA provides useful information to investors to
enable investors to assess compliance with our covenants in the RCF agreement.
|
Year ended, June 30
|
|
2019
|
Reconciliation of adjusted EBITDA
|
|
Profit for the year
|
78.5
|
Income tax
|
26.6
|
Profit before tax
|
105.1
|
Finance expense
|
(58.3)
|
Finance income
|
78.4
|
Profit from operating activities
|
125.2
|
Depreciation
|
169.1
|
Share based payment
|
21.4
|
Change in estimate of environmental rehabilitation recognised in
profit or loss
|
(60.0)
|
Gain on financial instruments at fair value through profit or
loss
|
(2.1)
|
Gain on disposal of property, plant and equipment
|
(5.8)
|
Retrenchment costs
|
6.3
|
Adjusted earnings before interest, tax depreciation and
amortisation ("Adjusted EBITDA") 1
|
254.1
|
|
|
1 See Glossary of Terms for
definitions.
|
|
|
|
Cash operating
costs, cash operating costs per kilogram, all-in sustaining costs and all-in
costs per kilogram
Cash
operating costs per kilogram, all-in sustaining costs per kilogram and all-in
costs per kilogram are non-IFRS financial measures that should not be
considered by investors in isolation or as alternatives to cost of sales, net
profit/(loss) attributable to equity owners of the parent, profit/(loss) before
tax and other items or any other measure of financial performance presented in
accordance with IFRS or as an indicator of our performance. While the World
Gold Council has provided guidance for the calculation of cash operating costs,
cash operating costs per kilogram, all-in sustaining costs and all-in costs per
kilogram, such measurements may vary significantly among gold mining companies,
and these definitions by themselves do not necessarily provide a basis for
comparison with other gold mining companies. However, we believe that these
measures are useful indicators to investors and our management of an individual
mine's performance and of the performance of our operations as a whole as they
provide:
·
an
indication of a mine’s profitability and efficiency;
·
the
trend in costs;
·
a
measure of margin per kilogram, by comparison of the cash operating costs per
kilogram to the price of gold; and
·
a
benchmark of performance to allow for comparison against other mines and mining
companies.
For
fiscal year 2019, cash operating costs per kilogram increased by 9% to R499,749
per kilogram from R499,749 per kilogram in fiscal year 2018. All-in sustaining
costs per kilogram increased by 4% to R524,713 per kilogram in fiscal 2019 from
R505,622 per kilogram in fiscal year 2018. All-in costs per kilogram increased by
15% to R600,941 per kilogram of gold in fiscal 2019 from R524,651 per kilogram
of gold in fiscal year 2018. The decrease in gold production at Ergo resulted in an increase
in cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram
which was
moderated by the lower cash operating costs per kilogram and all-in sustaining
costs per kilogram of FWGR. Non-sustaining
capital expenditure incurred in the development of FWGR Phase 1 resulted in an
increase in the all-in costs per kilogram of the Group.
R millions
|
2019
|
2018
|
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
|
2,553.9
|
2,347.7
|
Depreciation
|
(169.1)
|
(168.0)
|
Retrenchment costs
|
(6.3)
|
-
|
Change in estimate of environmental rehabilitation
|
60.0
|
2.9
|
Movement in gold in process
|
32.6
|
24.5
|
Operating costs
|
2,471.1
|
2,207.1
|
Ongoing rehabilitation expenditure
|
(18.3)
|
(26.7)
|
Care and maintenance costs
|
(8.8)
|
(8.2)
|
Other operating costs
|
(21.1)
|
(12.5)
|
Cash operating costs 1)
|
2,422.9
|
2,159.7
|
Movement in gold in process
|
(32.6)
|
(24.5)
|
Administration expenses and other costs excluding non-recurring
items 1
|
69.5
|
81.1
|
Other operating costs
|
21.1
|
12.5
|
Change in estimate of environmental rehabilitation
|
(60.0)
|
(2.9)
|
Unwinding of rehabilitation provision
|
66.3
|
45.6
|
Sustaining capital expenditure 1
|
22.5
|
81.3
|
All-in sustaining costs 1
|
2,509.7
|
2,352.8
|
Retrenchment costs
|
6.3
|
-
|
Care and maintenance costs
|
8.8
|
8.1
|
Ongoing rehabilitation expenditure
|
18.3
|
26.7
|
Capital recoupment
|
-
|
-
|
Transaction costs incurred related to the acquisition of FWGR
|
-
|
9.0
|
Growth capital expenditure 1
|
331.2
|
44.7
|
All-in costs 1
|
2,874.3
|
2,441.3
|
Gold produced (kilograms)
|
4,826
|
4,679
|
Cash operating costs per kilogram (R per kilogram)
|
499,749
|
458,866
|
All-in sustaining costs per kilogram (R per kilogram)
|
524,733
|
505,622
|
All-in costs per kilogram (R per kilogram)
|
600,941
|
524,651
|
|
|
|
Reconciliation of sustaining capital expenditure and growth
capital expenditure
|
|
|
Total capital expenditure/additions to property, plant and
equipment
|
353.8
|
126.1
|
Growth capital expenditure 1
|
331.2
|
44.7
|
Sustaining capital expenditure 1
|
22.5
|
81.3
|
|
|
|
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 2019 in comparison with fiscal year 2018.
R
million
|
Cash operating costs
|
Impact of change in throughput
|
Impact of change in costs
|
Net change
|
Cash operating costs
|
2018
|
2019
|
Ergo
|
2,159.7
|
(99.5)
|
250.9
|
151.4
|
2,311.1
|
FWGR
|
-
|
111.8
|
-
|
111.8
|
111.8
|
Total
|
2,159.7
|
12.3
|
250.9
|
263.2
|
2,422.9
|
Cash
operating costs in fiscal year 2019 increased by R263.2 million to R2,422.9
million compared to cash operating costs of R2,159.7 million in fiscal year
2018.
This
is mainly due to inflationary increases, increase trucking costs for sand
material treated at the Ergo plant as well as the inclusion of cash operating
costs of FWGR of R111.8 million.
The following table lists the major components of cash operating
costs for the Group for each operation and fiscal year set forth below
respectively:
|
|
|
|
|
|
|
|
|
Ergo
|
|
|
FWGR
|
|
Years ended June 30,
|
|
|
Year ended 1
|
Costs
|
2019
|
2018
|
|
Costs
|
2019
|
2018
|
Consumables
|
35%
|
36%
|
|
Consumables
|
38%
|
-
|
Electricity
and water
|
20%
|
19%
|
|
Labor
|
31%
|
-
|
Labor
|
18%
|
19%
|
|
Specialized
service providers
|
14%
|
-
|
Specialized
service providers
|
16%
|
16%
|
|
Electricity
and water
|
13%
|
-
|
Other
costs
|
11%
|
10%
|
|
Other
costs
|
5%
|
-
|
1 After date of commercial production of Phase 1 of Aril 1, 2019
|
|
|
|
|
5B. LIQUIDITY AND CAPITAL RESOURCES
Cash
flows from operating activities
Cash
generated from operating activities amounted to R288.3 million for fiscal
year 2019 (fiscal year 2018: R233.8 million and fiscal year 2017: R51.6
million).
Cash
generated from operating activities increased during fiscal year 2019 mostly due
to
gold sold that increased by 3% as well as
the average rand gold price received having increased by 8% to R577,483 per
kilogram. In addition, the net movement in working capital increase by R73.7
million in fiscal year 2019 compared to a increase in cash of R14.6 million in
fiscal year 2018.
Cash
flows from investing activities
Net cash utilized by investing activities amounted to R303.0 million
in fiscal year 2019 compared to R140.4 million in fiscal year 2018 and R96.7 million
in fiscal year 2017.
In fiscal year 2019, net cash utilized by investing activities
consisted mainly of R347.4 million in additions to property, plant and
equipment and R16.6 million spent on environmental rehabilitation payments.
These outflows were reduced by R55.2 million cash received from rehabilitation
obligation funds and R5.8 million proceeds on the disposal of property, plant
and equipment.
Additions
to property, plant and equipment in fiscal
year 2019 consisted mainly of R330.7 million incurred FWGR and included R323.8
million incurred on the development of Phase 1 of FWGR.
In fiscal year 2018, net cash utilized by investing
activities consisted mainly 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 Ore Reserve development, new
infrastructure and new mining equipment at our operations. Significant capital
projects for Ergo during fiscal year 2018 included:
☐ 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.
Cash flows from financing activities
Net cash outflow from
financing activities was R7.9 million in fiscal year 2019 compared to R45.0 million
in fiscal year 2018 and R53.0 million in fiscal year 2017.
During fiscal year 2019, the net cash outflow consisted
mostly of borrowings raised and subsequently repaid of R192.0 million.
During fiscal year 2018, the net cash outflow consisted
mostly of a dividend payment of R42.2 million.
Cash
and cash equivalents
Cash
and cash equivalents as at June 30, 2019 amounted
to R279.5 million compared to R302.1 million at the end of fiscal year 2018.
Substantially all of our cash and cash equivalent balances were denominated in
South African rand.
Cash
and cash equivalents as at June 30, 2019 includes
restricted cash in the form of cash held in escrow amounting to R0.0 million at the end of
fiscal year 2019 compared to R114.2 million at the end of
fiscal year 2018 related to an electricity tariff dispute with Ekurhuleni
(refer to Item 4D. Ongoing legal proceedings). Restricted cash at June 30, 2019
also includes guarantees of R18.3 million
compared to R17.2 million at the end of fiscal year 2018.
At
September 30, 2019, our cash and cash
equivalents were R333.6 million.
Borrowings
and funding
Our available external sources of capital include a R300 million Revolving Credit Facility described in Item 10C. Material Contracts –
ZAR 300 million Revolving Credit Facility. R125.0 million of this Revolving Credit Facility has been committed to the guarantee
issued to Ekurhuleni as described in Item 10C. Material
Contracts, resulting in R175.0 million being uncommitted and available to
the Company. No amounts were drawn under this facility as of June 30, 2019 or
September 30, 2019
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 2020.
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, 2019 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 2020, we are planning Group gold
production of 175,000 to 190,000 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 lower grades, failure to achieve the
targets set at Ergo and FWGR, power interruptions and other risks (refer Item
3D. Risk Factors—Risks related to our business and operations and “–Forward Looking
Statements”). We are also subject to cost pressures in the event of
above inflation increases in labor, electricity and water; crude oil and steel
costs. Unforeseen changes in ore grades and recoveries, unexpected changes in
the quality or quantity of reserves and resource, technical production issues,
environmental and industrial accidents, gold theft, environmental factors and
pollution could adversely impact the production, sales and cash operating costs
for fiscal year 2020 and cause us to fail to meet our
targets for the year.
Our
acquisition of WRTRP assets from Sibanye-Stillwater will impact our results
going forward and we remain subject to risks associated with acquired assets
(refer Item 3D. Risk Factors—Risks related to our business and operations).
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.
Operating
results for the quarter ended September 30, 2019
|
|
|
|
Quarter ended
|
Quarter ended
|
|
|
|
|
|
30-Sep-19
|
30-Jun-19
|
% change
|
|
Production
|
|
|
|
|
|
|
Gold produced
|
|
kg
|
1,493
|
1,418
|
5%
|
|
|
|
oz
|
48,001
|
45,590
|
5%
|
|
Gold sold
|
|
kg
|
1,510
|
1,429
|
6%
|
|
|
|
oz
|
48,547
|
45,943
|
6%
|
|
Ore milled
|
|
Metric (000't)
|
7,155
|
6,853
|
4%
|
|
Yield
|
|
Metric (g/t)
|
0.209
|
0.207
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price and costs
|
|
|
|
|
|
|
Average gold price received
|
|
R per kg
|
696,368
|
603,755
|
15%
|
|
|
|
US$ per oz
|
1,475
|
1,307
|
13%
|
|
Cash operating costs
|
|
R/t
|
97
|
99
|
-2%
|
|
|
|
US$/t
|
7
|
7
|
-
|
|
Cash operating costs
|
|
R per kg
|
459,868
|
475,657
|
-3%
|
|
|
|
US$ per oz
|
974
|
1,030
|
-5%
|
|
All-in sustaining costs **
|
|
R per kg
|
517,219 1
|
466,927
|
11%
|
|
|
|
US$ per oz
|
1,096 1
|
1,011
|
8%
|
|
All-in cost **
|
|
R per kg
|
528,344 1
|
484,315
|
9%
|
|
|
|
US$ per oz
|
1,155 1
|
1,082
|
7%
|
|
1 All-in sustaining cost per kg and all-in cost per kg were
disproportionately impacted by including a R41.1 million increase in the liability
for the long-term incentive scheme while including gold production/sold for
the first quarter only
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
|
|
|
|
|
Sustaining
|
|
Rm
|
5.5
|
5.9
|
-7%
|
|
|
|
US$m
|
0.4
|
0.4
|
-
|
|
Non-sustaining/growth
|
|
Rm
|
11.2
|
13.7
|
-18%
|
|
|
|
US$m
|
0.8
|
1.0
|
-20%
|
|
|
|
|
|
|
|
|
Average R/US$ exchange rate
|
|
|
14.68
|
14.37
|
2%
|
Rounding of figures may
result in computational discrepancies
* The adjusted earnings
before interest, taxes, depreciation and amortisation ("Adjusted EBITDA")
(that was considered from the quarter ended 30 June 2019 following the
implementation of the Revolving Credit Facility agreement) may not be
comparable to similarly titled measures of other companies. Adjusted EBITDA is
not a measure of performance under International Financial Reporting Standards
(“IFRS”) and should be considered in addition to, and not as a
substitute for, other measures of financial performance and liquidity.
** All-in cost
definitions based on the guidance note on non-GAAP Metrics issued by the World
Gold Council on 27 June 2013.
Gold
production increased by 5% quarter on quarter primarily due to a 4% increase in
tonnage throughput as Far West Gold Recoveries Proprietary Limited achieved the
planned throughput of 500 000tpm from Phase 1 during the quarter and
successfully started operating its mills at the beginning of September 2019.
This resulted in a 3% and 2% decrease in cash operating cost per kilogram of
gold sold and cash operating cost per ton of material processed respectively,
compared to the previous quarter.
Overall
yield increased by 1% compared to the previous quarter due mostly to improved
head grade at Ergo Mining Proprietary Limited.
Adjusted
EBITDA more than doubled for the quarter, due mainly to the 15% increase in
gold price received and a 6% increase in gold sold.
All-in
sustaining costs per kilogram and all-in costs per kilogram for the quarter
were 11% and 9% higher respectively, due to the positive impact of the change
in estimate of environmental rehabilitation recognised in profit or loss,
lowering the respective unit costs from the previous quarter.
Cash
and cash equivalents increased to R333.6 million as at 30 September 2019 (30
June 2019: R279.5 million) after paying a cash dividend of R136.4 million
(declared for the year ended 30 June 2019) and increasing working capital
lockup by R133.9 million for the quarter. External borrowings remained at Rnil
as at 30 September 2019 (30 June 2019: Rnil). The board of directors of the
Company (“Board”) will consider the payment of a dividend once the half
year results have been finalised.
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)
|
682.6
|
56.7
|
120.8
|
106.3
|
398.8
|
Finance
leases
|
11.0
|
11.0
|
-
|
-
|
-
|
Trade
and other payables
|
419.2
|
419.2
|
-
|
-
|
-
|
Purchase
obligations – contracted capital expenditure (1)
|
18.6
|
18.6
|
-
|
-
|
-
|
Other
contractual obligations
|
6.2
|
2.5
|
3.7
|
-
|
-
|
Total
contractual and cash obligations
|
1,137.6
|
508.0
|
124.5
|
106.3
|
398.8
|
|
|
|
|
|
|
(1) Represents planned capital
expenditure for which contractual obligations exist.
|
(2) Gold mining companies are subject to extensive environmental
regulations in the various jurisdictions in which they operate. These
regulations establish certain conditions on the conduct of our operations.
Pursuant to environmental regulations, we are also obliged to close our
operations and reclaim and rehabilitate the lands upon which we have
conducted our mining and gold recovery operations. The estimated closure
costs at existing operating mines and mines in various stages of closure are
reflected in this table. For more information on environmental rehabilitation
obligations, see Item 4D. “Property, Plant and Equipment” and Note 11 -
“Provision for environmental rehabilitation” under Item 18. “Financial
Statements".
|
5G. SAFE HARBOR
See Special Note
Regarding Forward-Looking Statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6A. DIRECTORS AND SENIOR MANAGEMENT
Directors
and Executive Officers
Our
board of directors may consist of not less than four and not more than twenty
directors. As of June 30, 2019, our board consisted of eight 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, Jean Johannes Nel was
appointed as an independent, non-executive
director of the Board at the annual general meeting of 30 November 2018.
Kuby
Prudence Lebina was appointed as independent non-executive director on 03 May 2019.
James
Turk’s appointment as independent, non-executive director terminated on 31
October 2018; on which date he ceased to be a director of DRDGOLD.
The address of each of our Executive Directors and
Non-Executive Directors is the address of our principal executive offices.
Executive Directors
Daniël (Niel) Johannes Pretorius (52) 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.
Niel is a member of the Social & Ethics Committee of
DRDGOLD.
Adriaan
(Riaan) Jacobus Davel (43) 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 (58). Geoffrey Campbell
was appointed a Non-executive Director in 2002, a senior independent
non-executive director in December 2003 and Non-executive Chairman in October
2005. A qualified geologist, he has worked on gold mines in Wales and Canada.
He spent 15 years as a stockbroker before becoming a fund manager, managing the
Merrill Lynch Investment Managers Gold and General Fund, one of the largest
gold mining investment funds. He was also research director for Merrill Lynch
Investment Managers. Geoffrey is a director of Oxford Abstracts Limited. Geoffrey
chairs the Nominations component of the Remuneration & Nominations
Committee of DRDGOLD.
Edmund
Abel Jeneker (57). 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. Edmund
chairs the Social & Ethics Committee and is a member of the Remuneration
& Nominations Committee of the Company.
Johan
Andries Holtzhausen (73). 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.
Jean Johannes Nel
(47). Jean Nel was appointed as an independent Non-executive Director on
November 30, 2018. He qualified as a CA(SA) in 1998 obtained the CFA (AIMR)
qualification. Mr. Nel has 20 years of mining finance and mining executive and
operational management experience. He was appointed to the Aquarius Platinum
Board in April 2012 and became CEO of the Group in November 2012, a position he
held until Aquarius Platinum was acquired by Sibanye- Stillwater in April 2016.
From April 2016 to January 2017 he was the CEO of the Platinum division of
Sibanye Stillwater. He is currently a non-executive director of Mimosa
Investments which owns the Mimosa platinum mine in Zimbabwe and Northam
Platinum. Jean is
a member of the Audit & Risk Committee of DRDGOLD.
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. Toko chairs the Remuneration component of the Remuneration
& Nominations Committee as is a member of the Social & Ethics Committee
of DRDGOLD.
Kuby Prudence Lebina (38). Prudence Lebina was appointed as independent
non-executive director on 03 May 2019. She qualified
as a chartered accountant in December 2005 after serving her articles at
PricewaterhouseCoopers Incorporated. A member of the South African Institute of
Chartered Accountants, with extensive experience in corporate finance and
investor relations in investment banking and the mining industry, she is
currently Chief Executive Officer of GAIA Infrastructure Capital Limited. She
is a member of the Audit & Risk Committee as well as the Remuneration &
Nominations Committee.
Senior
Management and Prescribed Officers
Wilhelm
Jacobus Schoeman (45) (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 (50) (National Higher Diploma (Extraction Metallurgy), MDP) Managing
Director: Ergo. Henry Gouws has 30 years’ experience in the mining industry. He
graduated from Technikon Witwatersrand and obtained a National Diploma in
Extraction Metallurgy in 1990 and a National Higher Diploma in Extraction
Metallurgy in 1991. He completed a Management Development Program in 2003
through Unisa School of Business Leadership and an Executive Development
Programme in 2012 through the University of Stellenbosch Business School. He
was appointed Operations Manager of Crown in January 2006 and General Manager
in July 2006. He was appointed to his current position in October 1, 2011.
Mark Burrell (57)
(BCom Accounting, MDP) Financial Director: Ergo. Mark Burrell holds a BComm
Accounting degree and has completed a Management Development Programme (MDP)
and has twenty years’ experience in the mining sector. He joined DRDGOLD in
2004 on a consulting basis and later that year, was appointed as Financial Manager
of the Blyvooruitzicht operation. He was appointed as Financial Director of
Ergo in January 2012. Mark serves as a director on the Board of Rand Refinery
Proprietary Limited.
Reneiloe
Masemene (38) (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. She has significant experience in all areas of
mining law, as well as in the corporate, commercial, contractual, employment
and litigious aspects related to mining. She
ceased to be an employee and company secretary of the company with effect
from September 30, 2019.
Kevin
Kruger (51) (BscEng (Mechanical Engineering), MDP, PMD, Government
Certificate of Competency (Mines)). Kevin has 32 years’ experience in the
mining industry in Africa. He joined the mining industry in January 1987 as
second year engineering student. Kevin graduated from the University of the
Witwatersrand at the end of 1989 obtaining his BSc (Mechanical Engineering) and
his government certificate of Competency (mines) during 1993. Kevin was
appointed as junior engineer in December 1989, section engineer - March 1994
and engineer in September 1994. He was appointed engineering manager 2003,
general manager – technical services 2004 and managing director Chizimgold
2010. On 01 October 2013 he was appointed as technical director at Ergo where
he was responsible for the environmental, health and safety, mineral resources
and engineering portfolios. On 1 August 2018, Kevin was appointed Managing
Director of FWGR.
Henriette
Hooijer (39) (BCom (Hons), CA(SA)). Henriette
Hooijer is the Financial Director of FWGR. She joined DRDGOLD in May 2016 and
was appointed as Financial Director of FWGR in August 2018. Before joining
DRDGOLD, she spent 11 years’ in the professional services industry at KPMG,
performing, inter alia, audits of listed companies in the mining industry,
including SEC registrants.
Elise
Beukes (42) (BProc). Elise Beukes was appointed as Company Secretary
of DRDGOLD with effect from October 01, 2019. She has broad governance
experience in all aspects of commercial law, having spent several years in both
litigation and commercial practice as an admitted attorney and four years as
corporate legal counsel. She has dealt extensively with broad-based black
economic empowerment structures, employee ownership schemes, enterprise
development and share incentive schemes involving complex company restructuring
for both multi-nationals and large local entities. She has extensive knowledge
on the new Companies Act and has particular interests in company secretarial
and corporate governance matters.
There are no family relationships between any of our
non-executive directors, executive directors or members of the group executive
and senior management. There are no arrangements or understandings between any
of our directors or executive officers and any other person by which any of our
directors or executive officers has been so elected or appointed. Furthermore,
none of the non-executive directors, executive directors, group executive and
senior management members or other key management personnel are elected or
appointed under any undertaking by, arrangement or understanding with any major
shareholder, customer, supplier or otherwise.
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, 2019 was R24.8
million.
Non-Executive
Directors received the following fees for fiscal year 2019:
·
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, 2019.
|
|
The disclosure detailed in this table is consistent with the
disclosure requirements of the Companies Act, 2008 (Act 71 of 2008) and the
JSE Listings Requirements.
|
|
|
|
|
|
|
|
Directors / Prescribed Officer
|
Total remuneration recognised during the year
|
Short Term Incentives recognised related to this cycle
|
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
|
6,481
|
4,668
|
1,777
|
12,926
|
|
A J Davel
|
3,669
|
2,622
|
998
|
7,289
|
|
|
10,150
|
7,290
|
2,775
|
20,215
|
|
Non-executive directors
|
|
|
|
|
|
G C Campbell
|
1,514
|
-
|
-
|
1,514
|
|
J Turk
|
280
|
-
|
-
|
280
|
|
E A Jeneker
|
916
|
-
|
-
|
916
|
|
J Holtzhausen
|
702
|
-
|
-
|
702
|
|
T B V N Mnyango
|
690
|
-
|
-
|
690
|
|
J J Nel
|
377
|
-
|
-
|
377
|
|
P Lebina
|
104
|
-
|
-
|
104
|
|
|
4,583
|
-
|
-
|
4,583
|
|
Prescribed officers (1)
|
|
|
|
|
|
W J Schoeman
|
3,479
|
2,565
|
998
|
7,042
|
|
R Masemene
|
2,478
|
1,186
|
609
|
4,273
|
|
|
5,957
|
3,751
|
1,607
|
11,315
|
|
|
|
|
|
|
|
Total
|
20,690
|
11,041
|
4,382
|
36,113
|
|
|
|
|
|
|
(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 19.2
– 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, 2019.
On July
1, 2019 Mr. D.J. Pretorius entered into a new agreement of employment for a
period of 3 years and thereafter it continues indefinitely until terminated by
either party on not less than three months’ written notice. Under the
employment agreement effective up to June 30, 2018 Mr. D.J. Pretorius receives
from us a guaranteed remuneration package of R6.2 million per annum.
Mr. D.J. Pretorius was eligible under his employment agreement, for an
incentive bonus of up to 100% of his annual remuneration package in respect of
one bonus cycle per annum over the duration of his appointment, on the condition
that DRDGOLD achieves certain key performance indicators. In addition, he is
eligible to participate in the long term incentive scheme and was awarded
2,323,009 phantom shares in November 2015.
Mr. A.J.
Davel entered into a new employment agreement effective from July 1, 2019 for a
period of 3 years and thereafter it continues indefinitely until terminated by
either party on not less than three months’ prior written notice. Mr. A.J.
Davel receives from us a guaranteed remuneration package of R3.4 million per
annum. Mr. A.J. Davel is eligible under his employment agreement, for a
short term incentive of up to 100% of his annual remuneration package in
respect of one bonus cycle per annum over the duration of his appointment, on the
condition that DRDGOLD achieves certain key performance indicators. 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 in 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 service as director terminated on
October 31, 2018. Mr. J.A Holtzhausen has a service agreement which runs for a
fixed period until April 25, 2020. Mrs. TVBN Mnyango has a service agreement which runs until November
30, 2020. Mr. J Nel entered into a service agreement which runs for a fixed
period until November 30, 2020 and Ms. K.P Lebina entered into a service
agreement which runs until May 02, 2021. After expiration of the initial two
year periods, the agreements continue indefinitely until terminated by either
party on not less than three months’ prior written notice.
The Company does not administer any pension, retirement
or other similar scheme in which the directors receive a benefit.
Each
service agreement with our directors provides for the provision of benefits to
the director where the agreement is terminated by us in the case of our
executive officers, except where terminated as a result of certain action on
the part of the director, upon the director reaching a certain age, or by the
director upon the occurrence of a change of control. A termination of a
director's employment upon the occurrence of a change of control is referred to
as an “eligible termination.” Upon an eligible termination, the director is
entitled to receive a payment equal to at least one year's salary or fees, but
not more than three years' salary for Executive Directors or two years’ fees
for Non-Executive Directors, depending on the period of time that the director
has been employed.
6C. BOARD PRACTICES
Board of Directors
As at June 30, 2019 and September
30, 2019, the board of directors comprises two Executive Directors
(Mr. D.J. Pretorius and Mr. A.J. Davel), and six Non-Executive
Directors (Messrs. G.C. Campbell, J.J. Nel, E.A. Jeneker, J.A.
Holtzhausen and Mmes. K.P. Lebina and 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 & Risk Committee, Remuneration & Nominations Committee as
well as Social & Ethics Committee which act as subcommittees to the board.
Each subcommittee is chaired by one of the Independent Non-Executive Directors,
each of whom provides a formal report back to the board. Each subcommittee
meets for approximately half a day. Certain senior personnel of the Company
attend the subcommittee meetings as invitees.
The
board sets the standards and values of the Company and much of this has been
embodied in the Company’s Code of Conduct, which is available on our website at
www.drdgold.com. The Code of Conduct applies to all directors, officers and
employees, including the principal executive, financial and accounting
officers, in accordance with Section 406 of the US Sarbanes-Oxley Act of 2002,
the related US securities laws and the NYSE rules. The Code contains provisions
for employees to report violations of Company policy or any applicable law,
rule or regulation, including US securities laws.
A
description of the significant ways in which our corporate governance practices
differ from practices followed by U.S. companies listed on the NYSE can be
found in Item 16G. Corporate Governance.
Directors'
Terms of Service
The
following table shows the date of appointment, expiration of term and number of
years of service with us of each of the directors as at June 30, 2019:
Director
|
Title
|
Year first appointed
|
Term of current office
|
Unexpired term of current office
|
D.J.
Pretorius
|
Chief Executive Officer
|
2008
|
3 years
|
0 months
|
A.J. Davel
|
Chief Financial Officer
|
2015
|
3 years
|
0 months
|
G.C.
Campbell
|
Non-Executive Director
|
2002
|
2 years
|
4 months
|
E.A.
Jeneker
|
Non-Executive Director
|
2007
|
2 years
|
4 months
|
J.
Turk1
|
Non-Executive Director
|
2004
|
1 year
|
0 months
|
J.
Holtzhausen
|
Non-Executive Director
|
2014
|
2 years
|
10 months
|
T.V.B.N.
Mnyango
|
Non-Executive Director
|
2016
|
2 years
|
17 months
|
J.J
Nel
|
Non-Executive Director
|
2018
|
2 years
|
17 months
|
K.P
Lebina
|
Non-Executive Director
|
2019
|
2 years
|
22 months
|
|
|
|
|
|
1 Service terminated on October 31, 2018.
|
|
|
|
|
|
|
|
|
|
Executive Committee
As
at June 30, 2019, 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, 2019 the Remuneration and Nominations
Committee consisted of G C Campbell (Chairman: nominations), E A Jeneker
(Chairman: remuneration), and J A Holtzhausen. Pursuant to the board meeting on
August 29, 2019, changes were effected to the composition of the Remuneration
& Nominations Committee as follows: GC Campbell retained his chairmanship
of the Nominations component; T V B N Mnyango assumed the role of Chairwoman of
the Remuneration component, with E A Jeneker and K P Lebina as members of the
Committee.
The
Remuneration Committee and the Nominations Committee meets on an ad hoc
basis. All members of this committee are independent NEDs who are
independent according to the definition set out in the NYSE Rules. 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 a mandate to offer competitive packages that will attract and
retain executives of the highest caliber and encourage and reward superior
performance. Industry surveys are provided for comparative purposes, and to
assist the
committee in the
formulation of remuneration policies that are market related.
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
As at June 30, 2019 the Audit and Risk
Committee consisted of J A
Holtzhausen (Chairman), T V B N Mnyango and E A Jeneker. Following the board
meeting on August 29, 2019, T V B N Mnyango resigned with immediate effect from
membership of the Audit & Risk Committee and the following changes were
effected to the composition thereof: JA Holtzhausen retained his chairmanship
of the Audit & Risk Committee, with J J Nel and K P Lebina becoming the new
members thereof.
All
members of the Audit and Risk Committee are independent according to the
definition set out in the NYSE Rules. The committee’s charter deals with all
the aspects relating to its functioning.
The
Audit and Risk Committee charter sets out the committee’s terms of reference
which include responsibility for:
·
appointment and oversight of external
auditors, audit process and financial reporting;
·
oversight of internal audit;
·
overseeing the integrated
reporting and assurance model;
·
overseeing the development and annual review of a policy
and plan for risk management;
·
ensuring that risk management assessments are performed
on a continuous basis;
·
ensuring that reporting on risk management assessment is
complete, timely, accurate and accessible;
·
ensuring that frameworks and methodologies are
implemented to increase the possibility of anticipating unpredictable risks;
·
ensuring that continuous risk monitoring by management
takes place.
The
Audit 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 last AGM on November 30, 2018 to perform
DRDGOLD’s external audit function, such appointment was made by the
shareholders in accordance with the laws of South Africa and upon
recommendation of the board following the Audit and Risk Committee.
The
internal audit function is performed in-house, with the assistance of
Pro-Optima Audit Services Proprietary Limited. Internal audits are performed at
all DRDGOLD operating units and are aimed at reviewing, evaluating and
improving the effectiveness of risk management, internal controls and corporate
governance processes.
Significant
deficiencies, material weaknesses, instances of non-compliance and exposure to
high risk and development needs are brought to the attention of operational
management for resolution and reported to the Audit and Risk
Committee.
The committee members have access to all the records of the internal audit
team.
DRDGOLD’s
internal and external auditors have unrestricted access to the chairman of the
Audit 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 the
Sarbanes-Oxley Act of 2002 stipulates that management is required to
assess the effectiveness of the internal controls surrounding the financial
reporting process. The results of this assessment are reported in the form of a
management attestation report that is filed with the SEC as part of the Form
20-F. Additionally, DRDGOLD’s external auditors are required to express an
opinion on the effectiveness of internal controls over financial reporting,
which is also contained in the Company’s Form 20-F.
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, 2019, the Social and Ethics
Committee consisted of Mr. E.A. Jeneker (Chairman), Mr. D.J. Pretorius and Mrs.
TVBN Mnyango. Membership thereof remains unchanged.
The Social and
Ethics Committee is a statutory body established in terms of section 72 of the
Companies Act, 2008; the objectives of which are to facilitate transformation
and sustainable development by, inter alia, promoting transformation
within the Company and economic empowerment of previously disadvantaged
communities particularly within the areas where the Company conducts business;
striving towards achieving the goal of equality as the South African Constitution
and other legislation require within the context of the demographics of the
country at all levels of the Company and its subsidiaries; and conducting
business in a manner which is conducive to internationally acceptable
environmental and sustainability standards.
The
following terms of reference were approved by the board to enable the committee
to function effectively. These are to be responsible for and make
recommendations to the board with respect to the following matters:
·
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;
·
maintaining records of sponsorship, donations and
charitable giving;
·
reviewing matters relating to the
environment, health and public safety, including the impact of the company’s
activities and of its products or services;
·
reviewing matters relating to labour
and employment
·
reviewing and recommending the company’s code of ethics;
·
reviewing and recommending any corporate citizenship
policies;
·
reviewing significant cases of employee conflicts of
interests, misconduct or fraud, or any other unethical activity by employees or
the Company
6D. EMPLOYEES
Employees
The total number of
employees at June 30, 2019, of 2,617 comprises 1,591 specialized service
providers and 1,026 employees who are directly employed by us and our
subsidiary companies.
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.
The
total number of employees at June 30, 2017, of 2,215 comprises 1,365
specialized service providers and 850 employees who are directly employed by us
and our subsidiary companies.
The
total number of employees at September 30, 2019, of 2,635 comprises 1,631
specialized service providers and 1,004 employees who are directly employed by
us and our subsidiary companies.
All
of our employees are based at our operations that operate exclusively in South Africa.
Labor
Relations
As at June 30, 2019, approximately 92% of
our Ergo employees and 70% of our FWGR employees are members of trade unions or
employee associations. South Africa's labor relations environment remains a
platform for social reform. The National Union of Mineworkers, 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 September 16, 2019, Ergo signed a
two-year wage agreement with the Majority Unions for an average increase of
5.9% per annum across our workforce with
individual increases ranging from 5.5% to 7% per annum,
with the intention to extend this agreement to a third year. The next round of wages and conditions of employment
negotiations will commence in June 2019.
As part of the
transitional arrangements at FWGR, a three-year wage agreement is in place and
is expected to conclude in June 2021.
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 fiscal 2019 overall safety statistics for our operations:
(Per
million man hours)
|
Ergo
|
FWGR
|
Consolidated
|
|
Year ended June 30,
|
Year ended June 30,
|
Year ended June 30,
|
|
2019
|
2018
|
2019
|
2019
|
2018
|
Lost
time injury frequency rate (LTIFR)1
|
2.37
|
2.92
|
2.37
|
2.37
|
2.92
|
Reportable
incidence frequency rate (RIFR)1
|
1.69
|
1.55
|
2.37
|
1.78
|
1.55
|
Fatalities
|
1
|
-
|
-
|
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 prescribed officers and directors, in aggregate, do not
exceed one percent of the Company’s issued ordinary share capital. For details
of share ownership of directors and prescribed officers see Item 7A. Major
Shareholders.
As of June 30, 2019, directors and prescribed officers do
not hold any options to purchase ordinary shares.
Closed periods apply
to share trading by directors, prescribed officers and other employees,
whenever persons become or could potentially become aware of material price
sensitive information, such as information relating to an acquisition,
bi-annual results etc., which is not in the public domain. When these persons
have access to this information an embargo is placed on share trading for those
individuals concerned. The embargo need not involve the entire Company in the
case of an acquisition and may only apply to the board of directors, executive
committee, and the financial and new business teams, but in the case of interim
and year-end results the closed-period is group-wide.
DRDGOLD
Phantom Share Scheme (Amended November 2015)
Salient terms of the DRDGOLD Phantom Share Scheme are disclosed in
Item 18. ‘‘Financial Statements
- Note 19.1 Liability for Long-Term Incentive Scheme’’
During
fiscal year 2016, DRDGOLD’s Remuneration and Nominations Committee approved
a revised long-term incentive scheme. On November 4, 2015, the committee
approved an allocation of 20,527,978 phantom shares which is driven by share
price performance and individual performance and is based on phantom share
allocations. The vesting of any shares allocated is staggered over a five-year
period commencing in the third year after the allocation is granted in line
with King IV Report recommendations. The objectives of the revised scheme are
to drive the longer-term strategies of DRDGOLD, to align participants’
interests with shareholders’ interest, to incentivise and motivate
participants, to attract and retain scarce human resources and to reward
superior performance by the Company and participants. Remuneration and
Nominations Committee has the authority to amend in part or in its entirety
or withdraw the long-term incentive scheme at any time.
388,547
phantom shares were granted during fiscal year 2019 (2018 and 2017: nil). 16,157,058
phantom shares were outstanding on June 30, 2019 (2018: 20,189,467).
Proposed DRDGOLD Management Long-Term Incentive Scheme
DRDGOLD
proposes to introduce a new long-term incentive scheme (“Scheme”) for purposes
of replacing the current long-term phantom share scheme. The current scheme has
a finite life and comes to an end with the vesting of the last phantom shares
during fiscal year 2020. The adoption of the Scheme is subject approval by
shareholders at the 2019 annual general meeting to be held on December 2, 2019.
Certain key features
of the Scheme are:
Equity
settled
The Scheme will be
equity-settled. Equity-settlement will be implemented by way of market acquisition
of DRDGOLD ordinary shares or through the issue of authorised but unissued shares
or treasury shares.
Participants
Persons eligible to
participate in the Scheme will be permanent employees (which, for the avoidance
of doubt, includes an executive director, but excludes a non-executive
director) of the Company and its subsidiaries, in Category 19 and above (“Participants”).
Award
of Conditional Shares
Pursuant to the
Scheme, the Company’s Remuneration Committee will
resolve, on an annual basis, to award “Conditional Shares” (“Award”)
which are comprised of:
·
“Performance Shares” which are subject to conditions, as set out
in the rules of the Scheme and performance conditions; and
·
“Retention Shares” which are subject to conditions, as set out
in the rules of the Scheme.
Participants are not
required to pay for Awards or Shares Settled in terms of
vested Awards.
Annual awards of
Conditional Shares will be made, in two forms:
·
80% of the Award will be comprised of Performance Shares
·
20% of the Award will be comprised of Retention Shares
The target award value
will be referenced to market-related award quanta, and will be adjusted based
upon individual performance as follows:
Individual Rating
|
% of Target Value
Awarded
|
< 2.75
|
0%
|
2.75 to < 3.00
|
50%
|
3.0 to < 3.75
|
100%
|
3.75 to < 4.5
|
133.33%
|
4.5 to < 5.0
|
166.67%
|
5.0
|
200%
|
Dividend
and Voting Rights
The Conditional Share
Awards carry no dividend or voting rights, until Settled, and therefore any
transfer and other rights associated with the Conditional Shares will only vest
following settlement;
Vesting
of the Conditional Shares
Conditional Shares
will vest 3 years after the date of Award (“Award Date”), subject to the
rules of the Scheme. The Scheme also makes provision for 50%
of the Awards proposed to be made in 2019 to vest in 2021 (being 2 years after
the Award Date) and the remaining 50% to vest in 2022 (being 3 years after the
Award Date).
Performance Shares
(80%) will vest subject to service and performance conditions as follows:
·
DRDGOLD’s Total Shareholder Return (“TSR”) over the
3-year vesting period exceeding DRDGOLD’s Weighted Average Cost of Capital “WACC”)
– if achieved, 40% of the Conditional Shares awarded will vest, subject to the remaining conditions for vesting applicable to
Performance Shares having being fulfilled;
·
DRDGOLDS’s TSR over the 3-year vesting period compared to a
comparator peer group, as follows:
Percentile of Peers
|
% of Conditional Shares
Vesting
|
< 25th percentile
|
0%
|
25th to < 50th
percentile
|
10%
|
50th to < 75th
percentile
|
30%
|
≥ 75th
percentile
|
40%
|
·
Attaining a threshold individual performance rating over the
3-year vesting period; and
·
The Participant being in active service and not under notice of
resignation at the Settlement date.
Retention Shares (20%)
will vest subject to service and performance conditions as
follows:
·
Attaining a threshold individual performance rating over the
3-year vesting period; and
·
The Participant being in active service and not under notice of
resignation at the Settlement date.
Awarded Conditional
Shares which do not Vest to the Participant, as a result of forfeiture or which
lapse, revert back to the Scheme.
Share
Limits
Overall
Company Limit
The aggregate number
of Shares at any one time which may be awarded for Settlements under the Scheme
shall not exceed 34,500,000 (thirty four million, five hundred thousand) Shares
(representing approximately 4.95% of the total issued share capital of the
Company at the date of this Notice).
Individual
Limit
Subject to certain
dilution adjustments, the aggregate number of
Shares at any one time which may be awarded under the Scheme to any one
Participant shall not exceed 14,500,000 Shares.
ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7A. MAJOR
SHAREHOLDERS
As of September
30, 2019, 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 2019, we were not directly or indirectly owned or
controlled by another corporation or any person or foreign government, other than control in the form of ownership of a
significant amount of our shares and option to acquire further shares, as is
the case for Sibanye-Stillwater.
On
July 31, 2018, 265 million ordinary shares were issued to Sibanye-Stillwater as
settlement of the purchase consideration for the acquisition of the WRTRP
Assets. As part of this acquisition, Sibanye-Stillwater was granted an option
to subscribe for further shares to achieve a 50.1% shareholding within 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, 2019:
there were 5,588 record holders of our ordinary shares in
South Africa, who held 382,838,557 or approximately 55.0% 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 25 US record holders of our ordinary shares,
who held approximately 21,669,402 ordinary shares or approximately 3.11% of our
ordinary shares excluding those shares held as part of our ADR program; and
·
there were 687 registered holders of our ADRs in the
United States, who held approximately 197,889,430 shares (19,788,943 ADRs) or
approximately 28.4% of our ordinary shares.
The
following table sets forth information regarding the beneficial ownership of
our ordinary shares as of September 30, 2019, by:
·
each of our directors and prescribed officers; and
·
any person whom the directors are aware of as at
September 30, 2019 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
|
49,644,390
|
7.13%
|
Renaissance
Technologies, LLC
|
12,535,150
|
1.80%
|
|
|
|
* Indicates share ownership of less than 1% of our
outstanding ordinary shares.
|
|
|
No shareholder
has voting rights which differ from the voting rights of any other shareholder.
Cumulative Preference Shares
Randgold
and Exploration Company Limited, or Randgold, owns 5,000,000 (100%) of our
cumulative preference shares. Randgold's registered address is Suite 25,
Katherine & West Building, Corner of Katherine and West Streets, Sandown,
Sandton, 2196.
The
holders of cumulative preference shares do not have voting rights unless any
preference dividend is in arrears for more than six months. The terms of issue
of the cumulative preference shares are that they carry the right, in priority
to the Company's ordinary shares, to receive a dividend equal to 3% of the
gross future revenue generated by the exploitation or the disposal of the
Argonaut mineral rights acquired from Randgold in September 1997.
Additionally, holders of cumulative preference shares may vote on resolutions
which adversely affect their interests and on the disposal of all, or
substantially all, of our assets or mineral rights. There is currently no
active trading market for our cumulative preference shares. Holders of
cumulative preference shares will only obtain their potential voting rights
once the Argonaut Project becomes an operational gold mine, and dividends accrue
to them. The prospecting rights have since expired and the Argonaut Project
terminated. The
development of the project is not expected to materialise and therefore no
dividend is expected to be paid.
7B. RELATED PARTY
TRANSACTIONS
Transactions with related parties are disclosed in Item 18. ‘‘Financial Statements - Note 6.2 – Cost of
sales’’
Remuneration paid to key management is disclosed in Item 18. ‘‘Financial Statements - Note 19.2 – 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, 2019, 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 principal
trading market for our equity securities is the JSE (symbol: DRD) and our ADSs
that trade on the New York Stock Exchange (symbol: DRD). The ADRs are issued by
The Bank of New York Mellon, as depositary. Each ADR represents one ADS and
each ADS represents ten of our ordinary shares. Until July 23, 2007, each ADS
represented one of our ordinary shares.
The cumulative preference shares are not traded on any
exchange.
There have been no trading suspensions
with respect to our ordinary shares on the JSE during the past three years
ended June 30, 2019, nor have there been any trading suspensions with respect
to our ADRs on the New York Stock Exchange since our listing on that market.
9B. PLAN OF DISTRIBUTION
Not applicable.
9C. MARKETS
Nature of Trading Markets
See “Offer and Listing Details” above.
9D. SELLING SHAREHOLDERS
Not applicable.
9E. DILUTION
Not applicable.
9F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10A. SHARE CAPITAL
Not applicable.
10B. MEMORANDUM OF INCORPORATION
As of June 30, 2019,
we had authorized for issuance 1,500,000,000 ordinary shares of no par value
(as of September 30, 2019: 1,500,000,000), and 5,000,000 cumulative preference
shares of R0.10 par value (as of September 30, 2019: 5,000,000). On this date,
we had issued 696,429,767 ordinary shares (as of September 30, 2019: 696,429,767)
and 5,000,000 cumulative preference shares (as of September 30, 2019:
5,000,000).
Set
out below are brief summaries of certain provisions of our Memorandum of
Incorporation, or our MOI, the Companies Act of South Africa and the JSE
Listings Requirements, all as in effect on June 30, 2019 and September 30, 2019.
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 IV Report on Corporate Governance for South Africa, 2016 (King IV) was
published on 1 November 2016 and came into effect on 1 April 2017 for companies
with financial years commencing thereafter. The application regime for King IV
is "apply and explain", requiring companies to substantially and
meaningfully strive towards good corporate governance. King IV is principles
and outcomes based: a departure from mere compliance-based mindset. King IV
recognises that sound governance outcomes, exemplified by integrity,
competence, responsibility, accountability, fairness and transparency, are the
cardinal pillars of good corporate citizenship.
The
remuneration of non-executive directors is typically determined by the board,
but subject to approval by the shareholders at the AGM of the Company. In terms
of section 65(11)(h) of the Companies Act, 2008 read with sections 66(8) and
66(9) thereof, remuneration may only be paid to directors for their services as
directors in accordance with a special resolution approved by the shareholders
within the previous 2 (two) years. A special resolution was passed at the 2017
AGM on November 30, 2017 to increase the NED remuneration.
The
JSE Limited has since made the adoption and application of King IV mandatory
for all listed companies.
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 June 30, 2019 and September 30, 2019, no such dividends
have been declared. Except for the preference dividend and as described in this
Item our cumulative preference shares are not entitled to any other
participation in the distribution of our surplus assets on winding-up.
Reduction of Capital
We may, by special resolution, reduce the
share capital authorized by our MOI, or reduce our issued share capital
including, without limitation, any stated capital, capital redemption reserve
fund and share premium account by making distributions and buying back our
shares.
Amendment of the MOI
Our MOI may be altered by the passing of
a special resolution or in compliance with a court order. The Company may also
amend the MOI by increasing or decreasing the number of authorized shares,
classifying or reclassifying shares, or determining the terms of shares in a
class. A special resolution is passed when the shareholders holding at least
25% of the total votes of all the members entitled to vote are present or
represented by proxy at a meeting and, if the resolution was passed on a show
of hands, at least 75% of those shareholders voted in favor of the resolution
and, if a poll was demanded, at least 75% of the total votes to which those
shareholders are entitled were cast in favor of the resolution. An amendment to
the MOI to increase the number of authorized shares was approved by
shareholders at the 2018 general meeting on March 28, 2018.
Consent
of the Holders of Cumulative Preference Shares
The
rights and conditions attaching to the cumulative preference shares may not be
cancelled, varied or added, nor may we issue shares ranking, regarding rights
to dividends or on winding up, in priority to or equal with our cumulative
preference shares, or dispose of all or part of the Argonaut mineral rights
without the consent in writing of the registered holders of our cumulative
preference shares or the prior sanction of a resolution passed at a separate
class meeting of the holders of our cumulative preference shares.
Distributions
We
are authorized to make payments in cash or in specie to our shareholders in
accordance with the provisions of the Companies Act and other consents required
by law from time to time. We may, for example, in a general meeting, upon
recommendation of our directors, resolve that any surplus funds representing capital
profits arising from the sale of any capital assets and not required for the
payment of any fixed preferential dividend, be distributed among our ordinary
shareholders. However, no such profit shall be distributed unless we have
sufficient other assets to satisfy our liabilities and to cover our paid up
share capital. We also need to consider the solvency and liquidity requirements
stated in the Companies Act of South Africa.
Directors’
power to vote compensation to themselves
The
remuneration of non-executive directors may not exceed in 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, subsequently renamed FWGR
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 FWGR Proprietary
Limited, in exchange for the issuance of 999 shares of FWGR Proprietary Limited
shares (comprising its entire share capital) to Sibanye-Stillwater, subject to
certain conditions that include the consummation of certain agreements such as
the DRD Exchange Agreement, DRD Guarantee and DRD Option Agreement, among
others.
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 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”) and to indemnify 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. The Company also undertook 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, re"sulting 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.
The description of the
Sibanye-Stillwater Exchange Agreement, DRD Guarantee and Option Agreement is
qualified by reference to the Sibanye-Stillwater Exchange Agreement, DRD
Guarantee and Option Agreement filed as Exhibits to our
annual report on Form 20-F for the fiscal year ended June 30, 2018.
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 cover1 shall not be less than 4 times and
(ii) net debt 2 to adjusted 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.
Addendum
to the ZAR300 million Revolving Credit Facility and Performance Guarantee
On December 10, 2018, DRDGOLD
Limited entered into an addendum to the ZAR300 million RCF. The purpose of the
addendum to the RCF was to commit R125 million of the RCF facility to a
performance guarantee to Ekurhuleni Metropolitan Municipality (“Municipality”)
that was issued on the same date by ABSA Bank Limited (acting through its
Corporate and Investment Banking division). In January 2019, the cash held in
escrow was released to the Ergo operational bank account.
The description of the addendum
to the RCF and the performance guarantee issued to the Municipality is
qualified by reference to the Addendum to the RCF and the Performance Guarantee
filed herewith as Exhibits to this report.
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 2019 and 2018, 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 2019 and 2018 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 status of any kind; we cannot assure holders that
the conclusions reached below would be sustained by a court if challenged by
the Internal Revenue Service.
This
discussion does not address all aspects of U.S. federal income taxation that
may be applicable to holders in light of their particular circumstances and
does not address special classes of U.S. holders subject to special treatment
(such as dealers in securities or currencies, partnerships or other
pass-through entities, banks and other financial institutions, traders in
securities that elect mark-to-market treatment, insurance companies, tax-exempt
organizations (including private foundations), certain expatriates or former
long-term residents of the United States, persons holding ordinary shares or
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 status 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 us if, at the time such dividends are paid, either (i) we are eligible
for benefits under a qualifying income tax treaty with the United States or
(ii) our ordinary shares or 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 is required to file an annual report with the Internal
Revenue Service containing such information as the U.S. Secretary of Treasury
may require.
A
U.S. holder of the ordinary shares or 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 us 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, 2019. However,
under the PFIC rules income and assets are require to be measured and
classified in accordance with U.S. federal income tax principles. Our analysis
is based on our financial statements as prepared in accordance with IFRS, which
may substantially differ from U.S. federal income tax principles. Therefore, no
assurance can be given that we were not a PFIC. Furthermore, the tests for
determining whether we would be a PFIC for any taxable year are applied
annually and it is difficult to make accurate predictions of future income and
assets, which are relevant to this determination. In addition, certain factors
in the PFIC determination, such as reductions in the market value of our
capital stock, are not within our control and can cause us to become a PFIC.
Accordingly, there can be no assurance that we will not become a PFIC.
The rules relating to PFICs are very complex. U.S. holders
are urged to consult their tax advisors regarding the application of the PFIC
rules to their investments in our ordinary shares or 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
DRDGOLD files annual reports on Form 20-F
and reports on Form 6-K with the SEC. You may access this information at the
SEC’s home page (http://www.sec.gov). Copies of the documents referred to
herein may be inspected at DRDGOLD Limited’s offices by contacting DRDGOLD
Limited, P.O. Box 390, Maraisburg, Johannesburg, South Africa 1700. Attn:
Company Secretary. Tel No. +27-11-470-2600.
10I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
In
the normal course of our operations, we are exposed to market risk, including
commodity price, foreign currency, interest and credit risks. Refer to Item 18.
‘‘Financial Statements - Note 27 - Financial instruments’’ of the consolidated
financial statements for a qualitative and quantitative discussion of our
exposure to these market risks.
Our long-term strategy is to remain unhedged and to keep
borrowings to a minimum. During fiscal 2019 we do not hold or issue derivative
financial instruments for speculative purposes, nor did we hedge forward gold
sales.
However, in instances where we need to incur medium-term borrowings
to finance growth projects that introduce some liquidity risk to the Group, we
may mitigate this liquidity risk by entering into an arrangement to provide
price protection against a possible decrease in the Rand gold price while
borrowings are in place. For example in fiscal 2019 we entered into a hedging
instrument in the form of a collar in respect of 50,000 ounces of gold that
expired at the end of May 2019.
Commodity
price risk
The
rand market price of gold has a significant effect on our results of
operations, our ability and the ability of our subsidiaries to pay dividends
and undertake capital expenditures, and the market price of our ordinary shares
or ADSs. Historically, rand gold prices have fluctuated widely and are affected
by numerous industry factors over which we have no control. The aggregate
effect of these factors on the rand gold price is impossible for us to predict.
The rand price of gold may not remain at a level allowing us to economically
exploit our reserves.
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. For example in fiscal
2019 we entered into a hedging instrument in the form of a collar in respect of
50,000 ounces of gold that expired at the end of May 2019.
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
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Set out below is an analysis of our debt as at June 30, 2019.
All of our long-term debt is denominated in South African rand.
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Interest
rate
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Fixed
rate
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17.90%
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Weighted
average interest rate
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17.90%
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R'm
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Repayment
period
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2020
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11.0
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Based on our fiscal year 2019 financial results, a hypothetical
100 basis points (increase)/decrease in interest rate activity would (increase)/decrease
our interest expense by R0.1 million.
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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
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Fees (USD)
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Issuance
of ADSs, including issuances resulting from a distribution of ordinary shares
or rights
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$5.00 (or less) per 100 ADSs (or portion thereof)1
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Cancellation
of ADSs for the purpose of withdrawal, including if the Deposit Agreement
terminates
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$5.00 (or less) per 100 ADSs (or portion thereof)1
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Distribution
of cash dividends or other cash distributions
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2 cents (or less) per ADS (or portion thereof)
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Distribution
of securities distributed to holders of deposited securities which are
distributed by the Depositary to ADS registered holders
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$5.00 (or less) per 100 ADSs (or portion thereof)
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In
addition, ADR holders are responsible for certain fees and expenses incurred
by the Depositary on their behalf including (1) taxes and other
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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.
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[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.
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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, 2019 amounts to approximately $16,237 (June 30, 2018: $5,974, (June 30, 2017:
$44,509). DRDGOLD is also entitled to a 25% share of the dividend fees which
amounts to approximately $nil for the year ended June 30, 2019 (June 30, 2018: $20,195).