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1 DRD BUSINESS Business Review 30 June 2003 Measuring up Over the hedge, into the straight Murray on financial performance, de-hedging CGR & ERPM hardly a crown of thorns Grant Dempsey speaks frankly about Crown Central & ERPM Scorecard more ticks than crosses

2 Highlights Financial highlights % change Gold Attributable production (thousand ounces) Average spot price (US$ per ounce) Average price received (US$ per ounce) Average cash cost (US$ per ounce) Revenue (R million) Operating profit from gold (R million) Profit/(loss) after tax (R million) 371 (511) +173 Basic profit/(loss) per share (cents) 202 (316) +164 Total assets (R million) Proved and probable mineral reserves (million ounces) Net asset value per share (cents) Market price per share (cents) Market price per share (US$) Ordinary shares in issue 30 June Market capitalisation (R billion) Market capitalisation (US$ million) DRD Business Review 30 June

3 Contents 4 First floor At a glance: company profile In recent years, DRD has distinguished itself as a marginal miner, acquiring operations rejected as unprofitable by majors and seeking to turn them to account through emergency room and intensive care unit styles of management. Measuring up: Wellesley-Wood on achievements v objectives in 2003 Has DRD measured up, operationally and financially, to executive management s expectations in the past year? Gold bugs and proud of it: Wellesley-Wood reviews the gold market Unapologetically bullish about gold when it was hardly fashionable to be so, does DRD feel vindicated now? Over the hedge, into the straight: Murray on financial performance, de-hedging It has been a tough year for DRD operationally and financially in deputy CEO Ian Murray s view. But many of the jumps have been taken not least the US$120 million hedge buy-back Shot in the arm: Murray on Project Boost The strengthening of the Rand underscores the need for DRD s Project Boost growth initiative, in the view of deputy CEO Ian Murray A bit of R&R Reserves and resources, that is Staying on the right side of the law: Ncholo on the Minerals Bill, the Charter, the Scorecard and the Money Bill The Mining Charter s Scorecard provides both the way and the imperative. Paseka Ncholo From the field 16 Leaner, meaner: Van der Mescht on turning around the North West Operations To realise this leaner, meaner NWO, a number of interventions have been put in place, including a culture change from that of a large mine to a mature operation in the latter part of the business cycle. Looking East: Wellesley-Wood on growth in Australasia From DRD s expressed interest in growth in Australasia, is it to be inferred there is some disenchantment with the notion of doing new business in South Africa?... more on page 7 V8: Van der Mescht on the flagship, Blyvoor the operation performed relatively well for the Blyvoor expansion project (BEP), whic development programme has made a good looking increasingly encouraging.... mo 2 DRD Business Review 30 June 2003

4 Contents Crown of thorns: Dempsey on Crown Central and ERPM Grant Dempsey speaks frankly about Crown Central and ERPM Health and safety: Engels on the management of health and safety at DRD Scorecard: More ticks than crosses Green machine: Anton Lubbe on environmental management at DRD Executive officer responsible for matters relating to environmental management, Anton Lubbe explains how the turn in DRD s operating and financial performance for the better is adding muscle to company thinking and practice in this area. People power: Engels on human resource development in DRD Making up for lost time in terms of training and development It s a wrap 26 New broom: Wellesley-Wood on corporate governance in DRD DRD chairman and CEO Mark Wellesley-Wood would be flattered to be referred to as a new broom. It is likely he has been called worse in the last couple of years. Left field 27 Keeping it clean: Julie Walker on the DRD corporate governance clean-up Freelance mining writer Julie Walker reflects on the importance of good corporate governance in the South African mining industry. uitzicht the period under review, gaining momentum on h is aimed at extending the life of mine. The turnabout, with future plans for this operation e on page 14 DRD Business Review 30 June

5 First floor At a glance Company profile Durban Roodepoort Deep, Limited (DRD), established in South Africa in 1895, is the country s oldest gold mining company still in existence. It is a public company with primary listings on the Johannesburg and Australian stock exchanges and secondary listings on NASDAQ, the London Stock Exchange and the Paris and Brussels Bourses. Its shares are also traded on the regulated unofficial market of the Frankfurt Stock Exchange and the Berlin OTC Market. Its key assets in South Africa are: the wholly-owned Blyvooruitzicht Mine and North West Operations (comprising Hartebeestfontein and Buffelsfontein mines); 40% of Crown Gold Recoveries (comprising East Rand Proprietary Mines Limited and the Crown dump retreatment operation); and The brownfields Argonaut Project, south of Johannesburg. And in Australasia: the wholly-owned Tolukuma mine in Papua New Guinea; and 19.81% of Fijian operator Emperor Mines Limited. In recent years, DRD has distinguished itself as a marginal miner, acquiring operations rejected as unprofitable by majors and seeking to turn them to account through emergency room and intensive care unit styles of management. Invariably, this has meant throwing out many of the stereotypes in South African deep-level mining and creating new paradigms. The fourthlargest gold producer in South Africa and 12th largest in the world, at year-end DRD employed some people. The company began emerging 18 months ago from a protracted spell of operating and financial embattlement, compounded by a track record of poor corporate governance. In the 2003 financial year, total attributable gold production from its South African and Australasian investments was ounces, generating profit of some R371 million. US$120 million was spent on buying back the company s crippling hedge book and months of exposure to the strengthening US$ spot gold price saw market capitalisation at R3.6 billion (US$464 million) at yearend, notwithstanding an unforeseen strengthening in the South African Rand. On-going work to restore sound corporate governance includes the creation of a board with an acceptable level of independence and the recovery of misappropriated shareholders funds through litigation, both in South Africa and Australia. In recent years, DRD has distinguished itself as a marginal miner, acquiring operations rejected as unprofitable by majors and seeking to turn them to account through emergency room and intensive care unit styles of management. DRD was a forerunner in black economic empowerment (BEE) in the South African mining industry through the sale of 60% of its Crown Gold Recoveries (CGR) operation and a 3% stake of itself to Khumo Bathong Holdings (KBH). In October 2002, in advance of the Mining Charter, which sets BEE targets for the mining sector, DRD strengthened its BEE position through its 40% participation in CGR s acquisition of East Rand Proprietary Mines Limited (ERPM) for R100 million. During the 2003 financial year, buoyed by its improving fortunes, DRD embarked on Project Boost, an ambitious organic- and acquisitionsbased growth plan which has cost reductions and production and reserve increases high on its list of priorities. The company successfully raised US$66 million through an innovative convertible bond issue in November to fund the Project Boost initiative and within weeks had acquired an initial 14% stake in Emperor, owner and operator of the the Vatukoula gold mine in Fiji. It subsequently increased the holding to 19.81%. 4 DRD Business Review 30 June 2003

6 Measuring UP First floor Has DRD measured up, operationally and financially, to executive management s expectations in the past year? A game of two halves is how chairman and CEO Mark Wellesley-Wood characterises the company s financial performance. During the first two quarters of the year, we reaped the benefits of our US$120 million buy-back of our hedge book, he says. Profit for the year was some US$41 million, some 90% of which was earned in the first half of the year. The strengthening South African Rand, Wellesley-Wood concedes, took the cream off the cake in the second half. While the company is now more fairly valued, he says, its position at year-end would have been better had it not been for the currency situation. Financially, the year s highlight has been the reaping of benefits of buying back the company s value-destructive hedge book and restoring margins, Wellesley-Wood says. He is phlegmatic about whether the buy-back would have been as thoroughgoing had the stronger Rand been foreseen. We ve learned from the Rand s volatility, he says, that we need to maintain a flexible view. While we are likely to use hedging from time to time as a specific risk management tool we don t want it as a general revenue protector. Operationally, in the year under review, the objective was to establish and maintain stability of gold production and delivery, Wellesley-Wood says. Our performance has been mixed but the turnaround at our Tolukuma operation in Papua New Guinea must rank as our greatest The PNG mine has weathered four management changes and overcome low morale, Wellesley-Wood says. It is now back on track, producing some ounces and earning US$4.4 million. Also, the reserve position has been brought up to three to four years. Wellesley-Wood rates the launch of Project Boost, the company s drive for lower costs and improved productivity at its existing operations on the one hand and organic growth on the other, as another significant development during the year. Successfully raising US$66 million through a convertible bond issue in November to fund Project Boost, he says, was a coup for DRD. The single biggest contract within Project Boost R100 million for the upgrade of the North West Operations South Plant was recently awarded. The upgrade, on completion in December 2003, will rationalise the number of plants at the North West Operations from three to one while maintaining throughput of both underground ore and surface rock material. Costs are expected to reduce significantly while application of newer carbon in pulp (CIP) technology will improve gold recovery. The plant upgrade is expected to go some of the way towards offsetting what Wellesley- Wood sees as the company s gravest disappointment during the year an inability, at the North West Operations, to achieve any level of productivity success this improvement. year. While DRD is now more fairly But it won t be enough. Their difficulties compounded by the stronger Rand, the North West Operations post year-end became the subject of a review process, required by South African labour law, to stave off possible closure. Management has proposed some radical but not ruthless surgery that includes a 20% reduction in gold output, the mothballing of some infrastructure and a possible reduction of jobs. With these kinds of steps we are confident we can preserve the mine life of 15 years and re-commission certain of our medium grade areas should economic conditions improve, concludes Wellesley-Wood. valued, its position at year-end would have been better had it not been for the currency situation. Mark Wellesley-Wood DRD Business Review 30 June

7 First floor SA monetary policy and other matters South Africa faces a huge credibility problem with overseas investors, says DRD chairman and CEO Mark Wellesley- Wood. A leaked Mining Charter; a poorly conceived Royalty Bill; monetary policy that pursues lower inflation at the cost of job creation and everything else that fosters economic development; a 50% swing on the currency based on economic data specifically, inflation figures that are incorrect have all led to a state of bemusement about South Africa in the international investing community. Defending the indefensible All of this is impossible to defend, Wellesley-Wood says. What is urgently needed is more policy co-ordination between government departments. Inadequate involvement over years by South Africa s Chamber of Mines in issues affecting the mining industry has left the industry marginalised, in his view. We ve allowed ourselves to become the whipping boys in respect of labour relations, taxation and environmental management amongst other issues. The social licence to operate needs to be better understood, Wellesley-Wood says, because this notion of hitting on the mining industry for everything is simply not acceptable. DRD out of frustration and together with junior and black economic empowerment players in the South African mining sector, has been instrumental in creating the South African Mining Development Association (SAMDA), Wellesley-Wood adds. In its short existence, SAMDA has done a good job articulating its members views and representing their interests with other stakeholders. 6 DRD Business Review 30 June 2003 GOLD BUGS AND PROUD OF IT Unapologetically bullish about gold when it was hardly fashionable to be so, does DRD feel vindicated now? It is seldom, when they have taken to conference platforms around the world, that DRD executives have passed up the opportunity to reaffirm the company s abiding faith in gold s inherent value as an investment. While their stance has earned them the adoration of gold bulls in the US, more bearish European commentators have been less complimentary. Now that gold appears to have settled comfortably above a US$330 base a level DRD predicted the metal would achieve 18 months ago in more or less that timeframe does the company feel vindicated? Indeed, says chairman and CEO Mark Wellesley-Wood. We have spoken consistently about the unreliability of paper money and of gold s unique ability to provide a long-term store of value to the international financial system. Since Bretton-Wood, he says, other investment mechanisms have consistently failed to provide security in an uncertain world and investors have turned to gold for comfort. The gold market s performance in the past year or so is exactly in line with what we envisaged. The rise in the spot price has been investment led, with a whole new generational appreciation of gold. The metal continues to regain authenticity with pension funds and the like. Wellesley-Wood, who has supported the views of gold conspiracy theorists in the past, in particular the Gold Anti-Trust Action committee s Bill Murphy, says he cannot help but feel that there continues to be someone or something wanting to control the gold market. But recent developments would seem to indicate that their influence is waning. DRD, Wellesley-Wood says, is on the brink of doing something about e-gold, which he dubs gold for the masses. The attraction of using new technologies to enhance an ancient value system like gold is enormous; there is the potential to broaden the gold market to a whole new range of investors at a very low entry cost. He notes, however, that current South African Reserve Bank policy, which continues to prevent the country s residents from holding physical gold, is an obstacle that must be overcome if they are to benefit fully from gold s mass onslaught. DRD continues to keep its distance from the World Gold Council (WGC), Wellesley- Wood says. The company s beefs with the organisation have been that it hasn t represented value for money. It has had a huge infrastructure, distinguished mainly for gathering unreliable data and a lack of any promotional edge. The WGC has completely ignored the recent growth in investment demand for gold, at its peril, Wellesley-Wood says, and he is not convinced yet that the organisation s recent overhaul is likely to produce positive results. Any further DRD predictions of where gold is headed? The US$400 psychological barrier is well on the way to being breached; after that, US$600.

8 First floor From DRD s expressed interest in growth in Australasia, is it to be inferred there is some disenchantment with the notion of doing new business in South Africa? LOOKING EAST It has taken time to get things right at Tolukuma. We ve had to improve our understanding of geological structures and are confident we now have a multi-million ounce orebody No, says chairman and CEO Mark Wellesley- Wood, and he points to the planned investment of some R235 million in Project Boost ventures intended to extend the economic lives of the company s South African operations. But, he adds, there is no doubt that the cost of doing mining business in South Africa has risen in the wake of new legislation, not least of which is the Mining Charter. More recently, the stronger Rand specifically, its impact on the margins of South African mines has become another factor to consider. It is sensible, when you run a capitalintensive business in a risk-averse investing environment, he says, to diversify. And in mining it is sensible, when you are looking to diversify, to focus on a specific region and on a specific type or types of orebody, not least because of the opportunities provided to exploit synergies. Australasia, and more specifically the socalled Rim of Fire geological region with its epithermal gold deposition, is a sensible growth target for DRD. Epithermal orebodies, Wellesley-Wood says, are typically large and flat, with big reserve positions. They are the nearest you can get to South Africa s Witwatersrand-type reef deposits and our experience of deep-level panel mining in South Africa stands us in good stead as gold mining in the Rim of Fire region goes deeper. Also, he says countries in the Rim of Fire region are typically emerging market economies, unlike Australia. The values per reserve ounce reflect this and we don t have to pay premiums, at a dilution to our shareholders investment. Wellesley-Wood is pleased with the turnaround the company has managed to achieve at its Tolukuma operation in Papua New Guinea and feels it now provides a sound platform for further growth in the Australasian region. It has taken time to get things right at Tolukuma. We ve had to improve our understanding of geological structures and are confident we now have a multi-million ounce orebody. We ve had to redesign our mining layouts, acquire new, mobile mining equipment and train a workforce that is now 50% local. On top of all of this, there have been community and social issues to resolve. During the year, Oxfam lent its support to claims by some community leaders that Tolukuma was polluting local watercourses, with consequent impacts on the health and well being of people living in surrounding villages. While we have engaged with Oxfam on the issues, we are reluctant, as a rule, to align ourselves with politically based nongovernmental organisations. It has proved more beneficial for all concerned to communicate directly with the PNG Government and the communities on the steps we are taking to reduce the volume of solids discharged by the Tolukuma plant and to improve monitoring. Improved communication, Wellesley-Wood says, has led to new levels of interaction between the mine, the government and communities on health, education and crime prevention, as well as on a range of economic matters such as the export of locally produced coffee and vegetables. DRD acquired a 14% stake in Australianbased Emperor Mines in November last year and has subsequently increased this to 19.81%, the maximum permissible in terms of Australian corporations law before a bid to all minorities becomes mandatory. Wellesley- Wood and DRD non-executive director David Baker both have seats on Emperor s board. Already, Emperor s Vatukoula mine in Fiji is benefiting from synergies with Tolukuma on the one hand and DRD s South African operations on the other. Supplies and purchasing, geology, engineering services, refrigeration and training are among the areas being tapped for value-add. DRD has renewed the exploration licence on its Daylesford prospect in Australia s state of Victoria and some A$1 million has been voted for a moderate drilling programme. We ve kissed a few frogs in our search for new acquisitions; our next prince is out there somewhere, says Wellesley-Wood. DRD Business Review 30 June

9 First floor OVER the hedge, into the straight It has been a tough year for DRD operationally and financially in Deputy CEO Ian Murray s view. But many of the jumps have been taken not least the US$120 million hedge buy-back DRD takes on other people s problem mines, Murray says philosophically, and it would be naïve to think they could be turned around quickly and easily. Notwithstanding resolute abandonment of inherited stereotypes that haven t worked and courageous application of lateral thinking from the company s energetic young management, the rapid and unanticipated strengthening of the Rand in the second half of the year was a particularly cruel blow. If we look at the operations one by one, though, we ve had a mixed bag of performances, he says. While Blyvoor has gone from strength to strength, Tolukuma s re-engineering has started to produce acceptable results and Crown s surface operations have been going well, the North West Operations and ERPM have sopped up valuable cash and management time. Murray equates managing DRD s mines with running an ER. These are assets that need managers who can focus on short interval controls. Take your eye off the ball, and you are headed for trouble. Notwithstanding the courageous application of lateral thinking from the company s energetic young management, the rapid and unanticipated strengthening of the Rand in the second half of the year was a particularly cruel blow. When DRD took over management at ERPM mid-year, the first unexpected round of challenges to be met in the wake of strike action by a disaffected contractor-based workforce included rapid recruitment of the mine s own right-sized workforce and restoration of sound labour relations; the second included putting out the fire at the mine s Far East Vertical Shaft, dealing with community fall-out over consequent environmental issues and re-establishing productive working face. At the North West Operations problems could be seen approaching from a bit further off but it took the effects of the stronger Rand in the third quarter for all to see that these were collectively a kilogram a month producer not the kilogram a month producer previously envisaged and that prompt and radical right-sizing surgery was needed. We are often forced to make decisions quickly that others tend to defer as unpalatable on matters such as job reductions for example. But when you are able to offer a simple choice, say, of jobs for 18 months or jobs for five years, unpleasant decisions do become easier to take. 8 DRD Business Review June 2003

10 First floor Management restructuring towards the end of the year is expected to provide greater focus, Murray says. The wholly-owned South African operations have been re-grouped under one management team, the 40%- owned Crown and ERPM operations under another and the Australasian interests and growth-through-acquisitions initiative under a third. Murray was and remains unrepentant about the flack the company took on its decision to buy back its hedge book. We re a niche player, he says. We have a strong reserve and resource position that gives our shareholders share price upside in a strengthening spot gold price scenario but our hedge book detracted from the full value of this. In terms of buying back the hedge book, he says, the company s timing could not have been better; it coincided almost precisely with the marked rally in the spot gold price beyond the US$300 psychological barrier. The US$120 million opportunity cost caused some of our critics to cringe but we saw our market capitalisation increase from US$177 million to US$464 million in a 24- month timeframe. Another smart move during the year, in Murray s view, was the company s decision to raise the capital it needs for its Project Boost growth initiative via a convertible bond issue. Pure debt would not have been an option. Without a strong balance sheet and with banks so notoriously risk-averse, we would have been forced to re-instate our hedge book which we had just diligently eliminated. An equity issue would have meant dilution and our shareholders would have taken a bath as we would have had to issue those shares at a discount to the prevailing share price. The convertible bond issue meant we could raise the required debt without the hedge, with no additional dilution and at a conversion price 20% greater than the prevailing share price. DRD Business Review 30 June

11 First floor The strengthening of the Rand underscores the need for DRD s Project Boost growth initiative, in the view of deputy CEO Ian Murray SHOT in the arm First conceived in the early part of 2002 as the company emerged from protracted survival mode, DRD s Project Boost started growing muscle at a senior management workshop in May of that year, recalls deputy CEO Ian Murray. By August a framework for capital raising had begun to take shape; and by the end of November, thanks to a highly successful convertible bond issue, there was US$66 million in the bank to fund various growth initiatives that had been identified. The contract for the biggest of these a R100 million plant upgrade at the company s North West Operations in South Africa was awarded in June 2003 and the work is scheduled for completion by year-end. When we were at last able to come out of crisis mode and look to the future, we saw there were huge opportunities for organic growth in and around our existing operations and for the 10 DRD Business Review 30 June 2003 first time in a long while we could seriously consider growth through acquisitions, specifically in Australasia, says Murray. Objectives and targets began to emerge. We envisaged a multi-faceted approach lowering unit costs, increasing reserves, decreasing risk and ensuring consistent production going forward. We set ourselves a target of not less than an 18% return on any invested capital and a 10% increase in production over a four-year time frame. While South African production is expected to remain at around ounces a year, the plan is to take annual production from existing and new Australasian operations, predominantly in the Rim of Fire region, to ounces. The strengthening in the Rand in recent months simply underscores the need for Project Boost, Murray adds. We re under greater pressure now to find and produce more, cheaper ounces and while we will have to postpone some of the more marginal components of Project Boost until the Rand gold price improves, the bigger elements such as the North West Operations plant upgrade and the Blyvooruitzicht slimes dam project must proceed. Argonaut, DRD s ambitious deep-level gold mining project immediately south of Johannesburg is on a go-slow for the time being. Existing mineral resource data is being re-evaluated to get a better grasp of the location and volume of contained gold but Murray remains upbeat. We have applied for an exploration licence and with 57% of the mineral rights already in our hands, there is plenty of potential to bring in the balance through partnerships that meet the spirit and intent of the Mining Charter. And Argonaut will not drain the Project Boost coffers. Only R2.5 million of the Project Boost budget is earmarked for this; DRD has said from the outset that a new listing is the likeliest means of funding the 13-year development of this multi-billion Rand project.

12 First floor A BIT OF Growth in shareholder value is DRD deputy CEO Ian Murray s short answer to the question: what drives the company s management of its reserves and resources? We need to optimise our cash flow for shareholders through optimised life of mine plans and adherence to those plans. The targeted return on investment 18%. Growth in reserves and resources, Murray says, is pursued both through acquisition and through exploration. And we re exploring inside and outside of our existing lease areas. The cost of growing resources, either through acquisition or exploration, should not be higher than US$10 per ounce, he says, while the cost of growing reserves, either through acquisition or through conversion from resources, should not be higher than US$50 per ounce. Conversion from reserves to resources depends on modifying factors more specifically, the company s ability, within an acceptable timeframe, to lower costs and thus pay limits. What is deemed to be an acceptable timeframe? This will vary from operation to operation depending on a range of factors, not least their locale and the prevailing conditions economic, legal and environmental, amongst others, says Murray. With 63.8 million ounces of resources and 15.8 million ounces of reserves at year-end, is DRD where it should be? Murray believes so. The company s North West Operations in South Africa have been a concern, as has Tolukuma in Papua New Guinea, but on-going exploration activities at both point to vast improvements. At the North West Operations, attention has been focused on opening up pillars abandoned by the mines previous owners and exploration for reef in areas of heavy faulting white areas, so-called because they are indeed coloured white on existing lease maps to indicate no-go. DRD has within its ranks the necessary geological and other expertise, Murray says, to stage this two-pronged, pillar and white R&R Reserves and resources, that is area assault. Special recce teams have been put together specifically to investigate the abandoned pillars, gain a better understanding of the conditions and assess possibilities for conversion to resources and reserves. Results have been tantalising, with some pillar areas revealing grades of 9 to 10 grams per ton at 1 to 1.5 metre stoping widths. Some R13 million of DRD s Project Boost spending is currently being directed towards three white areas at the North West Operations. DRD Business Review 30 June

13 First floor STAYING ON the right side OF THE LAW DRD non-executive director Dr Paseka Ncholo reflects on recent changes in South African mining legislation and on proposals for more change to come There s an element of single-mindedness or tunnel vision he sees so far in the application of South Africa s Mining Charter intended by Government to address broadly the inequities in the country s mining industry that clearly bothers DRD non-executive director Dr Paseka Ncholo. The Minerals and Petroleum Resources Development Act and specifically the Mining Charter which developed from it was intended by Government as a practical, workable instrument to address a broad range of inequities that grew out of the country s history of racial discrimination, Ncholo points out. But a lot of emphasis has been placed so far on ownership and equity participation by black-owned mining companies in established entities and while this is important of course, it s by no means the whole story, he says. Ncholo s company, Khumo Bathong Holdings, has a 3% stake in DRD and is its 60% joint venture partner in Crown Gold Recoveries. How we operationalise the new legislation is an enormous challenge to all of the players and it s clear that an ad hoc approach will not deliver what is expected; we need to do this in an holistic way. The Mining Charter s Scorecard provides both the The Mining Charter s Scorecard, Ncholo believes, provides both the way and the imperative. It s a carrot-and-stick menu companies can use to prioritise and deliver on a range of requirements besides ownership education and training, community involvement and procurement, for example over five- and 10- year time frames. Having the right kind of black economic empowerment (BEE) partner can be of enormous value to established mining companies in delivery. The right kind of BEE partner? One that will take some responsibility for ensuring that the particular company has the right profile and programmes in place to meet the Paseka Ncholo requirements of the Charter and its Scorecard. Ncholo has no illusions, however, about the scale of the challenges posed by the new legislation. Not surprisingly, he singles out that of financing the changes that have to take place, his view being that in this area, all of the stakeholders, including Government, will have to come to the party with appropriate funding mechanisms. Beneficiation, I believe has an important new role to play here, creating jobs and a valuable revenue stream. Ncholo takes some pride in the fact that his company s relationship with DRD pre-dates the Charter and Scorecard. I would go so far as to say that, in respect of equity way and the imperative. 12 DRD Business Review 30 June 2003

14 First floor companies can use to It s a carrot-and-stick menu prioritise and deliver on a range of requirements besides ownership participation and the funding of this through operational cashflows, the nature of our partnership helped to inform the new legislation, he says. Skills transfer specifically, the pace at which it can realistically be expected to happen has been a rude awakening for both companies, Ncholo reflects. At the time they signed their Crown Gold Recoveries JV, they stated their intention to move management of CGR into black hands but progress, he acknowledges, has been negligible. We ve realised there simply aren t enough qualified black people in this industry and too few coming fast enough through the education system. We need to take a longer term view and plan accordingly; at KBH, for example, we have launched the Lesedi Initiative which is currently funding the studies of 16 historically disadvantaged South Africans in mining and related fields. With the dust settling on the first public airing of the Royalty Bill, what s Ncholo s reading of where things stand currently and of the way forward? He s put out that there wasn t more consultation with all stakeholders beforehand and perplexed by some of the Bill s features, not least the wide divergence in the proposed rates at which royalties would be levelled against producers of various minerals. At first draft I would also have hoped the Bill to have been quite explicit that royalties derived from the mining sector would be ring-fenced ; in effect, used specifically for the development of the sector. Nor do I have any qualms about saying that, in its current form, the Bill sentences BEE players in the industry to absolute bankruptcy. But, on the whole, Ncholo is phlegmatic about how things will progress from here and how they will ultimately be resolved. I think Government has given ample evidence thus far of its willingness to listen to its corporate and other citizens before legislating on mining and other matters; I m confident it will do the same in respect of the Royalty Bill. DRD Business Review 30 June

15 From the field V8: Blyvoor Deon van der Mescht on the flagship, Blyvooruitzicht FY2003 has presented many challenges both internal and external for Blyvoor, DRD s flagship operation located near Carletonville, according to general manager of South African operations, Deon van der Mescht. He adds, the operation performed relatively well for the period under review, gaining momentum on the Blyvoor expansion project (BEP), which is aimed at extending the life of mine. The development programme has made a good turnabout, with future plans for this operation looking increasingly encouraging. 14 DRD Business Review 30 June 2003 The year saw a number of highlights, most notably a good safety trend. To this end, the operation was awarded the Association of West Rand Mines Inter-mine safety award for the fifth consecutive year. Blyvoor s lost time injury frequency rate improved by 13% from the previous financial year, and over the last five years has shown an improvement of 57% with an improvement year on year. Tragically, four Blyvoor employees lost their lives during FY2003. Record production of some 700 kilograms of gold in December 2002, coupled with the successful opening-up programme has meant Blyvoor is in a much stronger position kilograms ( ounces) were produced during FY2003 compared with kilograms ( ounces) for FY2002. The lower gold production achieved was predominantly caused by the downscaling of the low grade Main Reef production unit, rendered unviable by the declining gold price in Rand terms during the year under review. Positively, the high turnover of staff has stabilised, with the last six to seven months of the financial year

16 From the field recording negligible September Qtr movement. There have also December Qtr been some negatives March Qtr during the past year, including the June Qtr strengthening Rand, and the volatility in the exchange rate, which resulted in a number of potential growth areas having to be mothballed as highlighted previously, van der Mescht says. In an effort to manage margins more effectively as a result of the strengthening Rand, cost cutting has been introduced in the form of synergies between Blyvoor and the North West Operations, whereby a number of services have been centralised. As always, productivity the largest component of cost is a major focus area. Says van der Mescht, Ironically, when the exchange rate reached R13 to the US Dollar, the majority of suppliers increased their prices, but with the turnabout and a strengthening Rand, only a few of these suppliers have instituted a price decrease. Congruently, where Blyvoor received around R per kilogram of gold in the September quarter, this figure dropped to around R per R /kg kilogram during the R99 587/kg June quarter, highlighting the R93 734/kg pressure that margins R86 348/kg came under. Hence the introduction of stringent short-term interval controls. Blyvoor s Project Boost initiatives include a R45 million plant upgrade to treat slimes from the No. 4 and 5 slimes dams. According to van der Mescht, timing of this project is crucial in that the waste dump is fast depleting, and subsequently this depletion needs to be supplemented by the slimes treatment. With a life of eight years and planned production of around 84.5 kilograms of gold per month at a cost of R20 per ton, the project is being fast tracked and is scheduled to be commissioned in November Recovery grades are anticipated to average grams per ton. Another Boost project is the 33/35 decline project where development is taking place on the down-dip extension of the Blyvoor lease area into a known payshoot. With a capital cost of R8.7 million, the project will serve as an exploration platform for further depth extension. Van der Mescht explains, while the Blyvoor expansion project was embarked upon to exploit the Blyvoor ore reserve by installing the required infrastructure, thereby giving life to the operation, Project Boost seeks to increase organic growth and gear the operation for that extended life. By opening up every potential block of ground in the Blyvoor lease area, the expansion project will mine and convert the maximum reserves and resources available. At current gold price levels ($350 per ounce) Blyvoor s mine plan will see the operation produce around 660 kilograms of gold per month for a duration of 18 years. To this end, expansion has established a strong base which will allow the operation to manage both the internal and external factors which may impact on such a mature operation. As a result of the lower Rand gold price received, many of the lower grade reserves proved no longer economically viable, and thus a number of jobs have become redundant. To overcome the need to retrench staff, Blyvoor has embarked on a rolling extended leave system until conditions improve and those staff members can be reemployed in other opportunities. As is the case with the North West Operations, Blyvoor subscribes to the principle that anything the mine can manage internally will be done by the company, rather than outsource such activities provided it can be done cost effectively, says van der Mescht. Looking to the year ahead, Blyvoor intends: Improving current safety trends; Instilling a zero fatality mindset; Improving productivity and labour efficiencies; and Remaining a consistent producer and cash generator for the growth potential of the group as a whole. Labour relations at the operation are well managed and all credit to both management and organised labour on their participative style in addressing and resolving issues before they become unmanageable. DRD Business Review 30 June

17 From the field Leaner, meaner Van der Mescht on turning around the North West Operations DRD s North West Operations (NWO), comprising the Buffelsfontein (Buffels) and Hartebeestfontein (Harties) mines near Klerksdorp, have experienced a number of challenges this past year. Says van der Mescht, with difficulties ranging from an increase in seismicity to flooding and fires, we were hard pressed to achieve the targets set for the business unit. Production for the year was kilograms ( ounces) compared to 2002 production of kilograms ( ounces). The high turnover in senior management further impacted on the declining production profile with a subsequent negative impact on the margins, systems and controls. Subsequently, a right-sizing exercise to resource the business unit appropriately became inevitable, he adds. Of significance in the period under review was the strengthening Rand, which had its effects felt across most South African industries, mining not excluded. In an effort to counteract these effects, the NWO have placed particular focus on short-term interval controls, with the ultimate goal of improving face advance, productivity and efficiency targets. On a positive note, NWO achieved an impressive one million fatality-free shifts in February That said, the number of fatalities for FY2003 (12) is unacceptable, and every effort is being made to improve on the operation s safety performance. To realise this leaner, meaner NWO, a number of interventions have been put in place, including a culture change from that of a large mine to a mature operation in the latter part of the business cycle. Specific controls and systems that have proven successful at Blyvoor the company s flagship operation are also being brought to life. According to van der Mescht, the ineffective opening up of certain areas, due mainly to contractors not having delivered against stated targets, has been of particular concern. Hence, infrastructure improvements 16 DRD Business Review 30 June 2003

18 From the field To realise this leaner, meaner NWO, a number of interventions have been put in place, including a culture change from that of a large mine to a mature operation in the latter part of the business cycle. and adequate processes have been put in place to ensure success going forward, including the appointment of a dedicated project manager as well as mine overseers whose sole responsibility will be to open up pillars for mining. Open cast mining during the year under review has been disappointing, and as a result, a decision was taken to mothball these operations and focus attention on the underground mining. Obviously, gold price and exchange rate willing, these opportunities will be revisited if and when appropriate, says van der Mescht. Furthermore, a R100 million plant has been approved. The new South Plant will allow the closure of both the high and low grade gold plants at the old Harties section, and will be able to handle all the tonnage from the NWO at a significantly lower cost of R33 per ton compared to the current cost for the high grade gold plant of R57 per ton. As a result of the strengthening Rand against the US Dollar, DRD was compelled to give notice of its intention to review the closure of the North West Operations on 21 July The 60-day review period (as per the Labour Relations Act), allowed management to consult with organised labour on numerous initiatives to avoid total closure. A crisis committee, represented by all unions, was established to discuss and approve initiatives aimed at reducing costs and increasing productivity. The entire process was facilitated by the CCMA whereas the crisis committee meetings were monitored by independent auditors as well as community leaders. Uneconomical business units were identified and removed from the proposed business plan to ensure that the operations overall cost per kilogram could be reduced to a level which will allow acceptable margins at the current gold price. Various options were considered to optimise production opportunities, acceptable profit margins, as well as the life of mine. This process has allowed a robust plan to be established, with a life of mine of 15 years and sufficient margins to ensure the operations profitability. Notwithstanding the best efforts of all of the interested and affected parties, it must be accepted that an operating and financial turnaround of these proportions must anticipate some shaft closures and job cuts. Safety wise, the picture painted stays the same. Despite an improvement of some 20% in all accident frequency rates, the current safety statistics are still unacceptable. To address this, the business unit has introduced a range of initiatives intended to remedy the current scenario. Foremost of these is a behavioural change campaign aimed at addressing unsafe behaviour with either corrective and / or punitive action as well as rewarding safe acts in an effort to promote safe working practices across the board. Likewise, a drive to highlight the primary agencies responsible for serious accidents is in place and a zero tolerance approach is being adopted in this regard. On the labour front, DRD operates in a niche market, turning to account those mature operations other producers no longer deem economically viable. As such, while every effort is made to offer fair and attractive wages and conditions of service, the group no longer bargains collectively with the Chamber of Mines, but conducts its own negotiations. Looking ahead, the North West Operations intend: Generating realistic and achievable targets that all employees can buy into; Defining responsibility and accountability roles for all supervisors, both in production and support services; Restoring the business unit to its rightful position in the DRD group, where it generates profits to the benefit of all stakeholders. To synergise the Blyvoor and North West Operations, a number of service departments have been centralised, including procurement, stores, trade creditors office, the time office and printing facility. Notably, the centralised stores will translate into a 60% reduction in current inventory levels. In addition, as part of this rationalisation, a number of service department officials now have dual responsibility for both operations, including the surface environmental officer, chief assayer, chief geologist, divisional finance manager and divisional mineral resource manager. DRD Business Review 30 June

19 From the field Says Dempsey, But kudos must be given where kudos is due. ERPM has been and is power to not only survive but deliver on the performance it is capable of. doing everything in its The century-old deep level gold mine located on the Witwatersrand Basin at Boksburg East Rand Proprietary Mines (ERPM) has been managed by Durban Roodepoort Deep (DRD) since it was purchased by Crown Gold Recoveries (CGR), held 60% by Khumo Bathong Holdings (KBH) and 40% by DRD, in November As the driving force behind DRD s empowerment arm KBH CGR treats surface assets, known collectively as Crown Central. For CGR, the year under review was dominated by the purchase of the entity by KBH. Throughout this period, CGR has put in a solid performance, with improvements in gold production, from kilograms ( ounces) during FY2002 to kilograms ( ounces) in FY2003. Working profit after capex rose by 14%, despite an increase in working cost of 16%. Costs were severely influenced by the depreciation of the Rand. Explains Grant Dempsey, divisional director: Crown JV, For ERPM, the period under review can only be described as challenging. Not only was the mine s ownership and management team changed in October 2002, but the operation experienced labour unrest in the form of the Cosatu strike in October 2002 and an underground fire which continued for over a month in February Despite total production losses of around 130 kilograms (4 180 ounces) of gold and a total cost to the company of R15 million (US$1.83 million) after the fire, a return to steady state production was achieved ahead of schedule in June With a purchase price tag of R100 million, ERPM was anticipated to provide a particularly cheap source of new gold for DRD, with costs of $12 per reserve ounce and 18 DRD Business Review 30 June 2003 CGR and E $3 per resource ounce. And admittedly, there have been many challenges in achieving, let alone maintaining, these. As one of the oldest operating mines in South Africa (production started in 1891), it is also one of the deepest at some metres below surface. Currently the only mine pumping the West Wits Basin, ERPM is burdened with high pumping costs a direct result of pumping old, defunct mines. Combine that with the high maintenance costs associated with old shaft infrastructure and economically challenging times on a global scale and it isn t surprising ERPM has been struggling over the last decade to survive (the company was liquidated by the previous owners in 1999). Says Dempsey, But kudos must be given where kudos is due. ERPM has been and is doing everything in its power to not only survive but deliver on the performance it is capable of. With its actively involved empowerment partner KBH CGR saw the potential that ERPM had to offer, namely: A substantial ore reserve; Plenty of gold in situ; The fact that DRD s Argonaut reserve is only accessible from ERPM; and The opportunity to purchase contiguous ground on ERPM s western perimeter which represents further sound reserves. Much of this potential is already being realised. The company has made major inroads with regard to cost control and productivity improvements, adds Dempsey. Where previous productivity statistics revealed an average of around 10 tons per total employee costed (tec), current levels are in the region of 18 tons per tec. These improvements are largely the result of the right sizing process earlier in 2003, which saw a 38% reduction in the labour force. Understandably, infrastructure upgrades further contributed to the improvements aimed at sustaining production at ERPM. In an effort to meet scorecard criteria, ERPM is actively seeking to employ previously disadvantaged members of society; currently the mine employs two women with blasting certificates and a full programme intended to develop historically disadvantaged South Africans (HDSAs) within various disciplines including geology, engineering, and communication and environment, is currently being developed. Of utmost importance are the surface TEC ERPM Tons/TEC Jul 02 Aug 02 Sep 02 Oct 02 Nov 02 Dec 02 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Under DRD management Strike Fire

20 From the field RPM hardly a crown of thorns Grant Dempsey speaks frankly about Crown Central and ERPM synergies which exist between CGR and ERPM. The Cason Dump is a case in point. Bringing its reprocessing expertise to the table, and the sharing of management functions, CGR can assist ERPM in turning the Cason Dump to account. On the topic of management, a new team has been specifically chosen to turn the ERPM operation around, with the back-up and support of an experienced group of mentors at DRD. Going forward, the primary focus will be on maintaining production such that sustainable profits become a reality. But the management team realises that to do this it will need a focused, integrated and motivated workforce, and surrounding communities that want to work with rather than against the mine. CGR working profit graph (R000) CGR profit after capex graph (R000) CGR gold production (FY2002/FY2003) Jul 02 Aug 02 Sep 02 Oct 02 Nov 02 Dec 02 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 0 FY2002 FY FY2002 FY2003 FY2002 FY2003 DRD Business Review 30 June

21 From the field He Overall, the safety trend for the group during FY2003 improved consistently. Key to this was the introduction of the internationally recognised NOSA safety system at the South African operations and a move toward an integrated group health, safety and environmental system where all parties are accountable, comments Johann Engels, group human resources manager. He goes on to add, On the safety front, focus has been shifted to primary care, as a direct result of the correlation between dressing station cases and the subsequent increase in serious accidents. An increase in the frequency, albeit not the magnitude, of seismic events has also translated into a heightened sense of working more safely. Much emphasis has been placed on the necessity to eradicate a sense of complacency or willingness to work in substandard conditions. On the whole, all DRD operations showed an improvement in safety with Blyvoor winning the Association of West Rand Mines Inter-Mine Safety Shield for the fifth year in succession and North West Operations achieving one million fatality-free shifts in February ERPM encountered a number of challenges, most notably an underground fire in February Ultimately, the plan is to realise a situation where there are zero Safety statistics Overall, the safety trend for the group during FY2003 improved consistently TEC Jul 02 Aug 02 Sep 02 Oct 02 Nov 02 Dec 02 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 No of fatal accidents FIFR RIFR LTIFR 20 DRD Business Review 30 June 2003

22 From the field lth and fatalities at any of DRD s operations. Regrettably, 18 employees lost their lives at DRD operations during FY2003. Also, the issuing of four Section 54s and 170 Section 55s by the Department of Minerals and Energy (DME) whereby a temporary work stoppage is ordered, proved that the systems in place were not adequate. The Chief Inspector of Mines, Ms May Hermanus, visited the North West Operations during the period under review, issued a warning and requested that certain measures be put in place to rectify an increase in serious accidents at DRD s North West Operations. To this end, a tripartite agreement has been effected by the DME, DRD and labour to not only rectify the situation, but improve on it. A group-wide audit scheduled for completion by end July 2003 is being conducted to assess risks and propose a uniform guideline for the management of safety going forward. Primary causes of serious accidents for the period under review were falls of ground (FOG) and tramming and shaft accidents. With reference to occupational health, which is monitored both internally and externally, DRD is currently in the process of outsourcing much of its health care. At Blyvoor, all health care is contracted out to AngloGold Health Services (AHS), which RIFR Jul 02 Aug 02 Sep 02 Oct 02 Nov 02 Dec 02 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 RIFR Ontario bench mark safety Johann Engels on the management of health and safety at DRD affords employees a wide range of services at an affordable cost to both the company and its staff. Services offered include a comprehensive health care system including an AIDS wellness programme as well as 24 hour emergency services. It is envisaged that this system will be replicated at the North West Operations. With costs of around R16 per capita, investigations are under way to put away R10 of this cost in an exclusive DRD Fund, to cover the cost of antiretroviral treatment (ART) in the future. ERPM s health care is outsourced to Afrox Health Care Services, while Tolukuma makes use of inhouse health care facilities. According to Engels, The AHS AIDS programme offers an all encompassing lifestyle programme, focused on prevention, peer education, counsellor training and a wellness programme for those infected with, or affected by, HIV. Much of this work is done in collaboration with the local council and communities. While the jury is still out as to whether the South African Government is going to supply ART, DRD believes this would be fruitful, and a solution which does not impact on the bottom line too negatively. In the event that an employee becomes too ill to work, the employee is repatriated to his/her hometown and DRD will undertake to offer employment to a relative of the employee. Should the employee come from a rural village, The Employment Bureau of Africa (TEBA) is contacted to assist with this repatriation, with DRD covering the cost of this exercise. In addition, the employee receives medical cover for a full year after returning home. In the event that an employee is unable to walk, the company will endeavour, under the auspices of TEBA, to convert the home to facilitate wheelchair access. To ensure efficient management of health and safety at DRD, a comprehensive health and safety policy has been adopted and endorsed by all operations in collaboration with labour. Furthermore, all fatal accidents are reviewed at corporate level to ascertain the cause and propose suitable remedial action across all business units. Weekly and monthly formal meetings are held to constantly assess and re-assess whether the systems in place are adequate and working, and the incentive bonus scheme is likely to be linked to safety performance, Engels concludes. DRD Business Review 30 June

23 From the field Scorecard As the dust begins to settle on the latest brace of changes to South African mining law, DRD chairman and CEO Mark Wellesley-Wood derives some satisfaction from the fact that the company is making good progress towards meeting the requirements of the empowerment charter During the past year, after a devastating leak of its draft contents caused a major crisis of confidence amongst investors internationally and consequent havoc with South African mining stocks, the Broad-based Socioeconomic Empowerment Charter for the South African mining industry was finalised. Intended to provide clarity on demands the Minerals and Petroleum Resources Development Bill makes of the mining industry, the Charter itself has been extrapolated to a scorecard, the purpose of which is to assist mining companies with prioritising requirements and reporting to regulators and others on progress. DRD, through its membership of the South African Mining Development Association (SAMDA), was party to the extensive lobbying process precipitated by the leaked draft and as a result has been able to accept the final version of the Charter with a greater degree of equanimity. Indeed, in completing the scorecard for the year under review, the company is able to More ticks than crosses report compliance with much of the Charter s requirements. Most significantly, DRD through its relationship with Khumo Bathong Holdings has already achieved the Charter s 10-year target of 26% empowerment in respect of ownership, reflects DRD chairman and CEO Mark Wellesley-Wood. And on the human resource development front, functional literacy and numeracy are available through adult basic education and training programmes to employees at all operations with the exception of ERPM, where an audit is currently underway to determine needs. In terms of other training and development, we ve begun an ambitious, multi-faceted programme, unprecedented in DRD s recent history. Career paths have been identified and mentors appointed for historically disadvantaged employees, and skills development plans submitted by all operations. Employment equity plans have also been submitted by all operations and while the company does not yet have a plan in place to achieve the Charter s stipulated 40% participation of historically disadvantaged South Africans in management within five years, current succession planning takes cognisance of the target and each department has been charged with identifying candidates for fast-tracking. The target of 10% participation by women in mining was a major focus of the 2003 wage negotiations and a recruitment strategy is in place. In terms of the Charter s requirements on mine community development, progress includes making mine-owned land available for low-cost housing developments, the donation of two mine-owned hospitals to the Department of Health and various community-level training initiatives. We re also addressing the Charter s requirements on housing and living conditions through a programme to convert unused hostel accommodation to family units. Rural development to date, Wellesley- Wood concedes, has not been a significant focus. On the Charter s procurement requirements, DRD s procurement department has begun the process of determining current levels of procurement from companies owned and operated by historically disadvantaged South Africans. This has involved initiating an audit of the company s current vendor list of companies to determine which meet its black economic empowerment (BEE) criteria, and to date, 83 of the 398 responding companies qualify. We re also updating our computer systems to provide the value of business done with BEE companies. Considerable mentoring to prospective BEE suppliers is being provided, both by internal and external financial experts, to ensure compliance with DRD s tendering requirements since we continue to award contracts strictly on the basis of commercial viability. As a 10% part-owner of Rand Refinery, Wellesley-Wood believes DRD to be significantly in compliance with the Charter s requirements in respect of beneficiation. Nevertheless, there are some additional initiatives in the pipeline to do more on this front, he says. 22 DRD Business Review 30 June 2003

24 From the field GREEN MACHINE Executive officer responsible for matters relating to environmental management Anton Lubbe explains how the turn in DRD s operating and financial performance for the better is adding muscle to company thinking and practice in this area. There s no disputing the extreme challenges posed to DRD as a marginal miner in developing countries like South Africa and Papua New Guinea by the growing lobby internationally for mining that is more environmentally responsible lobbies that have resulted in changed and changing, increasingly tougher legislated environments. We ve never argued against the logic for environmentally responsible mining, says Lubbe. The big challenge for us was how we could afford to apply it across a suite of operations others had given up on as unprofitable and stay in business. When the company has said that its most responsible course of action is to stay in business, this has sometimes been misinterpreted as an excuse to serve only the demands of shareholders and do as little as possible in respect of anything else. The fact is, responsible environmental management costs, and if a company can t stay in business generating revenues, employing people, paying taxes, and prefunding rehabilitation, as well as creating value for shareholders it can hardly be said to be responsible, in our view, says Lubbe. The company has been guided thus far by two principles: staying the right side of the law and application of the BATNEEC approach. It has been made aware sometimes painfully that these are not always perceived to be enough by some observers. Lubbe believes DRD s latest thinking and practice on environmental matters fuelled, he freely admits, by its improved operating and financial profile over the last couple of years reflects a solid shift from doing simply what is necessary to doing what is desirable. Our point of departure is integration of environmental management into strategic and business planning; moving beyond compliance to adoption of best practice, having taken cognisance of global trends. Consultation required by law is broadening, increasingly, into participative decision-making with regulators, communities and other interested and affected parties. With this, there s a quid pro quo in the form of joint responsibility and accountability, says Lubbe. The ball is back in the company s court, however, when it comes to education, training and creating awareness of environmental and related issues, both amongst employees and in the broader community. Effective environmental management at operational level goes beyond giving action to the spirit and intent of environmental management programmes approved by the relevant authorities, he says. Risk identification and amelioration, regular auditing to assess compliance with and effectiveness of policies and practices, prudent management of renewable and nonrenewable resources are all critical considerations. Inevitably, debate around most matters related to effective environmental management specifically the thorny issue of rehabilitation returns to the cost, Lubbe insists. Responsibility here, he holds, begins with informed anticipation of what rehabilitation costs are likely to be and with making adequate provision for meeting them. At DRD, a board of trustees, reporting to the board of directors, manages environmental trust funds for each of the company s operations. With a total liability estimated at $17.9 million and some $12.1 million already vested within the various funds, DRD is amongst the best positioned in the South African mining industry to fund its rehabilitation obligations, says Lubbe. DRD Business Review 30 June

25 From the field People POWER Making up for lost time in terms of training and development DRD has been making up for lost time on the training and development front during the past year, according to group human resources manager Johann Engels. A persistently low gold price meant the whole of the gold mining sector to a lesser or greater extent put the brakes on people development and now that things are starting to look up again, we have all had to scramble to find the skills and experience we need to fuel growth. DRD, focused on resolving other severe operating and financial problems of its own, has had to come from behind to catch up. A primary response has been the launch of an R18.4 million training and development programme to help meet the human resource requirements of its South African operations, all of which are at various stages in implementing growth initiatives. Until last year, little more than basic refresher training required by law was being done. Since then, there have been several developments. 24 DRD Business Review 30 June 2003 We have re-invested the company s 2002 skills levy refund from government R3.4 million in training and development and established partnerships with training institutions in the communities in which we operate. While the company s own training centre at its North West Operations is in the progress of acquiring Mine Qualifications Authority (MQA) accreditation, links have been forged with the already-accredited Klerksdorp Technical College. Some 960 DRD employees are currently enrolled for Adult Basic Education and Training, Levels 1 to 4. At its various operations, the company has hosted metallurgical, engineering and mining students from the Wits, Peninsula and Free State Technikons for their 6 12 month compulsory practical training. And in partnership with the National Union of Mineworkers, it has offered relevant vacation work to students whose studies at various universities and technikons are being sponsored by the union. Multi-skilling of semi-skilled employees is an important thrust, says Engels. Employees in the semi-skilled Group 4 job categories can choose skills from among rock drilling, miner s assistants, winch drivers, loco drivers and single drum winch drivers. As part of its community development initiatives, DRD targeted unemployed people from the communities in which it operates for training in the multi-task job categories. Onsetter, winding engine driver and learner miner training is also available to community members at an economic cost. At the end of their training they may be offered jobs at one of the company s operations; otherwise, they are free to seek work in the open market. Since September 2002, 111 employees have undergone or are still undergoing learner miner training; 13 learners are serving the initial 48-week stage apprenticeship in various trades; and 18 employees will begin learner official training in either the mining or mineral resources fields.

26 From the field At the start of the 2003 academic year five students were offered company bursaries to continue their studies at various South African institutions all in engineering. Three senior line managers are now halfway through a one-year management development programme at the Graduate Institute of Business Studies. Three young high-fliers are being sponsored to study for their mine manager s tickets and another six for their mine overseer s tickets. The passage of the Mining Charter and its accompanying Scorecard into the statute books will give increased impetus to DRD efforts in respect of employment equity, Engels says. Currently the company has four women in training as winding engine drivers; two have already qualified and been placed as drivers. Another 14 are in training as onsetters and 12 have been placed as onsetters. On the mining side, the company has one woman learner miner, while at East Rand Proprietary Mine at Boksburg, an entire underground production crew is female. From the 111 learner miners currently in training 75% are from local communities and the rest are employees identified with potential and included in the succession plan of the operations. All of the operations have commenced with an accelerated programme of recruiting females for underground work according to a specific action plan and monitored by selected female mentors. Each of our operations is required to submit skills development and employment equity plans at the start of each training cycle and are overseen by steering committee representatives of management There will always be a situation arising from time to time where operations need to be rightsized in terms of human and other resources, says Engels. and unions. If we don t reach targets, we don t get the skills levy refund we would want; that is an important incentive. In terms of progress, we re meeting targets at the lower levels but much more work is needed the higher up the echelons we go. How does the company resolve a seeming contradiction between training and developing employees on the one hand, and retrenching them on the other? There will always be a situation arising from time to time where operations need to be right-sized in terms of human and other resources, says Engels. It is very difficult to relocate workers with limited skills elsewhere in the organisation or to put them out to the open job market with real prospects of re-employment. The scenario for the company and the individuals affected by right-sizing is a whole lot better, the better skilled they are. That s justification enough for on-going training and development. ABET is also a major concern for us and we have a major drive to ensure that our workforce gets literate. Vocational training is also of utmost importance in order to ensure a sustainable community after further downsizing or eventual closure. Vocational training for disabled employees will ensure continued income once employment has been terminated. In the new financial year we have also budgeted for the training of 40 engineering servicemen which will be made up of 25 employees as well as 15 females from local communities to be trained as artisans, says Engels. DRD Business Review 30 June

27 It s a wrap New broom DRD chairman and CEO Mark Wellesley-Wood would be flattered to be referred to as a new broom. It is likely he has been called worse in the last couple of years It has got to the stage lately where market observers and media commentators alike wince when they hear from one quarter or another something related to DRD s ongoing corporate governance clean-up. Chairman and CEO Mark Wellesley-Wood while sympathetic is unapologetic. I can understand people s weariness with the public relations polemic; even I m tired of that, he says. But that isn t to say I do not believe the company has a responsibility to keep its stakeholders informed of developments; indeed, that is part of good corporate governance. It is how communication is done that matters, Wellesley-Wood believes, and the company from its side, decided towards year-end on a new tack. Straight batting Wellesley-Wood calls it. We are simply not going to get drawn into any more public slanging matches, through the media for example, on the whole issue, he says, nor are we going to rise to more sophisticated public relations ploys that seek to deflect attention from those who, ultimately, will be answerable in courts of law for their actions. Rather, the company has embarked upon a process of keeping stakeholders informed of developments through periodic publication of updates on its website. The first such communication was published in April to coincide with the release of DRD s thirdquarter results. I would be the first to admit it is far from a sexy read, Wellesley-Wood says. But it sketches in simple, un-emotive terms easy for those who are genuinely interested to assimilate the entire background to the corporate governance clean-up; the rationale for and current status of litigation; and the company s perspective of related events such as the resignation of various of its officers. And it is in this vein, he says, that the company intends to continue to report to its stakeholders on developments. Whenever there is something substantive to tell people, we will do so in straightforward Wellesley-Wood, backed by his board, is terms. adamant he will see through the corporate It was in May 2000, shortly after his governance clean-up process. Some of the appointment as DRD s non-executive misappropriated funds have been recovered chairman, that Wellesley-Wood was obliged without recourse to the courts but he is under to assume with some vigour an additional no illusion that litigation under way in two role as new broom. jurisdictions South Africa and Australia He was given information about various will be short and sweet. irregularities, largely relating to recent Is it all worth it? That is a question put to investments DRD s executives had made in him frequently. the Rawas mine in Indonesia and an Yes, on two counts one material and Australian company, Continental Goldfields. the other ethical, he says. I m confident Investigators and forensic auditors were we will recover more for our shareholders brought in and by the end of the 2000 than we are being forced to lay out on legal financial year, significant losses to the and other costs but more importantly, at company had been identified. the end of the day, we will have sent a clear The DRD board appointed a special signal to all concerned that we stand for committee, headed by Wellesley-Wood, to clean business. oversee further investigations and conduct ensuing recovery processes. Following discussion with its auditors, DRD was obliged I can understand people s to write off R590 million in its audited annual weariness with the public financial statements for 2000 as a provision for the impairment of its assets. A significant relations polemic; even I m part of the write-off was attributable to the tired of that. identified irregularities. It also came to light that the company had incurred additional Wellesley-Wood on the ongoing corporate governance losses relating to a series of irregular payments to officers of the company and others. clean-up at DRD. 26 DRD Business Review 30 June 2003

28 Left field Keeping it CLEAN Freelance mining writer Julie Walker reflects on the importance of good corporate governance in the South African mining industry During Johannesburg s mini gold-boom in the 1980s it was strongly rumoured that the only person to have keys to the gold-safe at a certain mine was the entrepreneurial owneroperator. While the family was by far the largest shareholder in the publicly quoted company, minorities did exist and had furnished capital. No doubt the family believed that no one else was to be trusted with the gold itself. The point is, could outside shareholders trust the family members to account for all the gold? When reporting results, how easy could it be for them to observe "a sudden drop in grade", or "an unexpected increase in operating costs", or "problems with recovery in the plant"? There cannot be a mining company in history that has not experienced these or similar problems that genuinely contributed to lower profitability. It takes a brave shareholder to stand up at the annual general meeting and accuse the management of theft when it has laid out its excuses for all to scrutinise. When a high-street bank-teller is caught with his fingers in the till, the public does not automatically label the entire bank crooked. How could management reasonably preempt every last vestige of dishonesty in its thousands of employees? What the public expects is for management to make good any loss or damage, and to fire and prosecute the recalcitrant. What about investors in gold companies? Every mine complains about gold theft some say the amount stolen is perhaps 10% of the amount produced. Employees usually get the blame, not management or the board. It could be asked just how this much gold could disappear as though under a magic cloak of protection. Investors expect management to do something about it, management brings in private investigators, sometimes there is a "find" and gold comes back. It is a wrong righted. Corporate governance cannot legislate morality. Crooks will be crooks. King II aspires to contain the potential for damage by calling for adherence to a sensible set of parameters. Companies that merely pay lip-service to the objectives will sooner or later find themselves without investors. More than 200 small companies have elected to delist from the JSE in the past three years, usually being bought back by the former principals, because adhering to the rules is too much bother. Of necessity, they have to source capital elsewhere. It is incumbent upon the management of publicly quoted goldmining companies to bring to book those who would by-pass safety regulations or discriminatory practices. So why should dishonest white-collar workers get off with a warning? It is regrettable that white-collar crime is taken far less seriously in South Africa than it is in many other countries. That SA is lenient is doubtless historical: white management counted for more than did black labour. Improved corporate governance recommendations are going some of the way towards redressing the imbalance by making those responsible really accountable. South African companies will fall short in the global market if they cannot be seen to be playing by the rules. DRD Business Review 30 June

29 Contacts and administration Contact details Directors Mark Wellesley-Wood (chairman and chief executive officer) Ian Murray (deputy chief executive officer and chief financial officer) David Baker (non-executive) Geoff Campbell (non-executive) Rob Hume (non-executive) Paseka Ncholo (non-executive) Deon van der Mescht (alternate) Anton Lubbe (alternate) Audit committee Rob Hume (chairman) Geoff Campbell David Baker Remuneration committee Geoff Campbell (chairman) David Baker Company secretary (acting) Kobus Dissel London committee P Dexter A F Smith Auditors KPMG Attorneys Bowman Gilfillan Inc Bankers Standard Bank of South Africa Limited ABSA Bank Limited Registered office and secretary s business address 45 Empire Road Parktown Johannesburg 2193 P O Box 390 Maraisburg 1700 Republic of South Africa Tel ( ) Fax ( ) Listing information DRD ordinary shares are currently listed on the Johannesburg Securities Exchange, the London Stock Exchange, Brussels Stock Exchange, Paris Bourse, Australian Stock Exchange, NASDAQ in the form of ADR s on the OTC market, on the Berlin and Stuttgart Stock Exchanges and the Regulated Unofficial Market on the Frankfurt Stock Exchange. Investor relations Ilja Graulich graulich@drd.co.za Website Share transfer secretaries Ultra Registrars (Pty) Limited 11 Diagonal Street Johannesburg 2001 Republic of South Africa Tel ( ) Fax ( ) United Kingdom registrars and bearer office CAPITA IRG Pic Balfour House, 390/398 High Road IIford Essex 1G1 1NQ United Kingdom Tel ( ) Fax ( ) United Kingdom secretaries St James s Corporate Services Limited St James s Place London SW 1A 1NP United Kingdom Tel ( ) Fax ( ) French agents Euro Emetteurs Finance 48 Boulevard des Betignolles Paris Cedex 17 France Tel (+331) Fax (+331) Australian corporate registry Computershare Registry Services (Pty) Limited Level 2 45 St. George s Terrace GPO Box 182 Perth Western Australia 6840 Tel (+61 8) Fax (+61 8) Australian agent Sygnum Financial Services 62 Colin Street West Perth Western Australia 6005 Tel (+61 8) Fax (+ 61 8) Depository bank American Depositary Receipts The Bank of New York 101 Barclay Street New York NY Tel (212) Fax (212) Operations Blyvooruitzicht Gold Mining Company Limited P O Box 7001 Blyvooruitsig 2504 Tel ( ) Fax ( ) Crown Gold Recoveries Limited Private Bag X9 Crown Mines 2025 Tel ( ) Fax ( ) North West Operations (Including Buffelsfontein Gold Mines Limited and Hartebeestfontein Gold Mining Company Limited) Private Bag X800 Stilfontein 2550 Tel (+27 18) Fax (+27 18) East Rand Proprietary Mines Limited P O Box 2227 Boksburg 1460 Tel (+27 11) Fax (+27 11) Tolukuma Gold Mines Limited P O Box 5043 Baroko Papua New Guinea Tel (+ 675) Fax (+ 675) DRD Business Review 30 June 2003

30 Some of the information in this business review may contain projections or other forward looking statements regarding future events or other future financial performance. We wish to caution you that these statements are only projections and those actual events or results may differ materially. In reviewing, please refer to the documents that we file from time to time with the SEC, specifically to our annual report on Form 20-F. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements, including such risks as difficulties in being a marginal producer of gold, changes and reliability of ore reserve estimates, gold price volatility, currency fluctuations, problems in the integration of operations, exploration and mining risks and a variety of risks described in our annual report on Form 20-F. We undertake no obligation to publicly release results of any of these forward looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected results. Cautionary note to U.S. investors: the United States Securities and Exchange Commission permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We use the term resources (which includes measured, indicated, and inferred ) in our business review, which the SEC guidelines strictly prohibit us from including in our filing with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File No , available from us at 45 Empire Road, Parktown, Johannesburg, 2193, South Africa. You can also obtain this form from the SEC website at

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