Chairman's statement

To my fellow shareholders, Last year we set ourselves the target of becoming the gold investment of choice. Due to the actions that your Board embarked upon, together with the improvement in the gold price, DRD’s share price rose by 365% over the year. This was one of the largest increases in the sector and represented an out performance of the JSE Gold index of 94%. In May, the shares were included in the All Share Index in South Africa and at the year-end the business was valued at R7.6 billion.

Mark Wellesley-Wood

Attracted by this performance we welcomed many new shareholders during the year and our liquidity also rose dramatically. Some 30 000 US investors now hold some 75% of our shares and over 85% of the turnover in our shares is conducted on NASDAQ. During the year, 606 million shares were traded on all our exchanges representing 3.4 times our issued capital.

The most important change to the business was the elimination of our revenue hedge book. We bought back, or delivered in to positions, totaling approximately 920 000 ounces during the year at a cost of just under R1.0 billion. In April, we issued 10 million shares at R41.21 to North American institutions, the proceeds of which went into the buyback programme.

These hedge positions had meant that we had been selling gold at a discount averaging around $50/oz and this was seriously impeding our ability to grow and restraining the upside to shareholders from a rising gold price. I am pleased to report that we are receiving the full market price for our gold sales in the coming year. The only remaining price protection we have is with our electricity supplier, Eskom on a “gold for Gigawatts” swap.

Our operating profit from gold mining increased from R117 million to R289 million, however, this translated into a larger bottom line loss due to the realised losses on the hedge book close out. Our average cash cost of production for the year was $212 on our production of just over 1.0 million ounces.

Now that we are unhedged, we can look forward to a healthy profit margin and participate fully in any future rise in the gold price.

We engaged the new South Africa with an innovative Black Empowerment transaction with Khumo Bathong and welcomed Dr Paseka Ncholo to our Board. Khumo Bathong acquired 4.8 million shares in DRD and a 60% share in Crown Gold Recoveries, our slimes dump retreatment business on 1 July 2002, just after the closing of our financial year-end. The transactions were based on fair value and raised R173.5 million for DRD. The Industrial Development Corporation of South Africa provided financing for Khumo Bathong.

We also took positive steps to start growing our asset base and making our production profile more sustainable. We accelerated our exploration programmes at Tolukuma and at our Harties lease area. We recommissioned 6# at Harties and, through a new decline (cost R23 million) accessed additional reserves. Meanwhile, our Blyvoor Expansion Programme continues to go from strength to strength. Access has been re-established to the Main Reef in the former Doornfontein mine area and we have commenced mining there. We invested capital of R83 million during the year on these projects and plan to increase our capital programmes to R156 million this year. All these investments are intended to open up old areas for mining and increase our ore reserves.

As at 30 June, our ore reserves (adjusted for the sale of 60% of Crown Gold Recoveries (Pty) Ltd on 1 July 2002) had increased by 13% to 16.3 million ounces. The increase being due to a lowering of pay limits and the re-opening programmes we have been Implementing.

The result of these changes to our mine lives has been dramatic, and in line with our strategy of extending asset lives from old mines. These have been as follows: for Blyvoor, from 14 to 26 years; for Buffelsfontein, from 4 to 8 years, and for Harties, from 4 to 10 years. All these mines now have cost of production below $230/oz and we see great potential for converting more resources into reserves and lowering costs even further.

This has also been good news for our employees as our total workforce increased by 2 000 to 21 000. We have also been able to catch up with industry pay scales and comply with the newly increased minimum wage. Sadly, it had been the case that, as a marginal gold producer, DRD had in the past largely ignored the training and development of its people. We have now put in place a new Human Resources Department and have improved our training and skills development programmes.

Our investigations into irregular transactions, which were identified as not being to the benefit of DRD shareholders, have been completed and litigation against the relevant parties have commenced. Both the High Court in South Africa and shareholders have ratified the invalid issue of shares for Rawas. Your Board will endeavour to recover whatever value it can for shareholders on a cost effective basis.

South Africa will soon have a new Minerals Bill. The impact of this legislation on your company is expected to be minimal and, in as far as certain aspects are considered, will be advantageous. As a smaller operator, DRD, could benefit from the “use or lose it” rules as this frees up rights in which we could have an interest. The Government has assured companies and investors that the Empowerment aspects of the legislation, which still have to be worked out, will be implemented on a market related basis. Shareholders should also note that our company has already made significant steps to comply with Black Economic Empowerment policy with its relationship with Khumo Bathong and Dr Paseka Ncholo.

It has been a difficult year for me personally, as I was at one time banned from South Africa due to alleged Work Permit irregularities. I am pleased to say that the authorities rectified these speedily, although the circumstances surrounding this affair are still the subject of an internal enquiry.

Roger Kebble retired this year. He has had a long and somewhat controversial relationship conflict, between his ”passion” for DRD, which he always saw as his “baby” and his other commercial interests. Well, the baby has grown up now and can stand on its own two feet, but we must thank Roger for playing the role of midwife.

Looking forward, we foresee both opportunities and challenges. We are going to be focusing on extracting more gold from our resource base. As we substitute more underground feed in to our mills, we can see a rising gold profile. Our mine lives are being extended as we continue to invest and, while our cash flow looks healthy, we will still remain vigilant on costs. These positive trends will enable us to, in the near future, reward both shareholders with a dividend and employees with better incentives and conditions.

Above all we have, I believe developed an excellent management team. DRD runs tough mines – many of which the other mining groups had “given up” on. This requires tough dedicated people. I am confident that our team can go on to achieve even greater things in the future.

In my opinion DRD is now poised to grow from a stable platform.

MARK WELLESLEY-WOOD
12 September 2002