REVIEW OF OPERATIONS

In FY08, DRDGOLD’s gold production decreased by 33% to 321 432 ounces from 477 157 ounces in FY07. The main reasons for this were the disposal of the group’s interests in Australasia and the focus on stabilising the South African operations. Other factors affecting production were a decline in yield at all three operations; shifts lost through Eskom’s power cuts in the third quarter and through a stoppage imposed by the Department of Minerals and Energy (DME) following two fatalities at Blyvoor in the second quarter; and a four-day disruption to operations at ERPM related to xenophobic violence in the fourth quarter.

Although cash operating costs from continuing operations rose by 22% to $657/oz (FY07:$540/oz), the group recorded a cash operating profit of R364.3 million, an increase of 57% compared with the R232.1 million achieved in FY07. This improvement was largely because of the 27% rise in the average gold price received – $817/oz compared with $643/oz in FY07.

BLYVOOR

Description: Blyvoor, which incorporates Doornfontein mine, is situated on the north-western edge of the Witwatersrand Basin, to the south of the town of Carletonville in North West Province. The mine has underground and surface operations.

Blyvoor has two main gold-bearing horizons: the Carbon Leader Reef (CLR), which is one of the principal orebodies of the Carletonville goldfield; and the Main Reef, which is some 75 metres above the CLR horizon. The reef formations have a thickness of between 5 and 20 centimetres. At present, mining – by traditional drill, blast and scape methods – is concentrated on No 4 and No 6 shafts with some mining taking place from No 5 Shaft.

The surface operations treat gold-bearing slimes dams and waste rock dumps.

The mine’s carbon-in-leach (CIL) plant has a plant capacity of around 400 000 tonnes a month.

Operating review: Total production declined by 7% to 141 172 ounces (FY07: 151 269 ounces), reflecting a 6% decrease in gold from the underground operations to 103 813 ounces (FY07: 110 471 ounces) and an 8% drop in gold from surface sources to 37 359 ounces (FY07: 40 798 ounces). The loss of seven production shifts underground because of a stoppage imposed by the DME’s Safety Inspectorate in October following two fatalities; the impact of power cuts by Eskom in January when five production days were lost; and a one-day illegal strike during May all played a part in the lower production recorded.

Although throughput increased slightly, from 4 384 000 tonnes in FY07 to 4 406 000 tonnes in FY08, yield for the operation as a whole was marginally lower year-on-year at 1.0 grams per tonne (g/t) compared with 1.07g/t in FY07. The yield from underground was 4.70g/t (FY07: 4.98g/t) and from surface 0.31g/t (FY07: 0.34g/t). A new ore pass system between 35 and 38 levels, which will split reef and waste, is expected to lead to an improvement in the average underground grade from the first quarter of FY09.

Total cash operating costs rose by 22% to $670/oz from $547/oz in FY07. While underground cash operating costs went up by 20% to $772/oz (FY07: $642/oz), those for the surface operations increased by 35% to $387/oz (FY07: $287/oz).

Cash operating profit was 60% higher at R156.4 million (FY07: R97.6 million), resulting from a rise in the average gold price received and the deterioration of the South African rand against the United States dollar.

Capital expenditure, which increased by 9% to R74.8 million (FY07: R68.5 million), was directed mainly towards the cost of raise boring for the Way Ahead Project.

Growth projects: The Way Ahead Project (formerly known as Phase 2 of the No 2 Sub-shaft Project) – to access the orebody between 27 and 35 levels from No 5 Shaft – began in July 2006. The first raise borehole between 31 and 33 levels was completed in the year under review with work on the second, between 27 and 31 levels, scheduled for completion during the first quarter of FY09 when first production will start. Production from the Way Ahead Project is expected to rise to 3 100 ounces in the fourth quarter of FY09.

At No 6 Shaft, work began on the 15/29 Incline Project to open up the Main Reef and CLR reserves of some 540 000 square metres with a recovered grade averaging 4.8g/t. Production is expected to begin in the second quarter of FY09 at a rate of 1 000 tonnes per month, rising to 12 000 tonnes per month over the next 12 months. This project has an estimated life of 10 years.

CROWN

Description: The world’s largest surface re-treatment facility, Crown recovers and treats old slime and sand dumps to the south of Johannesburg’s CBD. Most of these dumps hold waste from the stamp milling era of ore processing when plants treated the sand and slimes separately compared with current milling which reduces all ore to slimes before the extraction of gold.

The dumps are reclaimed and mixed with water so that they can be pumped to one of Crown’s three plants – Crown Mines, City Deep and Knights – where modern milling and carbon-in–pulp (CIP) technology is used to recover much of the gold remaining in them. These plants have the capacity to treat 11.76 million tonnes of sand and tailings per year. In the process land is freed up for redevelopment, mostly for light industrial activities.

Operating review: There was a 15% reduction in gold production to 87 354 ounces (FY07: 103 011 ounces) mainly because of a decline in yield, from 0.38g/t in FY07 to 0.33 g/t in FY08. This is a reflection of the ever-diminishing reserves of higher grade material available. There was also a 2% decrease in throughput to 8 235 000 tonnes (FY07: 8 405 000 tonnes).

Cash operating costs rose by 23% to $553/oz (FY07: $450/oz) primarily as a consequence of reduced production, wage increases and higher cyanide and lime prices. Cash operating profit improved by 27.1% to R175.7 million (FY07: R138.2 million), reflecting the higher average gold price received and a higher average rand/dollar exchange rate.

Capital expenditure rose by 40% to R42.1 million (FY07: R30.0 million).

Growth projects: A mining right for the landmark Top Star dump to the south of the Johannesburg CBD was granted by the DME during August 2008 and recovery of material, to be treated initially through the Crown plant, is expected to begin during the second quarter of FY09. Top Star is estimated to contain 5.2 million tonnes of material, enough to sustain operations for 20 months, and to contain 128 000 ounces of gold at an estimated 0.775g/t.

In June 2007, Crown started to reclaim the 3/L/2 slimes dam, containing 7.64 million tonnes, to recover some 115 000 ounces of gold over a two-year period.

ERPM

Description: ERPM is an underground mining operation, which is situated near the town of Boksburg, 25 kilometres to the east of Johannesburg. Underground mining activities take place in the Far East Vertical (FEV) Shaft lease area while the infrastructure of the South East Vertical (SEV) Shaft is being maintained for hoisting and pumping as well as for accessing mining in remnant areas. The Main Reef formation is mined at depths of up to 3 200 metres beneath the surface.The plugging programme – the construction of underground dams to prevent rising water in the Central Witwatersrand Basin from flowing into the remaining production areas – was completed at FEV Shaft and is 95% complete at SEV. The programme is partially funded by the government.

The mine also produces gold from its Cason Dump surface retreatment operation. Some 300 000 tonnes of underground ore are processed through the ERPM plant, while 1.9 million tonnes of surface materials are processed through Crown’s Knights plant.

Operating review: To reverse a trend of unprofitable mining, ERPM’s underground operations were restructured during FY08. This included the retrenchment of 239 employees which was negotiated with representative unions and associations without recourse to industrial action.

Although there was a slight increase in throughput to 2 162 000 tonnes (FY07: 2 022 000 tonnes), there was a marginal decrease of 1% in total gold production to 79 479 ounces (FY07: 80 216 ounces). Production was affected by Eskom’s power cuts and the breakdown of a compressor and the No 5 ice plant during the third quarter of FY08; and the negative impact on the operations of four days of xenophobic violence in communities close to the mine and to the cessation of mining of the unprofitable 73 and 74 longwalls during the last quarter of the year.

While underground production declined by 2% to 56 812 ounces (FY07: 58 063 ounces), surface production rose by 2% to 22 667 ounces (FY07: 22 153 ounces). A drop in yield – to 5.83g/t from 6.71g/t in the previous year – was one of the reasons for the reduction in underground production. With the elimination of the unprofitable longwalls, however, grade started to improve in the fourth quarter. Infrastructure upgrades had a positive effect on surface production while yield remained steady at 0.38g/t (FY07: 0.39g/t).

Total cash operating costs increased by 17% to $748/oz (FY07: $641/oz). Although surface cash operating costs went down by 3%, from $606 in FY07 to $588, underground costs rose by 24% to $812/oz (FY07: $654/oz). Lower underground production and higher surface production during the year under review are the main reason for a significant difference in surface and underground operating costs.

ERPM realised a cash operating profit of R32.2 million compared with a loss of R3.8 million in FY07, due both to the higher average gold price received and a higher rand/dollar exchange rate.

Capital expenditure decreased by 26% to R30.1 million (FY07: R40.6 million). Key items included repairs to the ventilation shaft and man-winder motor, replacement of 900 metres of power feeder cable in the main vertical shaft, completion of the South West Vertical Shaft pumping upgrade and capitalisation of some costs relating to the FEV Shaft plugging project.

Growth projects: At current rates of output, it is anticipated that ERPM’s reserves will be exhausted in nine years’ time.

Early in 2006 DRDGOLD SA was granted prospecting rights under South Africa's new minerals legislation in respect of the Sallies lease area adjacent to ERPM which is now known as the ERPM Extension 1. A four-year exploration drilling programme is under way.

A concept study to determine how best to access the ERPM Extension 1 orebody was completed in the last quarter of the year under review. This favours the development of a new ‘pay-as-you-go’ decline that circumvents the existing decline and uses technology that is proven to be both safer and more reliable. A feasibility study has been approved and is scheduled for completion by the end of 2008.

Once this is converted to a mining right, it will allow the Composite Reef payshoot currently being mined on ERPM to be followed across the existing mine boundary. With mineral resources of 7.8 million ounces at 8.35g/t, this project has the potential to extend the life of mine from nine to more than 20 years.

Beyond the Sallies area, application has been made to extend the prospecting area into the 5 500-hectare Rooikraal/Withok area (ERPM Extension 2) where independent consultants (Camden Geoserve and Minxcon) have estimated an inferred resource of 28.6 million tonnes grading 9.06g/t, a total of 8.3 million ounces. Should drilling confirm initial estimates, a due diligence exercise will be carried out which could culminate in a deep-level mine with a life of more than 15 years.