durbans.com - online annual report

The board of directors believes that corporate governance is about how we exercise best business practice throughout our organisation. It is the means by which we enhance our organisational performance and deliver value to shareholders and stakeholders alike. The systems that we have put in place serve to enhance transparency and accountability by providing checks and balances throughout our organisational structure.

We are committed to high standards of corporate governance throughout the group and we support the principles set out in the King II Report.

The company is registered with the Securities and Exchange Commission (“SEC”) in the United States of America and its ordinary shares are quoted on NASDAQ SmallCap Market in the form of an American Depositary Receipts Programme administered by the Bank of New York. Accordingly, DRD is bound by the Sarbanes-Oxley Act of 2002 and is instituting the policies and procedures necessary for implementing the requirements of that Act.

The board of directors

The board of directors comprises two executive, four non-executive and two alternate directors, whose details are set out in this report.

The board recognises its responsibility to retain full and effective control over the company. The board meets on a quarterly basis with additional meetings being arranged when necessary to establish, review and implement strategy and also to review operational and financial performance.

The board further authorises acquisitions, disposals, major capital expenditure, stakeholder communication and other material matters reserved for its consideration in terms of its terms of reference. The board approves the annual budgets for the various operational units.

The roles of chairman and chief executive officer currently vest in the same person but it is intended to split the roles in November 2003.

The board reviews practices for the monitoring of executive management and ensures that decisions on material matters are in the hands of the board. The board approves all terms of reference for the various sub-committees of the board, including special committees tasked to deal with specific issues.

All directors are subject to retirement by rotation and re-election by shareholders in accordance with the company’s Articles of Association. In addition, all directors are subject to re-election at the first annual general meeting following their appointment. The board as a whole approves the appointment of new directors.

While the executive directors are involved with the day-to-day management of the company, the non-executive directors are not, nor are they full-time salaried employees.

The directors have access to the advice and services of the company secretary, who is responsible to the board for ensuring compliance with procedures and regulations of a statutory nature. Directors are entitled to seek independent professional advice concerning the affairs of the company at the company’s expense, should they believe that course of action would be in the best interest of the company.

Information regarding directors’ remuneration and share options, as well as their interest in the issued ordinary share capital of the company, are set out in full in the directors' report.

Details of attendance by directors at the four board meetings held during the financial year.

	July 23, 2002	October 22, 2002	January 28, 2003	April 24, 2003
Executive directors
MM Wellesley-Wood
FC Coetzee				—
IL Murray
JH Dissel	—	—	—
Non-executive directors
DC Baker
N Goodwin				—
RP Hume
GC Campbell
MP Ncholo

Board committees

The following standing committees have been established to enable the board to properly discharge its duties and responsibilities and to effectively fulfill its decision-making process.

Executive committee

The executive committee reviews current operations in detail, develops strategy and policy proposals for consideration by the board and implements its directives. The committee meets on a weekly basis and when members are not able to attend personally, telephonic facilities are made available to include them in relevant proceedings and permit participation in decisions and conclusions reached.

The committee comprises: MM Wellesley-Wood ; IL Murray ; WT Beer ; JH Dissel ; J Engels ; ID Graulich ; G Dempsey ; DT van der Mescht and A Lubbe.

Audit committee

RP Hume (chairman); DC Baker; GC Campbell

To assist the board in discharging its responsibilities to maintain financial controls, the audit committee meets quarterly with the external auditors, the company’s internal audit practitioner and the chief financial officer to review the audit plans of the internal and external auditors, to ascertain the extent to which the scope of the audit can be relied upon to detect weaknesses in the internal controls and to review the annual and interim financial statements prior to approval by the board. The audit committee pre-approves all services provided by external auditors. The group risk manager assists the audit committee in reviewing hedging, health and safety, environmental and insurance matters.

The company’s external and internal auditors have unrestricted access to the chairman of the audit committee. All important findings arising from audit procedures are brought to the attention of the committee, and, if necessary, to the board.

Remuneration committee

GC Campbell (chairman); DC Baker

The remuneration committee approves all remuneration policies of the company as well as the terms and conditions of executive directors and officers. Items considered by the committee include salaries, performance-based incentives and other benefits. The committee further considers and approves the eligibility and performance measures of the Durban Roodepoort Deep (1996) Share Option Scheme applicable to directors and senior management. The committee meets as and when required.

Annual financial statements

The directors are required by the South African Companies Act, 1973, to maintain adequate accounting records and to prepare annual financial statements which fairly represent the state of affairs of the company at the end of the financial year, and the results of operations and cash flows for the year, in conformity with South African Statements of Generally Accepted Accounting Practice (“SA GAAP”).

To comply with requirements for reporting by non-US companies registered with the SEC, the company prepares a set of financial statements (Form 20-F) in accordance with US Generally Accepted Accounting Principles (“US GAAP”). This report will be available from the Bank of New York to holders of the company’s securities listed in the form of American Depository Shares on the NASDAQ SmallCap Market on the worldwide web at www.sec.gov. A condensed consolidated income statement, balance sheet, statement of cash flows and brief financial notes based on US GAAP are included in this report. A condensed reconciliation between SA GAAP and US GAAP is supplied as supplementary information.

Risk management and internal control

The management of risk involves all significant business and operational risks which could undermine the achievement of business objectives. The company has embarked on a risk management initiative in the DRD group, directed by the audit committee. The initiative is co-ordinated by a dedicated group risk manager. Following the release of the King II Report, containing minimum practices to be adopted, the risk manager has formulated a risk corporate governance structure which has been approved by the audit committee.

The significant risks facing the group and individual operations have been identified and will be updated regularly through a process where all the operations are involved in work groups and individual sessions. The results of these are also presented and discussed with feedback to the executive committee forums of each operation by every person responsible for specific risks. The inherent impact of these risks, together with the controls and their effectiveness are monitored at operational as well as corporate level. The risk manager reports the results of the risk evaluation and control effectiveness on a quarterly basis to the audit committee.

The internal audit function is contracted out and is designed to respond to management’s requirements, while maintaining an appropriate degree of independence to render impartial and unbiased judgements in performing its service. The internal audit practitioner reports at every quarterly audit committee meeting.

Stakeholder communication

The board strives to present a balanced and understandable assessment of the company’s position, addressing material matters of significant interest and concern to stakeholders.

International media, analyst and investor briefings are held when the company’s results are announced at quarterly intervals. The company has a website containing up-to-date information. Shareholders and members of investment communities around the world may direct their comments and questions on issues concerning the company to the general manager investor relations, whose contact details appear in this report.

Share dealings

The company operates a “closed period” prior to the publication of its quarterly results during which directors and officers of the company may not deal in its shares. Where appropriate, this “closed period” is also extended to include other “sensitive” periods.

Directors are required to disclose all dealings in the company’s shares by them and their concert parties to the company secretary, in line with regulatory and governance requirements.

Employee participation

The company employs a variety of participating structures on issues that affect employees directly and materially, and that are designed to achieve good employer/employee relations through effective sharing of relevant information, consultation and the identification and resolution of conflicts. These structures embrace goals relating to productivity, career security and identification with the company. An employment equity programme forms part of the company’s training and business plan.

Safety

Durban Roodepoort Deep, Limited is committed to ensuring a safe and healthy environment for all of its employees. This financial year has been marked by a pronounced improvement in safety trends for the group, attributable to a systems approach to safety management attained through the introduction of the National Occupational Health and Safety Association (“NOSA”) system at all South African operations.

Nevertheless, the company recorded, with considerable regret, the death of 20 employees at work.

Blyvooruitzicht was awarded the Association of West Rand Mines Inter Mine Safety Shield for the fifth year running, while the North West Operations achieved 1 000 000 fatality-free shifts on February 10, 2003.

Notwithstanding improvements achieved in the year under review, DRD is resolved to effect more efficient management of its safety systems and has endorsed a comprehensive health and safety policy. Commitment to improvement is driven from corporate level through the review of fatalities that determine causes and appropriate remedial measures.

LTIFR – Lost time injury frequency rate
RIFR – Reportable injury frequency rate
FIFR – Fatal injury frequency rate

Health

DRD has committed to providing comprehensive health care for its employees and their dependants on a voluntary, co-contributory basis focused initially on the mine communities.

The company has also pledged to participate in and add value to an industry-wide working group aimed at developing job generating projects for paraplegics and other seriously injured workers. The working group’s endeavours are intended to provide a framework for implementation at mine level in the near future.

HIV and AIDS pose a major threat to the well being of our employees and it has long been recognised that in combating this disease, partnerships between the company, unions, employees, government and other stakeholders are imperative. DRD has successfully established company/mine level HIV/AIDS partnership structures focused on developing programmes that seek to inter alia:

•	prevent transmission through creating awareness with a particular emphasis on ABC (“abstinence, be faithful, and condomise”);
•	effect behavioural change through programmes encouraging employees to voluntarily declare their status without fear of victimisation;
•	promote the development of and participation in wellness programmes with affected employees. The constituent features of such programmes include counselling and education, medical care, medical assessments and appraisals, access to medication, access to appropriate nutrition, and access to hygienic living conditions; and
•	provide funding for HIV/AIDS programmes that are to be undertaken by the partnership structures.

As well as subscribing to AngloGold Health Service’s HIV/AIDS wellness programme, DRD budgeted an additional R10 per employee per month for the future administration of antiretroviral treatment (“ART”).

Environment

South Africa
Due to the diverse nature of our South African operations, ranging from underground mining to surface reclamation activities, the environmental risks vary from site to site. These risks have been addressed, as required by Iaw, in Environmental Management Programmes (“EMPs”) that have been submitted to the regulators for approval and are reviewed and updated as circumstances dictate. EMPs have been submitted for all operations and have all been approved with ERPM and North West operations having received approval during this reporting period. From a risk perspective, all risks have been prioritised per operation and are being addressed through active management input and support with the progress measured in terms of activity schedules and time frames per activity.

Of specific consideration to DRD is the risk of radiation exposure inherent in our gold mining operations resulting from the potential presence of gamma- and beta-emitting radio-nuclides in processed sludge and slimes and in water contained in tailings, exposure to uranium and other radio-active elements during the mining process and potential exposure to radon and its isotopes. Fortunately, however, we believe that our South African operations are currently in compliance with the requirements of the National Nuclear Regulator. Monitoring and control programmes commensurate with the radiation hazards are in place to ensure that all hazards are identified, quantified and mitigated.

In keeping with our proactive approach to waste management at the operations, a study had been commissioned to identify and quantify the various waste streams with the objective of maximising the use of this “resource out of place”. Through evaluating options for re-use, recycling, waste reduction and alternative disposal options for tailings disposal, a valuable contribution has been made to the process of backfilling voids and shafts with slimes material.

In the wake of the realisation of sustainable utilisation of resources, DRD has placed significant emphasis on the prudent management of its water resources. All of our operations are in the process of compiling integrated water management plans looking at the concepts of recycling to ensure minimum discharge to the receiving environment and improving the water quality that has to be discharged. Much progress has been made in the last year particularly at the ERPM operation, where an intensive surface water monitoring programme has been instituted as well as an upgrade to the high density solution plant. This has dramatically improved the quality of effluent discharged.

At the North West Operations, water management is similarly of prime importance. A number of residue deposits are situated in close proximity to the Vaal River and in an effort to control potential diffuse impacts and potential seepage, the North West operations made provisions for an increase in water retention capacity of the paddocks of the Buffelsfontein complex and its return water dams. Moreover, a draw-off system capitalising on the re-circulation of return water to the multigold plant had been installed. This effectively minimises potential water pollution and utilises polluted water more effectively. The year has also seen a breakthrough regarding the perception of groundwater flooding in the Number 1 shaft area. Following intensive investigations and studies, it has been concluded that the water does not emanate from the paddyfields at 4 Shaft as had been suspected. As an act of goodwill to the affected parties, the mine is actively diverting this water to the Koekermoerspruit.

The Crown surface operation is geared towards surface reclamation of tailings dams and operates its sites within the hub of major industrial and residential areas. Due to the siting of these deposits, the potential for dust pollution and impaired aesthetics, their removal is generally embraced by affected communities. Apart from removing a pollution source and an environmental risk, an added benefit is the liberation of prime land for alternate land use. During the year under review, the reclamation of two dams, 3L19 and 3L20, was completed, thus liberating the two sites for handover to the landowner. A total of 25.46 hectares have been rehabilitated for handover during the reporting period.

In an effort to minimise the dependence on potable water and in keeping with its water conservation and water demand management strategy, the Crown surface operation has moved to utilising groundwater around its slimes dam for irrigation to establish vegetation for the dam.

In keeping with the concept of sustainable development, DRD aspires to making a positive difference to the communities within which we operate. Exemplifying this, Crown has rehabilitated and enhanced the Fleurhof dam and equipped it with a fishing pier and a bird island for the benefit of the local Fleurhof community.

Underground mining at the Durban Deep section and the West Wits section ceased in August 2000. Consequent upon the decision to close these operations, a detailed closure programme had been prepared and submitted to the regulators. From the intensive risk assessment undertaken, a number of surface areas have been rehabilitated. These include the sealing and capping of a number of shafts and adits, the backfilling and rehabilitation of holes and pits, the vegetation of slimes dams and the demolition of redundant structures. Although this is a five-year project, a substantial amount of work has already been completed and selected areas now meet the criteria for partial closure.

International operations
Tolukuma Gold Mine in Papua New Guinea comprises an open pit, underground operations and metallurgical plant complex, and is drained by the Iwu Creek to the east and the Ilive Creek to the west. Both creeks empty into the Auga River, which joins the Alabule River, thereafter forming the Angabanga River which drains into the sea. The operation routinely discharges tailings into the Auga/Angabanga river system – an acceptable practice due to seismic instability of the area rendering tailings facilities impossible to construct and operate without safety, health and environmental risks. Mercury, an inherent element in the ore mined, poses a major threat to the integrity of the aquatic system. Consequently, stringent controls have been implemented which include a comprehensive monitoring programme. Despite the sensitivity of the receiving environment and the perceptions of communities and non-governmental organisations alike, Tolukuma has complied with the requirements of its discharge permits and continues to work toward further improvement.

Major environmental incidents
Sloughing of the slimes at the Number 5 tailings dam at the North West Operations was construed as a significant impact on the environment. To mitigate this impact, a buttress wall was constructed.

Blyvooruitzicht Mine was implicated in a flawed report by the Council For Geosciences which stated that high levels of radiation and other pollutants emanating from the Andries Coetzee Dam were affecting Potchefstroom’s drinking water.

Although the allegations were unsubstantiated, Blyvooruitzicht agreed to repair the dam wall, implement a monitoring programme, submit all relevant reports to Potchefstroom’s City Council and to involve other mines in the area in a study of the stream and in devising a remedial plan.

On the basis of goodwill towards our neighbours, Blyvooruitzicht has repaired the dam wall to the satisfaction of the Council, is conducting a monitoring programme and submitting the results to Potchefstroom’s City Council. Monthly meetings with members of the Council are held where any continuing problems are addressed.

At Tolukuma, historical analyses results at compliance point GSI indicate that lead in solution has exceeded the compliance criteria. However, this was attributable to two operational malfunctions that occurred in February and May 2003 and have subsequently been addressed.

Employment equity

Employment equity plans, which have been approved by all trade unions and employee associations, have been submitted by all of DRD’s operations in terms of the requirements of the Employment Equity Act. Steering committees representative of management and employee organisations oversee the implementation of these plans at each operation.

An important incentive to reach employment equity and skills development targets in a South African context are government skills levy refunds which can be ploughed back into training and development initiatives. To date, targets are being met at the lower levels but much work remains to be done in respect of the higher echelons.

Moving forward, the requirements of South Africa’s Broad-Based Socio-Economic Empowerment Charter Score Card in respect of employment equity – specifically, that there is 40% participation by historically disadvantaged South Africans in management and 10% participation by women in mining within five years – will provide impetus for greater progress. Identification of candidates for fast-tracking has been identified as a priority.

At Tolukuma, the company’s operation in Papua New Guinea, good progress has been made in respect of localisation of labour. Of the mine’s total workforce of 472, including contractors, 50% are locals. Various training and development initiatives are under way to ensure both that this percentage increases and that Papua New Guinean employees enjoy appropriate promotional opportunities.

Broad Based Socio-Economic Empowerment Charter Score Card: progress to date

During the year under review, 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 Socio-Economic Empowerment Charter for the South African Mining Industry was finalised.

Intended to provide clarity on demands the Mineral and Petroleum Resources Development Act 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 was 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 report compliance with most 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.

With regard to human resource development, 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, the company has embarked in the year under review on an ambitious, multi-faceted programme, unprecedented in its 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 been submitted by all operations. 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.

DRD is in line with industry agreements regarding non-discrimination against migrant foreign workers in the industry and is currently progressing compliance with the requirements of the Immigration Act in this regard.

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. Rural development to date has not been a significant focus.

In addition to the low-cost housing initiative referred to above, DRD is addressing the Charter’s requirements on housing and living conditions through a programme to convert unused hostel accommodation to family units. Housing, also, was a major focus of the 2003 wage review. Regarding nutrition, the company believes its established practices – providing three meals daily to hostel residents, together with mid-shift supplements, and on-going liaison with outside service providers to ensure maintenance of standards – places it substantially in compliance with the Charter.

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 1 360 companies to determine which meet its black economic empowerment (“BEE”) criteria, and to date, 83 of the 398 responding companies qualify. In addition, DRD’s computer systems are being updated in order 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 the company continues to award contracts strictly on the basis of commercial viability.

As a 10% part-owner of Rand Refinery Limited, DRD believes itself to be significantly in compliance with the Charter’s requirements in respect of beneficiation; notwithstanding, initiatives to increase beneficiation levels are currently underway.