“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 success this year.”

   The PNG mine has weathered four management changes and overcome low morale, Wellesley-Wood says. It is now back on track, producing some 85 000 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 improvement.

   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 4 500 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.