Directors’ report

Nature of business

Durban Roodepoort Deep, Limited was incorporated on 16 February 1895, and operates gold mines in South Africa and Papua New Guinea. The Company does not have a major or controlling shareholder and is managed by its directors on behalf of its shareholders.

DRDGOLD is a public company with its primary listings on the Johannesburg and Australian stock exchanges and secondary listings on the NASDAQ SmallCap Market and the London and Port Moresby stock exchanges. The Company's shares are also traded on the Marche Libre in Paris, the Regulated Unofficial Market of the Frankfurt Stock Exchange and the Berlin and Stuttgart OTC markets as well as Euronext Brussels in the form of International Depository Receipts.

Mining rights and property

A schedule detailing the Group's mining rights and property is available at the Group's registered address.

Share capital

Full details of authorised, issued and unissued share capital of the Company as at 30 June 2004 are set out in the notes to the financial statements on page 83 of this report.

The control over the unissued shares of the Company is vested in the directors, in specific terms as regards allotments in terms of the Durban Roodepoort Deep (1996) Share Option Scheme, as amended, and the allotment for shares for cash and in general terms as regards all other allotments.

The authorities granted to directors in respect of control over unissued shares expire on the date of the annual general meeting of members to be held on 26 November 2004. Members, therefore, will be requested to consider resolutions at the forthcoming annual general meeting, placing under the control of the directors the then remaining unissued ordinary shares not required for purposes of the share option scheme.

During the financial year, a total of 978 053 new ordinary no par value shares were issued as a result of employees exercising their options under the Durban Roodepoort Deep (1996) Share Option scheme.

Shares issued

A total of 41 463 639 ordinary no par value shares were issued for cash (refer to the table below) of which 24 359 994 shares were deemed to be a vendor placing for the acquisition of the Porgera Joint Venture in terms of approval obtained from the JSE. A further 6 643 902 shares were issued for the balance of the Porgera Joint Venture purchase consideration. As at 30 June 2004, there was no shareholder who held a beneficial interest in excess of 5% of the Company's issued share capital.

Going concern basis

The Company and Group incurred significant losses during the year ended 30 June 2004 and continued to incur losses after year-end. At year-end the Company's and Group's current liabilities exceeded their current assets. These facts give rise to doubt as to the Company and Group's ability to meet their current obligations in the normal course of business.

Management is in the process of restructuring the loss making South African operations and expects the Company and Group to reduce its losses and return to profitability. In addition, the Group should also benefit from including the profits and cash flow from the 20% interest in the unincorportated Porgera Joint Venture for the full 2005 financial year (this interest was only included for 9 months of the 2004 financial year). Furthermore, management has arranged additional funding to the extent of R100 million.

On the basis that the restructuring is successful, the forecast cash flows indicate that the Company and Group will be able to meet their obligations as they fall due. The going concern basis has therefore been applied in preparing the financial statements.

In accordance with the provisions of the Company's Articles of Association, Messrs DJM Blackmur, DC Baker, GC Campbell and NP Ncholo retire at the forthcoming annual general meeting. They are eligible and have offered themselves for re-election.

Directors' service contracts

Service contracts have been concluded with the Executive as well as the Non-Executive Directors. Details of the service contracts are set out in the table below.

There were no conflicting interests of the directors during the year under review and up to the date of notice of the Annual General Meeting.

Share option scheme

The Durban Roodepoort Deep (1996) Share Option Scheme (the Scheme) is used as an incentive tool for executive and senior employees whose skills and experience are recognised as being essential to the Company's performance. The number of issued and exercisable share options is approximately 3.6% of the issued ordinary share capital which is within the international accepted guideline of 3 to 5% for such schemes.
In addition, the participants in the Scheme are fully taxed at their maximum marginal tax rate on any gains realised on the exercise of their options.

In the past financial year, the directors have exercised 174 853 share options. Details of share options held by directors are listed on page 53.

Over the same period the director's gains on share options exercised were R2.0 million, compared to R17.6 million in the previous financial year.

The directors have granted 3 436 117 options in terms of the Durban Roodepoort Deep (1996) Share Option Scheme (refer to the table below) in the current financial year compared to 3 113 500 options in the previous financial year.

Financial statements and results

Financial figures presented in the director's report are stated in South African Rands (000's).

The consolidated financial statements include the results and financial position of the Company and its subsidiaries, associates and joint ventures since the effective dates of acquisition.

The financial position, results of operations and cash flow information of the Company and Group are presented in the attached financial statements. The annual financial statements have been prepared by management in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP). They are based on appropriate accounting policies which have been consistently applied and which are supported by reasonable and prudent judgement and estimates. The annual financial statements have been prepared on a going concern basis and the directors are of the opinion that the Company's and Group's assets will realise at least the values at which they are stated in balance sheet.

Overall performance

The Group recorded an operating loss from gold of R29.5 million for the financial year compared to an operating profit from gold of R91.9 million for the previous financial year. Total attributable gold production of 28 149 kilograms (905 023 ounces) increased by 4% against the previous financial year.

The Dollar gold price traded between US$342 and US$426 per ounce during the financial year. The appreciation of the South African Rand against the US Dollar significantly reduced the average price of gold in Rand terms from R97 652 per kilogram received in the previous financial year to R87 211 per kilogram this financial year.

Unit cost of sales, comprise of cash cost, depreciation and amortisation of assets, retrenchment costs, movement in provision for environmental rehabilitation cost and movement in gold in process. Cost of sales decreased from R93 926 per kilogram to R88 383 per kilogram year-on-year. In Dollar terms unit cost of sales increased from US$323 per ounce to US$398 per ounce as a result of the strengthening of the Rand against the Dollar.

The directors continually re-appraise the carrying value of the Group's assets and investments and make the appropriate adjustments as required. In the current year, the Company reversed the previous year impairment charge against the Number 6 Shaft at NWO (R35.5 million) when the shaft was reopened in February 2004 to mine high grade panels on a selective basis, impaired the Buffels section at NWO (R24.3 million) as the mine reached the end of its economic life and wrote off the expenditure on the South Plant upgrade at NWO (R9.4 million) following the decision not to proceed with the planned upgrade. Provisions were made against the Crown, ERPM, KBH and Mogale loans amounting to R104.2 million.

Goodwill of R7.1 million arising on the acquisition of our internet based gold marketing company (Net-Gold Services Ltd) was impaired. Deferred tax assets totalling R414.3 million were reversed during the year as the Group companies in which they were held were making losses and some doubt existed as to whether the related tax benefit will be realised.

Change in business

During the year, DRDGOLD effectively acquired 20% of the Porgera Joint Venture with effect from 14 October 2003. On 28 April 2004, DRDGOLD acquired 50.25% of Net-Gold Services Limited, a subsidiary of G.M. Network Limited (GoldMoney.com) and established an insurance company, Fortis Limited on 21 May 2004, which has applied for a license as a general insurer in Papua New Guinea, in order to provide workers compensation insurance to our workforce at the Tolukuma Gold Mine. In addition, we established White Rock Insurance Company PPC Limited as a cell captive to facilitate the reinsurance arrangement on our group insurance policy in July 2004.

Capital expenditure

Capital expenditure for the financial year amounted to R185.7 million compared to R121.5 million in the previous year. Assets which do not conform to the Company's core business were disposed of and cash of R23.4 million (2003: R32.6 million) was generated through this.

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