![DRDGOLD [logo]](images/logo.gif){kind=logo}
Economic performance
Management approach
DRDGOLD is South Africa’s fourth-largest gold producer, making it one of the top 10 gold producers in the world. It holds significant resources of 60.2Moz and reserves of 7.3Moz. The company is publicly listed, with a primary listing on South Africa’s JSE Limited and a secondary listing on the Nasdaq Capital Market in the United States. The majority of DRDGOLD’s shareholders (62%) reside in the United States, followed by South Africa (21%), and the UK and Europe (17%). At the end of FY2011, the company had 384 884 379 ordinary shares in issue and a market capitalisation of R1.3 billion (US$186.3 million).
Strategy
The company’s strategy in the short-and medium-term is to enhance shareholder value by:
- reducing risk;
- controlling costs;
- managing margins; and
- taking a disciplined approach to growth.
Increasingly, the focus is on the recovery of lower-risk, lower-cost, higher-margin ounces.
In January 2011, the company announced a change in its group structure in order to better distinguish between its surface retreatment and underground mining operations. The intention is to develop two separate brands – Ergo (currently ErgoGold and Ergo JV), including Crown (surface retreatment) and DRDGOLD (underground mining) – and ultimately to create two separate investment opportunities.
See more detail on the company’s strategy in the Annual Integrated Report 2011.
Performance FY2011
DRDGOLD’s Integrated Annual Report for FY2011 provides a comprehensive review of the operational and financial performance of the company and the broader material environmental, social and governance (ESG) issues that underpin the company’s business performance.
Key highlights include:
- 15% increase in the average Rand gold price received to R308 220/kg (FY2010: R267 292/kg).
- Gold production increased by 10% to 265 179oz (FY2010: 241 194oz).
- Revenue for the year increased by 29% to R2 565.3 million (FY2010: R1 990.5 million) reflecting higher gold production and an increase in the average Rand gold price received.
- Operating profit increased by 76% to R477.0 million (FY2010: 271.6 million).
- Capital expenditure increased by 64% to R317.3 million (FY2010: R194.0 million), reflecting continued investment in the development of the Crown/Ergo pipeline to more fully exploit synergies between the two surface circuits.
- Cash operating unit costs increased by 8% to R251 296/kg (FY2010: R233 112/kg), mainly as a result of electricity increases and winter tariffs imposed by power utility Eskom.
Direct and indirect impacts include:
- Employees and contractors received R759 million in salaries and benefits, a 21% increase from R629 million in FY2010.
- Providers of capital, largely banks, received R11 million in interest (FY2010: R5 million).
- Income tax and royalties of R10 million was paid to government (FY2010: R11 million).
No significant financial assistance was received from government.
- Dividends paid to shareholders increased by 50% to 7.5 cents per share with a 115% increase in headline earnings per share to 28 SA cents per share (FY2010: 13 SA cents per share).
Value-added statement
Value added is defined as the value created by activities of a business and its employees and, in the case of DRDGOLD, is determined as the sale of gold less the cost of materials and services. The value-added statement reports on the calculation of value added and its application among the stakeholders in the company. The statement shows the total value added and how it was distributed, taking into account the amounts retained and reinvested in the company for the replacement of assets and development of operations.
| 2010 | 2011 | |||
|---|---|---|---|---|
| R million | % of total | R million | % of total | |
Value added |
||||
| 1 991 | Sale of gold | 2 565 | ||
| (1 247) | Less cost of materials and services | (1 474) | ||
| 744 | 79 | Value added by operations | 1 091 | 95 |
| 200 | 21 | Income from investments | 53 | 5 |
| 944 | 100 | Total value added | 1 144 | 100 |
Value distributed |
||||
| Employees | ||||
| 629 | 67 | Salaries, wages and other benefits | 759 | 66 |
| Community | ||||
| 5 | 1 | Corporate social investment | 16 | 1 |
| Government | ||||
| 10 | 1 | Current taxation | 6 | 1 |
| 1 | 0 | Mining royalties | 4 | 0 |
| Providers of capital | ||||
| 19 | 2 | Dividends to shareholders | 19 | 2 |
| 5 | 1 | Interest on borrowings | 11 | 1 |
| 669 | 72 | Total value distributed | 815 | 71 |
| 275 | 28 | Re-invested in the group | 329 | 29 |
| 944 | 100 | Total value distributed | 1 144 | 100 |
Black economic empowerment
DRDGOLD’s black economic empowerment (BEE) strategy is aimed at broad-based transformation across all levels of the company. Plans are in place at all operations to ensure compliance with the Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter.
Since FY2006, DRDGOLD complies with the BEE equity target of 26% set by the Mining Charter for 2014.
The company’s BEE partner, Khumo Gold, acquired a 15% interest in Ergo Mining Operations in FY2006, increasing this stake to 20% in FY2006 when an additional 6% of equity was placed in an employee trust, the DRDSA Empowerment Trust, to benefit a broad group of Historically Disadvantaged South African (HDSA) employees. The trustees of this trust started administering the trust during FY2011.
Economic transformation
DRDGOLD is mindful of the role it can and must play in transforming its procurement base to include emerging entrepreneurs and to provide preferential access to HDSA vendors.
DRDGOLD’s procurement policy gives BEE companies preferred supplier status. This means that these companies are given preferred status should they be commercially competitive.
In total, DRDGOLD’s operations spent R1.5 billion on procurement in FY2011 (FY2010: R1.2 billion).
Beneficiation
DRDGOLD produces gold bars to approximately 85% gold and 7% to 8% silver, with the balance comprising copper and other common elements. The company owns shares in Rand Refinery Limited, one of the world’s foremost refiners and home of the Kruger Rand, which refines and sells all of its gold. This gold is purified to 99.9%, thus meeting the standards of the London Bullion Market Association, and cast into troy ounce bars. On the same day as the delivery takes place, Rand Refinery sells the gold on DRDGOLD’s behalf at the London Metal Exchange (LME) afternoon fixed dollar price.
Suspension of financial assistance to Blyvoor and offer of assistance from AngloGold Ashanti
On 23 June 2011, DRDGOLD announced that it had suspended financial assistance to Blyvoor. The decision followed the promulgation of the new Companies Act which requires directors of parent companies to seek the consent of the parent company shareholders and then to consider the effects on the solvency and liquidity of the parent company as conditions precedent to the provision of financial assistance to subsidiaries. Blyvoor’s production had been declining as a result of a drop in grade, public holiday interruptions and seismicity-related work stoppages, while costs had increased due mainly to higher electricity tariffs, and particularly power utility Eskom’s winter surcharge which added R11.0 million per month to overhead costs.
In response to DRDGOLD’s decision, the Board of Directors of Blyvoor resolved to begin business rescue proceedings for Blyvoor in terms of Chapter 6 of the Companies Act. The business rescue proceedings provided for in Chapter 6 replace the judicial management process in the previous Act. DRDGOLD supported the decision of the Blyvoor Board.
On 14 July 2011, DRDGOLD announced Blyvoor’s acceptance of an offer of assistance from AngloGold Ashanti, involving the sale of some 390 000m² of its neighbouring Savuka mining area to Blyvoor for R35 million. Pending the necessary approvals and subject to the finalisation of a binding agreement, Blyvoor will mine the area under contract.