Letter from the CEO

Dear stakeholder

DRDGOLD has – over the past decade – transformed itself from what was largely a deep level underground mining company to a company whose future lies – ironically – in the past and, in particular, in the 50-year resource offered in the recovery of gold from the Witwatersrand’s many surface dumps.

DRDGOLD today is a company in two parts:

• The deep-level and labour intensive Blyvoor operations. While we have made it clear that this entity no longer fits within our long term strategy, we have a responsibility of stewardship to either see this operation into the hands of a responsible operator, or to bring it back to profitability ourselves. See Corporate governance for further details. Concomitant with this economic responsibility is the responsibility to Blyvoor’s employees and their families, our suppliers and the communities around this operation, not only to preserve and sustain jobs, but also towards the current and legacy environmental role associated with this mine.
• Surface operations, at Crown and Ergo, which has significantly lowered the risk associated with the business, and is turning to account a valuable, shallow resource while at the same time cleaning up historical environmental hazards and releasing valuable land for development.

Our approach to reporting

As a group we communicate extensively with all stakeholders, informally and formally. These stakeholders include, among others, shareholders, employees, unions, communities, government and regulators and non-governmental organisations (NGOs).

Our approach to reporting has continued to develop and grow - both to improve our level of disclosure, and to reach our stakeholders in a way that is most accessible and meaningful to them. For this financial year, we have produced:

• Our first Integrated Annual Report, which covers the key financial, operational, risk and sustainability issues facing the company. This is our first step towards integrated reporting, and in this report we have endeavoured to address the context of the group – in the year that has past and the future, and the opportunities and challenges we face, so that shareholders and other stakeholders have a better and fuller understanding of the group, and can make informed decisions about their association with us.
• This Annual Sustainable Development Report, which addresses the most significant environmental, social and governance issues facing the company. This report has been produced in accordance with the Global Reporting Initiative (GRI) G3 guidelines. While we have not sought external assurance of our key performance indicators during the year under review, we are considering this as part of an annual integrated audit and commit to achieving this by the 2013 financial year. As is required by GRI, we have declared a C level of reporting and this reporting application level has been verified by the GRI for the first time (see Application Level Check Statement). Also see our GRI content index, and our Mining Charter reporting compliance index.

We recognise too that our employees, as important stakeholders, should also be informed of the integrated performance of the company during the year under review, and we have produced a special edition of our employee newsletter, Asikhulume, to do this.

Safety remains a priority

We continue to strive for zero harm at our operations and it is with deep regret that we report the death of Mr Hugh du Plooy on 29 December 2010. Mr du Plooy was taken ill while conducting a preliminary safety inspection underground and his death has been ruled as a mine accident until such time as the autopsy report is made available. The board and management extend their sincere condolences to his family and colleagues.

While our FIFR continued to improve to 0.04 per million hours worked, from 0.11 per million hours worked in FY2010, we continue to strive for a working environment without fatal accidents. Regrettably, the group’s LTIFR rose, from 9.08 per million hours worked, to 16.36 per million hours worked. This reflects the increasing risk of seismicity-related accidents at Blyvoor, an issue that continues to receive significant attention.

It is also appropriate to record that on 18 March 2011, 26 people were injured and eight died when a bus, operated by a transport company under contract to the mine, was transporting day shift workers from the mine hostels at Blyvoor to No 4 Shaft. The accident occurred in the early morning hours when the driver of the bus lost control of the vehicle and the vehicle overturned. The injured were taken to hospitals in Carletonville, Potchefstroom, Krugersdorp, Randfontein and Johannesburg. We extend our sincere condolences to the families, friends and colleagues of those who died. We also extend our gratitude to those who provided assistance, in particular the staff of the South African Police Service, traffic authorities and the numerous emergency services and hospitals. While this was not a mining related accident, it is one which we take very seriously and highlights the need for safety to be top of mind at all times, at work, on the way to and from work and at home.

Our people and our communities

A number of other initiatives bear special mention:

The first relates to our ever-increasing awareness of risk management, and the need to address risks in an integrated and holistic manner. Critically, given that our surface operations are in close proximity to communities – both formal and informal – and scattered, this will require much greater engagement with stakeholders on safety and environmental issues. This is an area that will receive far greater attention in the year ahead.

A second issue relates to the way in which we manage people – the human capital within our business. We have launched the Vuselela initiative during the year, a programme aimed at developing the full potential of the employees, harnessing not just their physical strength but also their intellectual capacity, and this is something that we will be paying more attention to in the year ahead.

This initiative is an important component of workplace alignment and harmony. Cultural ambiguity remains particularly in communications, and when one considers that we work in a country with 11 official languages, and firmly entrenched cultures one can start to see the enormity of this issue.

This might be a trite thing to say but I think we need greater alignment of the ambitions of our employees with the ambitions of the business. If the company succeeds, our employees succeed.

Further, I would like to see greater social awareness within the business, and a clear understanding that we are part of and responsible to a larger community. We have developed a good platform for our operations to take direct responsibility for their community and local economic development initiatives so as to improve the circumstances of surrounding communities, or at least align those communities with our company. I would like to see an acceleration of that – greater social awareness and also greater involvement in the community.

Material issues

In developing this report we have tried to address those issues that are most important to the business, in the year that has past and in the future.

In identifying these material issues we:

• reviewed media coverage of the company;
• gathered feedback from shareholders – formally and informally;
• took consideration of issues raised by employees and unions through on-mine engagement processes;
• considered issues raised by NGOs ( for e.g. The Federation for a Sustainable Environment); and
• considered issues raised by the Chamber of Mines through lobbying processes.

The issues identified include:

• Consistency of regulatory policy and succession at the DMR. Material changes to the Mining Charter have a real and detrimental impact on the way in which we run the business, and associated costs. Similarly, unambiguous application of legislation and capacity to grant and monitor permitting are critical to the success of our industry.
• Costs and, particularly labour-related costs. In a country whose government’s stated primary objective is to create jobs, it seems unreal that the unemployed are disempowered to set wages, and that labour costs continue to rise at a rate far higher than inflation. Labour makes up 35% of our costs so this has a material impact on the sustainability of the business, particular at an operation such as Blyvoor.
• Our significant exposure to our US shareholder base gives us good insight into the hugely detrimental impact that the spectre of nationalisation has had on South African mining equities. The fact that there has not been an unequivocal rejection of this by the governing party is a significant issue of concern.
• I have always said that we need to plan and manage our business according to today’s gold price in today’s market and not in anticipation of an increase. However, the reality is that if the dollar does not decrease further in value, the bull run on gold is probably going to run out of steam at some point or another.
• The security of energy supply is another critical factor, particularly at Blyvoor. It is very difficult to plan production in an underground environment without a steady supply of electricity. We lose two or three shifts a month because of interruptions.
• We have made some progress in respect of offering a solution to acid mine drainage having recently had the opportunity to engage at the highest level of Parliament and the WUC proposal advocated by MIG was considered by Portfolio Committee. It is however disappointing to report that this solution was also rejected. See the section on securing and managing water under environmental performance for futher details.
• Increasing recoveries through technological innovation is a key ambition for the company, and one that could further transform the life and value of our Crown and Ergo operations. While we are still in the early phase of development, our research has established that the majority of inert gold is embedded in larger fraction sulphate particle, and we believe that we have found a method to float these particles off and create a concentrate. That concentrate goes through a vertical mill and that improves the recovery of gold from sulphates from 44% to 73% and improves the overall recovery of gold by almost 30%, conservatively, 25% so the 140kg a month circuit becomes a 186kg a month circuit. In addition to that, most of the uranium also finds its way into this concentrate and you can extract the uranium at an efficiency of 20% in the resin-pulp-process which is much cheaper than the sulphuric acid process. Because you are using a cheaper plant and are getting 7% more, the viability threshold is a lot lower than it was previously.
• Our exploration projects in Zimbabwe – we recently secured a second 20 000-hectare exploration site near Bulwayo – look promising. Dealing with regulatory requirements surrounding ownership remains a challenge.

The changing goal posts that are presented by the new Mining Charter represent new hurdles for the company, some impractical, and another layer of costs. Take the employment equity component for example - 40% of our management team are historically disadvantaged South Africans yet – at a level below this - we cannot attract sufficient professionals such as metallurgists, engineers, accountants – to the business at a cost that we can afford. There is simply a dearth of skills in the marketplace, and HDSA skills attach a sometimes unaffordable premium.

In conclusion

I hope that report that follows will provide our stakeholders with interesting and useful information on the group, the way we work, and our plans for the future, not just in the business, but as a responsible corporate citizen. We welcome your feedback and questions.

Niël Pretorius
Chief Executive Officer
19 September 2011

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