Media releases

Rand-induced bleeding at DRDGOLD’s SA operations continues

Details

Published: Thursday, 24 February 2005 02:00

CEO Mark Wellesley-Wood said today that improved efficiencies at the company’s South African Operations had been insufficient to compensate for the low Rand gold price

Johannesburg, South Africa. 24 February 2005. DRDGOLD Limited (JSE: DRD; NASDAQ: DROOY; ASX: DRD; POM SoX: DRD) Chief Executive Officer Mark Wellesley-Wood said today that improved efficiencies at the company’s South African Operations had been insufficient to compensate for the low Rand gold price.

Announcing DRDGOLD’s reviewed operating and financial results for the six months ended 31 December 2004, Wellesley-Wood said the company incurred significant losses during the six months under review and continued to incur losses at its South African operations.

To reduce these losses, Wellesley-Wood said, the company’s North West Operations were in the process of being restructured.

“Costs at the South African Operations require further attention and in particular at the North West Operations where labour now represents 58% of total costs.”

DRDGOLD reported a cash operating profit of R107.2 million for the period under review, down R84.9 million from the six months ended 30 June 2004. The headline loss for the six months was R159.1 million.

However, the ongoing poor performance of the North West Operations in the low Rand gold price environment had necessitated a full impairment of these mining assets amounting to R214 million, escalating the company’s net loss for the period under review to R370.1 million, Wellesley-Wood said.

As at 31 December 2004, the company had cash and cash equivalents of R143 million (30 June 2004: R141 million) and negative working capital (defined as current assets less current liabilities) of R65 million (30 June 2004: negative working capital of R21 million).

“Cash generated by offshore assets may not be adequate to cover future commitments with respect to restructuring at the North West Operations. We expect to finance our commitments from existing cash resources, the sale of assets and funding facilities we either have in place or are seeking to negotiate,” Wellesley-Wood said.

He warned, however, that the company’s working capital and commitments, as well as its sources of liquidity, would be adversely affected if:

• there was a further deterioration in the Rand gold price arising from further strengthening of the Rand against the US Dollar;
• planned cost reductions at the South African operations were either delayed or lower than anticipated;
• offshore operations failed to generate net cash flows consistent with current levels;
• the company defaulted on its current borrowing facilities and was thus required to accelerate the repayment of funds; or
• negotiations with funders to secure a debt facility over DRD Isle of Man assets to restructure the North West Operations were unsuccessful.

Overall attributable gold production for the six months under review decreased by 5% to 443 821 ounces, largely as a consequence of a 14% decline in attributable production from the SA operations and in spite of a 15% increase in attributable production from the company’s Australasian operations.

Lower production from the South African operations resulted both from planned restructuring and downsizing at Blyvooruitzicht (Blyvoor) and various infrastructural constraints at the North West Operations that are currently being addressed.

Cash operating unit costs increased by 2% in Rand terms and by 11% in US Dollar terms.

South African Operations

Implementation of a revised mine plan at Blyvoor led to reduced mining activity at Nos 4 and 6 shafts and an overall decrease of 23% in production at the mine for the six months. Efficiencies quarter on quarter improved: grams per total employee costed (g/tec) increased by 41% to 143 g/tec, grade by 11% to 7.49 grams per tonne and recoveries to 96.2%.

Gold production at the North West Operations declined by 10%, reflecting rationalisation of non-profitable mining areas. Average cash operating unit costs for the period increased to $459 per ounce (R91 814 per kilogram).

DRDGOLD’s attributable share of production from Crown Gold Recoveries (Pty) Limited (CGR) was down 5%. CGR’s ERPM operation has applied to the South African Department of Minerals and Energy (DME) for the continuation of a monthly pumping subsidy, which is scheduled to expire at the end of February, 2005.

Blyvoor’s surface retreatment project and ERPM’s Cason surface retreatment project have both been successfully commissioned and at the North West Operations, the North Plant is currently treating approximately 100 000 tonnes of rock dump material a month. It is intended to build further on these lower-cost sources of gold.

DRDGOLD has short-listed two companies as preferred bidders for its uranium assets in South Africa. An announcement regarding the possible sale of these will be made in due course.

Australasia

Higher production from DRDGOLD’s Australasian operations for the six months under review – 165 138 ounces compared with 144 004 ounces in the previous six months – was due mainly to good results from Porgera and to the inclusion of DRDGOLD’s 45.33% share of Emperor Mines Limited’s production from 1 August 2004

Offshore production has increased to 37% of DRDGOLD’s total.

Production at Porgera increased marginally and cash operating costs were 10% lower at US$166 per ounce. Cash operating profit from DRDGOLD’s 20% interest in the Porgera Joint Venture (PJV) was US$26.3 million (R163.2 million) for the six months under review. Exploration drilling in the underground section at Porgera continues, with positive results so far.

Tolukuma’s gold production for the period was 9% lower than in the previous six months and average cash costs rose to US$312 per ounce. Consequently, cash operating profit was lower at US$4.1 million (R25.4 million).

Attributable gold production from Emperor from 1 August 2004 was 23 892 ounces (744 kilograms). Emperor’s cash operating unit costs for the period under review were US$376 per ounce.

Queries:

South Africa
Investor and Media Relations
Ilja Graulich, DRDGOLD
+27 11 381 7826 (office)
+27 83 604 0820 (mobile)

James Duncan, Russell & Associates
+27 11 880 3924 (office)
+27 82 892 8052 (mobile)

North America
Investor and Media Relations
Barbara Cano, Breakstone & Ruth International
+1 646-536-7002 (office)
+1 347-423-5859 (mobile)

Media Relations
Barbara Cano, Breakstone & Ruth International
+1 646-536-7002 (office)
+1 347-423-5859 (mobile)

Australasia
Investor and Media Relations
Paul Downie, Porter Novelli
+61 893 861 233 (office)
+61 414 947 129 (mobile)

United Kingdom/Europe
Investor and Media Relations
Phil Dexter, St James's Corporate Services
+44 20 7499 3916 (office)
+44 779 863 4398

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DRDGOLD is the world’s 9th largest primary gold producer, with mines in South Africa as well as Australasia, a key target for growth. For fiscal year 2004, DRDGOLD produced 905 000 ounces of gold, up from under 100 000 ounces a year in 1997, when current operations were amalgamated.

DRDGOLD has primary listings on the Johannesburg (JSE:DRD)and Australian (ASX:DRD) stock exchanges and secondary listings on NASDAQ (DROOY), the London and Port Moresby stock exchanges and the Paris and Brussels Bourses. Its shares are also traded on the regulated unofficial market of the Frankfurt Stock Exchange and the Berlin OTC Market.

For more information, please visit www.drdgold.com

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FORWARD-LOOKING STATEMENTS
Some of the information in this press release may contain projections or other forward-looking statements regarding future events or other financial performance, including forward-looking statements and information relating to DRDGOLD that are based on the beliefs of management, as well as assumptions made by and information currently available to management. When used in this press release, the words "estimate", "project", "believe", "anticipate", "intend", "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect management¹s current views with respect to future events and are subject to risks, uncertainties and assumptions. These statements include the Company's ability to continue as a going concern, its ability to successfully restructure the South African operations and, in particular the North West operations, its ability to significantly reduce its costs in South Africa, its ability to fund its future commitments, including the restructure of the North West Operations.

Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, adverse changes or uncertainties in general economic conditions in the markets we serve, a drop in the gold price, a continuing strengthening of the Rand against the Dollar, regulatory developments adverse to DRDGOLD or difficulties in maintaining necessary licenses or other governmental approvals, changes in DRDGOLD¹s competitive position, changes in business strategy, any major disruption in production at our key facilities or adverse changes in foreign exchange rates and various other factors.

These risks include, without limitation, those described in the section entitled "Risk Factors" included in our annual report for the fiscal year ended 30 June 2004, which we filed with the United States Securities and Exchange Commission on 29 November 2004 on Form 20-F, as amended by the Form 20-F/A filed on December 3, 2004, and those detailed from time to time with the United States Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, which speak only as of the date thereof. We do not undertake any obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after the date of this report or to the occurrence of unanticipated events.