UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

Commission file number 0-28800

DRDGOLD LIMITED

(Exact name of Registrant as specified in its charter and translation of Registrant's name into English)

Securities registered or to be registered pursuant to Section 12(b) of the Act

Securities registered or to be registered pursuant to Section 12(g) of the Act None 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act None 

                Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.                             864,588,711 ordinary shares of no par value outstanding as of June 30, 2020.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   Yes ☐   No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑            No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐   Accelerated filer ☑   Non-accelerated filer ☐  Emerging growth company ☐

If any emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐

 The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing. U.S. GAAP  ☐   International Financial Reporting Standards as issued by the International Accounting Standards Board  ☑    Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.   Item 17 ☐   Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐   No ☑

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ☐   No ☐

Preparation of Financial Information

                 We are a South African company and currently all our operations are located in South Africa. Accordingly, our books of account are maintained in South African Rand. Our financial statements included in our corporate filings are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

                Our consolidated financial statements included in this Annual Report are prepared in accordance with IFRS as issued by the IASB. All financial information, except as otherwise noted is prepared in accordance with IFRS as issued by the IASB.

                 We present our financial information in rand, which is our presentation and reporting currency. All references to “dollars” or “$” herein are to United States Dollars and references to “rand” or “R” are to South African rands. Solely for your convenience, this Annual Report contains translations of certain rand amounts into dollars at specified rates. These rand amounts do not represent actual dollar amounts, nor could they necessarily have been converted into dollars at the rates indicated. Unless otherwise indicated, rand amounts have been translated into dollars at the rate of R17.32 per $1.00, the year end exchange rate on June 30, 2020.

                In this Annual Report, we present certain non-IFRS financial measures such as the financial items “cash operating costs per kilogram”, “all-in sustaining costs per kilogram” and “all-in costs per kilogram” which have been determined using industry guidelines promulgated by the World Gold Council, which we use to determine costs associated with producing gold, cash generating capacities of the mines and to monitor performance of our mining operations. An investor should not consider these items in isolation or as alternatives to, operating costs, profit/(loss) for the year or any other measure of financial performance presented in accordance with IFRS or as an indicator of our performance. While the World Gold Council has provided definitions for the calculation of cash operating costs, the calculation of cash operating costs per kilogram, all-in sustaining costs per kilogram and all-in costs per kilogram may vary significantly among gold mining companies, and these definitions by themselves do not necessarily provide a basis for comparison with other gold mining companies. See Glossary of Terms and Explanations and Item 5A. Operating Results – “Cash operating costs, all-in sustaining costs and all-in costs” and “Reconciliation of cash operating costs per kilogram, all-in sustaining costs per kilogram, all-in costs per kilogram”.

DRDGOLD Limited

                 When used in this Annual Report, the term the “Company” refers to DRDGOLD Limited and the terms “we,” “our,” “us” or “the Group” refer to the Company and its subsidiaries as appropriate in the context.

Acquisition of gold assets from Sibanye-Stillwater and subsequent exercise of option to purchase shares

                On July 31, 2018, we completed the acquisition of the gold assets associated with Sibanye Gold Limited, trading as Sibanye-Stillwater’s (“Sibanye-Stillwater”) West Rand Tailings Retreatment Project (“WRTRP”), subsequently renamed Far West Gold Recoveries Proprietary Limited (“FWGR”).  This acquisition significantly increased our assets and revenues and added 2.72 million ounces to our Ore Reserves.  In connection with the acquisition, we issued to Sibanye-Stillwater new shares in the Company equal to 38.05% of outstanding shares, and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the acquisition at a 10% discount to the prevailing market value (the “Option”).  On January 8, 2020, Sibanye-Stillwater exercised the Option. On January 22, 2020 Sibanye-Stillwater subscribed for 168,158,944 DRDGOLD shares at an aggregate subscription price of R1,086 million,. These shares were issued at a price of R6.46 per share, being a 10% discount to the 30-day volume weighted average traded price.

Special Note Regarding Forward-Looking Statements

                 This Annual Report contains certain “forward-looking” statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, regarding expected future events or other expected future financial performance and information relating to us that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Some of these forward-looking statements include phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” or “will continue,” or similar expressions or the negatives thereof or other variations on these expressions, or similar terminology, or discussions of strategy, plans or intentions, including statements in connection with, or relating to, among other things:

·          our reserve calculations and underlying assumptions;

·          the trend information discussed in Item 5D.- Trend Information, including target gold production and cash operating costs;

·          estimated future throughput capacity and production;

·          expected trends in our gold production as well as the demand for and the price of gold;

·          our anticipated labor, electricity, water, crude oil and steel costs;

·          our expectation that existing cash will be sufficient to fund our operations in the next 12 months including our anticipated commitments;

·          estimated production costs, cash operating costs per ounce, all-in sustaining costs per ounce and all-in costs per ounce;

·          expectations on future gold price, supply and pricing trends including expected impact of the global environment on gold prices;

·          expected gold production and cash operating costs expected in fiscal year 2021;

·          our prospects in litigation and disputes;

·          statements with respect to the legal review for increasing the deposition capacity of the Brakpan/Withok Tailings Storage Facility (“TSF”), and expected potential increase in capacity and life of mine;

·          expected deposition capacity from improvements in our dams and new dam construction; and

·           expected effective gold mining tax rate.  

        Such statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions. Many factors could cause our 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:

·           the global impact of the COVID-19 pandemic and potential announcement of further national lockdowns, including in South Africa;

·           adverse changes or uncertainties in general economic conditions in South Africa;

·           regulatory developments adverse to us or difficulties in maintaining necessary licenses or other governmental approvals;

·           future performance relating to the FWGR Phase 2 assets;

·           challenges in replenishing mineral ore reserves;

·           changes in our competitive position;

·           changes in, or that affect our business strategy;

·           our ability to achieve anticipated efficiencies and other cost savings in connection with past and future acquisitions;

·           the success of our business strategy, development activities and other initiatives,

·           adverse changes in our gold production as well as the demand for and the price of gold;

·           changes in technical and economic assumptions underlying DRDGOLD’ mineral reserve estimates;

·           any major disruption in production at our key facilities;

·           adverse changes in foreign exchange rates;

·           adverse environmental changes;

·           adverse changes in ore grades and recoveries, and to the quality or quantity of reserves;

·           unforeseen technical production issues, industrial accidents and theft;

·           anticipated or unanticipated capital expenditure on property, plant and equipment;

·           the impact of HIV/AIDS, tuberculosis and the spread of other contagious diseases, such as coronavirus (COVID-19); and

·           various other factors, including those set forth in Item 3D. Risk Factors.

                For a discussion of such risks, see Item 3D. Risk Factors. The risk factors described in Item 3D. could affect our future results, causing these results to differ materially from those expressed in any forward-looking statements. These factors are not necessarily all of the important factors that could cause our results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.

                Investors are cautioned not to place undue reliance on these forward‑looking statements, which speak only as of the date thereof. We do not undertake any obligation to update publicly or release any revisions to these forward‑looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.

Special Note Regarding Links to External, or Third-party Websites

                 Links to external, or third-party websites, are provided solely for convenience. We take no responsibility whatsoever for any third-party information contained in such third-party websites, and we specifically disclaim adoption or incorporation by reference of such information into this report.

Imperial units of measure and metric equivalents

                 The table below sets forth units stated in this document, which are measured in Imperial and Metric.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

                 Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

                 Not applicable.

ITEM 3. KEY INFORMATION

3A. SELECTED FINANCIAL DATA

                 The following selected consolidated financial data as at June 30, 2020 and 2019 and for the years ended June 30, 2020, 2019 and 2018 is derived from our consolidated financial statements set forth elsewhere in this Annual Report, which have been prepared in accordance with IFRS, as issued by the IASB. These consolidated financial statements have been audited by KPMG Inc.  The selected consolidated financial data as at June 30, 2018, 2017 and 2016, and for the years ended June 30, 2017 and 2016 is derived from audited consolidated financial statements not appearing in this Annual Report which have been prepared in accordance with IFRS, as issued by the IASB. The selected consolidated financial data set forth below should be read in conjunction with Item 5. Operating and Financial Review and Prospects and with the consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report.

3B. CAPITALIZATION AND INDEBTEDNESS

                 Not applicable.

3C. REASONS FOR THE OFFER AND USE OF PROCEEDS

                 Not applicable.

3D. RISK FACTORS

                In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks relate to our operational processes, while others relate to our business environment. It is important to understand the nature of these risks and the impact they may have on our business, financial condition and operating results. Some of these risks are summarized below and have been organized into the following categories:

·           Risks related to our business and operations;

·           Risks related to the gold mining industry;

·           Risks related to doing business in South Africa; and

·           Risks related to ownership in our ordinary shares or American Depositary Shares (ADSs).

Risks related to our business and operations

Changes in the market price for gold and exchange rate fluctuations, both of which have fluctuated widely in the past, affect the profitability of our operations and the cash flows generated by those operations.

Our results are significantly impacted by the price of gold and the USD-Rand exchange rate.

Any sustained decline in the market price of gold from the current elevated levels would adversely affect us, and any decline in the price of gold below the cost of production could result in the closure of some or all of our operations which would result in significant costs and expenditure, such as, incurring retrenchment costs earlier than expected which could lead to a decline in profits, or losses. In addition, as most of our production costs are in rands, while gold is sold in dollars and then converted to rands, our results of operation and financial condition have been and could be in the future materially affected by an appreciation in the value of the rand. Accordingly, any sustained decline in the dollar price of gold and/or the strengthening of the South African rand against the dollar would negatively and adversely affect our business, operating results and financial condition.

In the wake of the COVID 19 pandemic and measures taken to address the outbreak, there has been a global trend of investors, turned to gold and gold stocks as a safe haven asset, as has been the case in may previous times of global economic crisis. This has led to a surge in the average gold price from R781,261 per kg in the quarter ended March 31, 2020 to R988,030 per kg for the quarter ended June 30, 2020.  As gold price levels in fiscal 2020 and currently are impacted by the COVID-19 outbreak, changes in conditions in the future (e.g. global recovery from the COVID-19 pandemic) could lead to a decrease of the gold price to pre-pandemic levels or lower.

                Although we entered into a gold price hedge in fiscal 2019, we typically do not enter into forward contracts to reduce our exposure to market fluctuations in the dollar gold price or the exchange rate movements of the rand. We sell gold at spot prices based on the afternoon London Bullion Market fixing price on the day when Rand Refinery, acting as an agent for the sale of all gold produced by the Group, delivers the Gold to the buyer. We usually sell our foreign currency at the spot price in the market on the date of trade. If the dollar gold price should fall and/or the rand should strengthen against the dollar, this would adversely affect us, and we may experience losses, and if these changes result in revenue below our cost of production and remain at such levels for any sustained period, we may be forced to curtail or suspend some or all our operations.

                Exchange rates are influenced by global economic trends. The closing exchange rate of the rand against the dollar at June 30, 2020 weakened by 23% compared to June 30, 2019. The closing price of the rand against the dollar at June 30, 2019 weakened by 3% compared to June 30, 2018. At September 30, 2020, the rand traded at R16.73 = $1.00 (based on closing rates), a 3% strengthening of the rand against the Dollar from June 30, 2020. The rand/dollar exchange rate remained volatile throughout the year mainly as a result of global, emerging market and South Africa economic uncertainty, global market slowdown sentiment, tensions between the USA and China, perceived political instability and low economic growth in South Africa, and a seemingly terminally distressed Eskom Holdings SOC Limited (“Eskom”). Further volatility in the Rand was fueled by Moody’s downgrade of South Africa’s sovereign credit rating to sub-investment grade as a result of “continuing  deterioration in fiscal strength and structurally very weak economic growth.”

                A decrease in the dollar gold price and/or a strengthening of the rand against the dollar results in a decrease in our profitability. If the rand was to appreciate against the dollar for a continued time, our operations could experience a reduction in cash flow and profitability, and this would adversely affect our business, operating results and financial condition.  

A failure to acquire new Ore Reserves could negatively affect our future cash flows, results of operations and financial condition.

New or ongoing exploration programs may not result in new mineral producing operations that will sustain or increase our Ore Reserves. A failure to acquire new Ore Reserves in sufficient quantities and quality to maintain or grow the current level and quality of our reserves will negatively affect our future cash flow, results of operations and financial condition. In addition, if we are unable to identify Ore Reserves that have reasonable prospects for economic extraction while maintaining sufficient controls on production and other costs, this will have a material effect on the future viability of our operations.

                While we have been able to increase reserves over the prior three fiscal years—See Item 4B. “Business Overview—Ore Reserves”—such increases were dependent upon acquisitions and successful drilling programs, and such increases were offset by depletions.  If we are not successful in increasing reserves in future years, our reserves could decrease, and such reduction would adversely affect our business, operating results and financial condition. 

                We may be unable to make desirable acquisitions or to integrate successfully any businesses we acquire, including the development of Phase 2 of the FWGR assets acquired from Sibanye-Stillwater. 

                Our future success may depend in part on the acquisition of businesses or technologies intended to complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. The ability to complete such transactions may be hindered by a number of factors, including identifying acquisition targets, obtaining necessary financing and potential difficulties in obtaining government approvals. Any acquisitions we make, could fail to achieve our financial or strategic objectives or disrupt our ongoing business which could adversely impact our results of operations. Phase I of the FWGR development was commissioned on April 1, 2019. Phase 2 planning of the project is currently underway. There can be no assurance that Phase 2 will be completed on time or will result in expected benefits.

                Any acquisition that we do make would pose risks related to the integration of the new business or technology with our business and organization. We cannot be certain that we will be able to achieve the benefits we expect from a particular acquisition or investment. Acquisitions may also strain our managerial and operational resources, as the challenge of managing new operations may divert our management from day-to-day operations of our existing business. Furthermore, we may have difficulty integrating employees, business systems, and technology. The controls, processes and procedures of acquired businesses may also not adequately ensure compliance with laws and regulations and we may fail to identify compliance issues or liabilities. Our business, financial condition and results of operations may be materially and adversely affected if we fail to coordinate our resources effectively to manage both our existing operations and any businesses we acquire.  Acquisitions can also result in unforeseen liabilities.

                Moreover, our resources are limited and our decision to pursue a transaction has opportunity costs; accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactions that could help us achieve our financial or strategic objectives.

                Our large projects, most notably the development of FWGR, are subject to schedule delays and cost overruns, and we may face constraints in financing our existing projects or new business opportunities, which could render our projects unviable or less profitable than planned.

                The development of our projects are capital intensive processes carried out over long durations and requires us to commit significant capital expenditure and allocate considerable management resources in utilising our existing experience and know-how.

                Projects like the development of Phase 2 of the FWGR assets acquired from Sibanye-Stillwater is subject to the risk of delays and cost overruns which are inherent in any large construction project including, inter alia: 

•  shortages or unforeseen increases in the cost of equipment, labor and raw materials;

•  unforeseen design and engineering problems;

•  unforeseen construction problems;

•  unforeseen delays commissioning sections of the project. For example: FWGR Phase 1 date achieved commercial production on April 1, 2019 and the mills were commissioned in September 2019 (both initially planned for January 1, 2019);

•  inadequate phasing of activities;

•  labor disputes;

•  inadequate workforce planning or productivity of workforce;

•  inadequate management practices;

•  natural disasters and adverse weather conditions;

•  global pandemics;

•  national work stoppages as a result of infectious deceases and pandemics such as COVID-19;

•  failure or delay of third-party service providers; and

•  changes to regulations, such as environmental regulations.

                In addition, if the assumptions we make in assessing the viability of our projects, including those relating to commodity prices, exchange rates, interest rates, inflation rates and discount rates, prove to be incorrect or need to be significantly revised, this may adversely affect the profitability or even the viability of our projects. The uncertainty and volatility in the gold market makes it more difficult to accurately evaluate the project economics and increases the risk that the assumptions underlying our assessment of the viability of the project may prove incorrect.

                As the development of FWGR is particularly material to DRDGOLD, significant cost overruns or adverse changes in assumptions affecting the viability of the project could have a material adverse effect on our business, cash flows, financial condition and prospects.

                Our operating cash flow and banking facilities may be insufficient to meet our capital expenditure plans and requirements, depending on the timing and cost of development of our existing projects and any further projects we may pursue. As a result, new sources of capital may be needed to meet the funding requirements of these projects and to fund ongoing business activities. Our ability to raise and service significant new sources of capital will be a function of, inter alia, macroeconomic conditions, our credit rating, our gearing and other risk metrics, the condition of the financial markets, future gold prices, the prospects for our industry, our operational performance and operating cash flow and debt position.

                In the event of operating or financial challenges, any dislocation in financial markets or new funding limitations, our ability to pursue new business opportunities, invest in existing and new projects, fund our ongoing business activities and pay dividends, could be constrained, any of which could have a material adverse effect on our business, operating results cash flows and financial condition.

                We may not be able to meet our cash requirements because of a number of factors, many of which are beyond our control.

                Management’s estimates on future cash flows are subject to risks and uncertainties, such as the rand gold price, production volumes, recovered grades and costs. If we are unable to meet our cash requirements out of cash flows generated from our operations, we would need to fund our cash requirements from other financing sources and any such other financing may not be permitted under the terms of our financing arrangements, or may not be available on acceptable terms, or at all. If we do not generate sufficient cash flows or have access to adequate financing, our ability to respond to changing business and economic conditions, make future acquisitions, react to adverse operating results, meet our debt service obligations and fund required capital expenditures or meet our working capital requirements may be adversely affected.

                Any interruption in gold production at any of our two mining operations generating cash flows, will have an adverse effect on the Company.

                We have two mining operations generating cash flows, namely Ergo and FWGR.  Ergo’s reclamation sites, processing plants, pump stations and the Brakpan/Withok Tailings Storage Facility ("Brakpan/Withok TSF") are linked through pipeline infrastructure. The Ergo plant is currently our major processing plant. FWGR’s reclamation site, DP2 processing plant, pump stations and the Driefontein 4 Tailings Storage Facility are linked through pipeline infrastructure.

                Our reclamation sites, plants, pipelines infrastructure and the deposition/storage facilities are exposed to numerous risks, including operational down time due to planned or unplanned maintenance, destruction of infrastructure, spillages, higher than expected operating costs, or lower than expected production as a result of decreases in extraction efficiencies due to imbalances in the metallurgical process as well as inconsistent volume throughput or other factors.

                We have suffered interruptions in gold production. For example: the Group temporarily halted its operations at Ergo and FWGR on March 26, 2020 pursuant to the announcement of the national lockdown in South African (“Lockdown”). Operations gradually recommenced through April and May 2020 (Refer to Item 4D. ‘‘Property, plant and production – Ergo Production and FWGR production”), but we remain subject to the risk of further lockdowns and other restrictions as a result of the COVID-19 pandemic.

                Our operations are also exposed to severe weather events that could interrupt production. It is believed that the long-term upward trend in global temperature is directly correlated with the increase in global severe weather events both in terms of magnitude and frequency.

                For example, dry weather conditions have prompted level 2 water restrictions on residential water users in the Johannesburg area. These water restrictions remain in place as at September 30, 2020. Severe thunderstorms and high winds, especially during the summer rainy season, may also cause damage to operation infrastructure that may in turn cause an interruption in the production of gold.  Such incidents and other weather events may damage the facility and cause the interruption of deposition and gold production until the facility is repaired or alternative deposition is brought online.

                Our FWGR operations are reliant on the use of and access of Sibanye-Stillwater’s mining infrastructure, related services including the smelting and recovery of gold from gold loaded carbon produced at FWGR as well as the use of various rights, permits and licenses held by Sibanye Gold in terms which FWGR operates, pending the transfer to FWGR of those that are transferable. Any disruption in the supply of, or our ability to use and access the Sibanye-Stillwater mining infrastructure, related services and rights, permits and licenses, could have an adverse impact on our operations.

                Each of these or other weather conditions or other interruptions could adversely impact our operations which could have a material adverse effect on our business, operating results and financial condition.

                Flooding at our discontinued underground operations may cause us to incur liabilities for environmental damage.

                If the rate of rise of water is not controlled, water from our abandoned underground mining areas could potentially rise and come into contact with naturally occurring underground water or decant into surrounding underground mining areas and could ultimately also rise to surface. Progressive flooding of these abandoned underground mining areas and surrounding underground mining areas could eventually cause the discharge of polluted water to the surface and to local water sources.

                Should underground water levels not reach a natural subterranean equilibrium, and if underground water rises to the surface, we, together with all other mining companies in those areas, may face claims relating to environmental damage.  Any such claims may have a material adverse effect on our business, operating results and financial condition.

An increase in production costs could have an adverse effect  on our results of operations.

                 An increase in our production costs will impact our results of operations. Production costs are affected by, inter alia:  

•  labor stability, productivity and increases in labor costs;

•  increases in electricity and water prices;

•  increases in crude oil and steel prices;

•  changes in regulation;

•  unforeseen changes in ore grades and recoveries;

•  unexpected changes in the quality or quantity of reserves;

•  technical production issues;

•  availability and cost of smelting and refining arrangements;

•  environmental and industrial accidents;

•  gold theft;

•  environmental factors; and

•  pollution.

Our production costs consist mainly of materials including reagents and steel, labor, electricity, specialized service providers, water, fuels, lubricants and other oil and petroleum-based products. Production costs have in the past, and could in the future, increase at rates in excess of our annual inflation rate and impact our results of operation and can result in the restructuring of these operations at substantial cost.

                On September 16, 2019, Ergo signed a two-year wage agreement with the Majority Unions for an average increase of 5.9% per annum across our workforce with individual increases ranging from 5.5% to 7% per annum, with the intention to extend this agreement for a third year.  As part of the transitional arrangements at FWGR, a three-year wage agreement is in place and is scheduled to conclude in June 2021.

                 Increases in production costs, if material, will adversely impact our results of operations.  In addition, any initiatives that we pursue to reduce costs, such as reducing our labor force, a reduction of the corporate overhead, negotiating lower price increases for consumables and cost controls may not be successful or sufficient to offset the increases affecting our operations and could adversely affect our business, operating results and financial condition.

                 Uncertainties regarding the impact of the COVID-19 pandemic on current and future operations

                We face risks relating to the COVID-19 pandemic and measures taken to address the outbreak.

                The Group temporarily halted its operations at Ergo and FWGR on March 26, 2020 pursuant to the announcement of the national lockdown in South African (“Lockdown”). Operations gradually recommenced through April and May 2020 (Refer to Item 4D. ‘‘Property, plant and production – Ergo Production and FWGR production”). We remain subject to the risk of further lock-downs or other restrictions to our operations and we also face the risk of disruptions to our suppliers' operations.

                The risk related to the impact of the COVID-19 pandemic is not isolated to health and safety for our employees and disruptions to our operations, but has manifested as a risk in terms of social stability as well as economic activity and growth both in South Africa and globally. Whilst we have implemented programs to address the risk of COVID-19 infections at our operations, the COVID-19 pandemic may have numerous other consequences, including adverse impacts on our supply chain and availability of materials used in our operations. The risks associated with an anticipated “new wave” of infection remain highly uncertain and could lead to increased employee infection risk decreasing productivity and could result in further restrictive national lockdowns, which could lead to disruptions in our business operations.

                We have benefitted from the increase in gold prices driven at least in part by the impact of the COVID-19 pandemic.  Gold prices may decrease to the extent that the impact of the pandemic is alleviated.

                 Our operations are subject to extensive environmental regulations which could impose significant costs and liabilities.

                Our operations are subject to increasingly extensive laws and regulations governing the protection of the environment under various state, provincial and local laws, which regulate air and water quality, hazardous waste management and environmental rehabilitation and reclamation. Our mining and related activities have the potential to impact the environment, including land, habitat, streams and environment near the mining sites. Failure to comply with environmental laws or delays in obtaining, or failures to obtain government permits and approvals may adversely impact our operations. In addition, the regulatory environment in which we operate could change in ways that could substantially increase costs of compliance, resulting in a material adverse effect on our profitability.

                We have incurred, and expect to incur in the future, expenditures to comply with these environmental laws and regulations. We have estimated our aggregate group Provision for Environmental Rehabilitation at a net present value of R568.9 million which is included in our statement of financial position as at  June 30, 2020 (Refer to Item 18. ‘‘Financial Statements - Note 11 – Provision for environmental rehabilitation”). However, the ultimate amount of rehabilitation costs may in the future exceed the current estimates due to factors beyond our control, such as changing legislation, higher than expected cost increases, or unidentified rehabilitation costs. We fund these environmental rehabilitation costs by making contributions over the life of the mine to environmental trust funds or funds held in insurance instruments established for our operations. If any of our operations are prematurely closed, the rehabilitation funds may be insufficient to meet all the rehabilitation obligations of those operations. The closure of mining operations, without sufficient financial provision for the funding of rehabilitation liabilities, or unacceptable damage to the environment, including pollution or environmental degradation, may expose us and our directors to prosecution, litigation and potentially significant liabilities.

                Damage to tailings dams and excessive maintenance and rehabilitation costs could result in lower production and health, safety and environmental liabilities.

Our tailings facilities are exposed to numerous risks and events, the occurrence of which may result in the failure, breach or damage of such a facility. These may include sabotage, failure by our employees to adhere to the codes of practice and natural disasters such as excessive rainfall and seismic events, any of which could force us to stop or limit operations. In addition, the dams could overflow or a side wall could collapse and the health and safety of our employees and communities living around these dams could be jeopardized. In the event of damage to our tailings facilities, our operations will be adversely affected and this in turn could have a material adverse effect on our business, operating results and financial condition.

Due to the nature of our business, our operations face extensive health and safety risks and regulation of those risks.

Gold mining is exposed to numerous risks and events, the occurrence of which may result in the death of, or personal injury, to employees. According to section 54 of the Mine, Health and Safety Act of 1996, if an inspector believes that any occurrence, practice or condition at a mine endangers or may endanger the health or safety of any person at the mine, the inspector may give any instruction necessary to protect the health or safety of persons at the mine. These instructions could include the suspension of operations at the whole or part of the mine. Health and safety incidents could lead to mine operations being halted and that will increase our unit production costs, which could have a material adverse effect on our business, operating results and financial condition.

                Events may occur for which we are not insured which could affect our cash flows and profitability.

                Because of the nature of our business, we may become subject to liability for pollution or other hazards against which we are unable to insure or are not insured, including those in respect of past mining activities. Our existing property, business interruption and other insurance contains certain exclusions and limitations on coverage. The insured value for property and loss of profits due to business interruption is R11.35 billion, with a total loss limit of R650 million for the 2021 fiscal year. Business interruption is only covered from the time the loss occurs and is subject to time and amount deductibles that vary between categories. To cover legal liability to third parties for damage, injury, illness or death a total of R1.5 billion insurance cover is in place for the 2020 fiscal year, subject to certain exclusions and limitations on coverage.

                Insurance coverage may not cover the extent of claims brought against us, including claims for environmental, industrial or pollution related accidents, for which coverage is not available. If we are required to meet the costs of claims, which exceed our insurance coverage, this could have a material adverse effect on our business, operating results and financial condition.

If we are unable to attract and retain key personnel our business may be harmed.

                The success of our business will depend, in large part, upon the skills and efforts of a small group of management and technical personnel including the positions of Chief Executive Officer and Chief Financial Officer. In addition, we compete with mining and other companies on a global basis to attract and retain key human resources at all levels with appropriate technical skills and operating and managerial experience necessary to operate the business. Factors critical to retaining our present staff and attracting additional highly qualified personnel include our ability to provide these individuals with competitive compensation arrangements, and other benefits. If we are not successful in retaining or attracting highly qualified individuals in key management positions, our business may be harmed. We do not maintain “key man” life insurance policies on any members of our executive team. The loss of any of our key personnel could delay the execution of our business plans, which may result in decreased production, increased costs and decreased profitability.

We are subject to operational risks associated with our flotation and fine-grind (FFG) project.

                Our flotation and fine-grind project, implemented in fiscal year 2014, is designed to improve extraction efficiencies. 

                 Certain components of the FFG were temporarily halted in the first quarter of fiscal year 2020 to perform an evaluation and compare the additional revenues earned from additional gold extracted from the most recently integrated reclamation sites compared to the cost incurred to operate the FFG circuit. The remaining components of the FFG continue to operate. Testing on the newly integrated material has suggested that some of these halted components will only operate in subsequent years once the related reclamation sites have been brought online in accordance with the current life of mine plan for ERGO. These halted components are classified as idle assets until they are brought back into operation as described. The success of the FFG is directly dependent on the material type and material mix processed through it. Therefore, the halted components will remain idle pending the continuation and conclusion of various test work regarding the material type and material mix of future reclamation sites. Firm decisions have also not yet been made by the executive committee and the Board of Directors on the future of the FFG. We remain subject to operations risks relating to the FFG project.

A disruption in our information technology systems, including incidents related to cyber security, could adversely affect our business operations.

We rely on the accuracy, availability and security of our information technology systems. Despite the measures that we have implemented, including those related to cyber security, our systems could be breached or damaged by computer viruses and systems attacks, natural or man-made incidents, disasters or unauthorized physical or electronic access.

                Any system failure, accident or security breach could result in business disruption, theft of our intellectual property, trade secrets (including our proprietary technology), unauthorized access to, or disclosure of, personnel or supplier information, corruption of our data or of our systems, reputational damage or litigation. We may also be required to incur significant cost to protect against or repair the damage caused by these disruptions or security breaches in the future, including, for example, rebuilding internal systems, implementing additional threat protection measures, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties.

                These threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures and we remain subject to additional known or unknown threats. We are subject to cybersecurity attacks from time to time, and have been subject to phishing. In some instances, we may be unaware of an incident or its magnitude and effects. We may be susceptible to new and emerging risks, including cyber-attacks and phishing, in the evolving landscape of cybersecurity threats.

                In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or shutdown our information technology systems. Information technology system disruptions, if not appropriately addressed or mitigated, could have a material adverse effect on our operations.

Risks related to the gold mining industry

                A change in the dollar price of gold, which in the past has fluctuated widely, is beyond our control.

Historically, the gold price has fluctuated widely and is affected by numerous industry factors over which we have no control including:

•  a significant amount of above-ground gold in the world that is used for trading by investors;

•  the physical supply of gold from world-wide production and scrap sales, and the purchase, sale or divestment by central banks of their gold holdings;

•  the demand for gold for investment purposes, industrial and commercial use, and in the manufacturing of jewelry;

•  speculative trading activities in gold;

•  the overall level of forward sales by other gold producers;

•  the overall level and cost of production of other gold producers;

•  international or regional political and economic events or trends;

•  the strength of the dollar (the currency in which gold prices generally are quoted) and of other currencies;

•  financial market expectations regarding the rate of inflation;

•  interest rates;

•  gold hedging and de-hedging by gold producers; and

•  actual or expected gold sales by central banks and the International Monetary Fund.

During fiscal year 2020 the gold price reached a high of U$1,785 per ounce and a low of U$1,382. We benefited from a sustained upswing in gold price in the first quarter, and in the fourth quarter, following the global response to the COVID-19 pandemic, the gold price surged further to all-time highs.

                Investors globally, as they have in so many previous times of crisis, turned to gold and gold stocks as a safe haven asset, leading to a surge in the average gold price from R781,261 per kg in the quarter ended March 31, 2020 to R988,030 per kg for the quarter ended  June 30, 2020. The rand/dollar exchange rate remained volatile throughout the year mainly as a result of economic uncertainty and perceived political instability, global market slowdown sentiment, tensions between the USA and China, low economic growth, and a seemingly terminally distressed Eskom. Further volatility in the Rand was fueled by Moody’s downgrade of South Africa’s sovereign credit rating to sub-investment grade as a result of “continuing  deterioration in fiscal strength and structurally very weak economic growth.”

                COVID-19 (or an alleviation of the pandemic) or other factors mentioned above could put negative pressure on the price of gold in the future. Our profitability may be negatively impacted by a decline in the gold price as we incur losses when revenue from gold sales drops below the cost of production for an extended period.

                The exploration of mineral properties is highly speculative in nature, involves substantial expenditures, and is frequently unproductive.

                Exploration is highly speculative in nature and requires substantial expenditure for drilling, sampling and analysis of ore bodies to quantify the extent of the gold reserve. Many gold exploration programs, including some of ours, do not result in the discovery of mineralization and any mineralization discovered may not be of sufficient quantity or quality to be mined profitably. If we discover a viable deposit, it usually takes several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of production may change.

                Moreover, we rely on the evaluations of professional geologists, geophysicists, and engineers for estimates in determining whether to commence or continue mining. These estimates generally rely on scientific and economic assumptions, which in some instances may not be correct, and could result in the expenditure of substantial amounts of money on a deposit before it can be determined with any degree of accuracy whether the deposit contains economically recoverable mineralization. Uncertainties as to the metallurgical recovery of any gold discovered may not warrant mining based on available technology.

                Our future growth and profitability will depend, in part, on our ability to identify and acquire additional mineral rights, and on the costs and results of our continued exploration and development programs. Our business focuses mainly on the extraction of gold from tailings, which is a volume driven exercise. Only significant deposits within proximity of services and infrastructure that contain adequate gold content to justify the significant capital investment associated with plant, reclamation and deposition infrastructure are suitable for exploitation in terms of our model. There is a limited supply of these deposits which may inhibit exploration and developments, especially in a declining gold price environment.

                Because of these uncertainties, we may not successfully acquire additional mineral rights, or identify new Proven and Probable Ore Reserves in sufficient quantities to justify commercial operations in any of our operations. The costs incurred on exploration activities that do not identify commercially exploitable reserves of gold are not likely to be recovered and therefore are likely to be impaired.

There is inherent uncertainty in Ore Reserve estimates.

                Our Ore Reserve figures described in this document are the best estimates of our current management as of the dates stated and are reported in accordance with the requirements of Industry Guide 7 of the SEC. These estimates may not reflect actual reserves or future production.

                Should we encounter mineralization or formations different from those predicted by past drilling, sampling and similar examinations, reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might ultimately cause our reserve estimates to decline. Moreover, if the rand price of gold declines, or stabilizes at a price that is lower than recent levels, or those assumed in our mining plans, or if our labor, water, steel, electricity and other production costs increase or recovery rates decrease, it may become uneconomical to recover Ore Reserves, particularly those containing relatively lower grades of mineralization. Under these circumstances, we would be required to re-evaluate our Ore Reserves. Short-term operating factors relating to the ability to reclaim our Ore Reserves, at the required rate, such as an interruption or reduction in the supply of electricity or a shortage of water may have the effect that we are unable to achieve critical mass, which may render the recovery of Ore Reserve, or parts of the Ore Reserve no longer feasible, which could negatively affect production rate and costs and decrease our profitability during any given period. Estimates of reserves are based on drilling results and because unforeseen conditions may occur in these mine dumps that may not have been identified by the drilling results, the actual results may vary from the initial estimates. These factors have and could result in reductions in our Ore Reserve estimates and as a result, our production, which could in turn adversely impact the total value of our mining asset base and our business, operating results and financial condition.

                Gold mining is susceptible to numerous events that could have an adverse impact on a gold mining business.

                The business of gold mining is exposed to numerous risks and events, the occurrence of which may result in the death of or personal injury to employees, the loss of mining and reclamation equipment, damage to or destruction of mineral properties or production facilities, monetary losses, delays in production, environmental damage, loss of the license to mine and potential legal claims. The risks and events associated with the business of gold mining include:

·           environmental hazards and pollution, including dust generation, toxic chemicals, discharge of metals, pollutants, radioactive materials and other hazardous material into the air and water;

·           flooding, landslides, sinkhole formation, ground subsidence, ground and surface water pollution and waterway contamination;

·           a decrease in labor productivity due to labor disruptions, work stoppages, disease, slowdowns or labor strikes;

·           unexpected decline of ore grade;

·           metallurgical conditions or lower than expected gold recovery;

·           failure of unproven or evolving technologies;

·           mechanical failure or breakdowns and ageing infrastructure;

·           energy and electrical power supply interruptions;

·           availability of water;

·           injuries to employees or fatalities due to falls from heights and accidents relating to mobile machinery or electrocution or other causes;

·           activities of illegal or artisanal miners;

·           material and equipment availability;

·           legal and regulatory restrictions and changes to such restrictions;

·           social or community disputes or interventions;

·           accidents caused from the collapse of tailings dams;

·           pipeline failures and spillages;

·           safety-related stoppages; and

·          corruption, fraud and theft including gold bullion theft.

The occurrence of any of these hazards could delay production, increase production costs and may result in significant legal claims and adversely impact our business results of operations and financial condition.

Risks related to doing business in South Africa

                Political or economic instability in South Africa may reduce our production and profitability.

                We are incorporated in South Africa and all our operations are currently in South Africa. As a result, political and economic risks relating to South Africa could have a significant effect on our production and profitability. Large parts of the South African population are unemployed and do not have access to adequate education, health care, housing and other services, including water and electricity. Government policies aimed at alleviating and redressing the disadvantages suffered by most citizens under previous governments may increase our costs and reduce our profitability. In recent years, South Africa has experienced high levels of crime. These problems may impede fixed inward investment into South Africa and increase emigration of skilled workers and as a result, we may have difficulties retaining qualified employees.

                The COVID-19 pandemic has also increased the risk of social unrest in our surrounding communities already created from a growing frustration of society at large on slow reformative action being taken by all spheres of the South African government, in particular, in combating high unemployment particularly in the youth of the country. This frustration can lead to social unrest, people committing crimes, vandalising property and damaging infrastructure in and around our operations.

                Inflation can adversely affect us.

                The inflation rate in South Africa is relatively high compared to developed, industrialized countries. As of June 30, 2020, the annual Consumer Price Inflation Index (“CPI”), stood at 2.2% compared to 4.5% in June 2019 and 4.6% in June 2018. Annual CPI was 3.0% as at September 30, 2020. Inflation in South Africa generally results in an increase in our rand operational costs, unless such inflation is accompanied by a concurrent devaluation of the rand against the dollar or an increase in the dollar price of gold. Higher and sustained inflation in the future, with a consequent increase in operational costs could have a material adverse effect on our results of operations and our financial condition and could result in operations being discontinued or reduced or rationalized, which could reduce our profitability.

 The treatment of occupational health diseases and the potential liabilities related to occupational health diseases may have an adverse effect on the results of our operations and our financial condition.

We may be subject to claims relating to occupational health diseases and we are currently subject to a claim described below.

In January 2013, DRDGOLD, East Rand Proprietary Mines Limited (“DRDGOLD Respondents”) and 23 other mining companies (“Other Respondents”) (collectively referred to as "Respondents") were served with a court application issued in the High Court of South Africa for a class certification on behalf of former mineworkers and dependents of deceased mineworkers (“Applicants”). In the application the Applicants allege that the Respondents conducted underground mining operations in a negligent and complicit manner causing the former mineworkers to contract occupational lung diseases. The Applicants have as yet not quantified the amounts which they are demanding from the Respondents in damages.

On May 3, 2018, former mineworkers and dependents of deceased mineworkers (“Applicants”) and Anglo American South Africa Limited, AngloGold Ashanti Limited, Sibanye Gold Limited trading as Sibanye-Stillwater, Harmony Gold Mining Company Limited, Gold Fields Limited, African Rainbow Minerals Limited and certain of their affiliates (“Settling Companies”) settled the class certification application in which the Applicants in each sought to certify class actions against gold mining houses cited therein on behalf of mineworkers who had worked for any of the particular respondents and who suffer from any occupational lung disease, including silicosis or tuberculosis.

The DRDGOLD Respondents, are not a party to the settlement between the Applicants and Settling Companies. The dispute, insofar as the class certification application and appeal thereof is concerned, still stands and has not terminated in light of the settlement agreement (refer to Item 18. “Financial Statements - Note 26 – Contingencies”).

An adverse judgment in the claim described above or any other claim could have an adverse impact on us.

                 We have experienced an increase in organised crime activities which has started to target gold plants.

                Recently, a number of companies, including our Knights and Ergo plants, were subject to armed attacks targeting the gold in the plants or high-grade gold bearing material. These incidents were very well organised and in all the incidents the thieves were armed. In some of the incidents employees of companies were also held hostage until the targeted material was obtained. In the 2019 incident a security officer was fatally injured.

                 Any such incidents have and may still result in losses of gold or other damage which could have a material adverse impact on our business, financial results or condition.

                Theft at our sites, particularly of copper, may result in greater risks to employees or interruptions in production.

                 Crime statistics in South Africa indicate an increase in theft. This together with price increases for copper has resulted in theft of copper cable. Our operations experience high incidents of copper cable theft despite the implementation of security measures. In addition to the general risk to employees’ lives in an area where theft occurs, we may suffer production losses and incur additional costs as a result of power interruptions caused by cable theft and theft of bolts used for the pipeline.

                Power stoppages or shortages or increases in the cost of power could negatively affect our results and financial condition.

                 Our mining operations are dependent on electrical power supplied by Eskom, South Africa’s state-owned utility company. As a result of insufficient generating capacity, owing to poor maintenance and lagging capital infrastructure investment, South Africa has faced significant disruptions in electricity supply in the past and Eskom has warned that the country could continue to face disruptions in electrical power supply in the foreseeable future.

The security of future power supply as well as the cost thereof remains a risk and may have major implications for our operations, which may result in significant production losses. The country’s current reserve capacity may be insufficient and the risk of electricity stoppages is expected to continue for the foreseeable future. Supply interruptions because of this as well as an aging and poorly maintained distribution grid may pose a significant risk to the operations.

                The group has a load-curtailment agreement in place with Eskom in terms of which we reduce power consumption by between 10% and 20% when the grid is under pressure, but Eskom maintains uninterrupted power supply to the operations.

                The National Energy Regulator of South Africa (“NERSA”) initially approved an average tariff increase of 8.1% average effective April 1, 2020 and an average increase of 5.2% effective April 1, 2021. In July 2020, a high court ordered that the average tariff for April 1, 2021 be increased by a further 9.8%. NERSA has applied for leave to appeal this ruling. These increases have had an adverse effect on our production costs and similar or higher future increases could have a material adverse effect on our operating results and financial condition.

Ergo is currently disputing the electricity tariff charged by Ekurhuleni Metropolitan Municipality (refer to Item 18. “Financial Statements - Note 24 – Payments made under protest”).

Scarcity of water may negatively affect our operations.

South Africa faces water shortages, which may lead to the revision of water usage strategies by several sectors in the South African economy, including electricity generation and municipalities. This may result in rationing or increased water costs in the future. Such changes would adversely impact our surface retreatment operations, which use water to transport the slimes or sand from reclaimed areas to the processing plant and to the tailings facilities. In addition, as our gold plants and piping infrastructure were designed to carry certain minimum throughputs, any reductions in the volumes of available water may require us to adjust production at these operations.

DRDGOLD invested R22 million in the construction of a filtration plant at the Rondebult Waste Water Works (operated by the East Rand Water Care Company) to treat sewage water to reduce the use of potable water. This water is used both to reclaim and carry production materials and also, ultimately, to irrigate rehabilitation vegetation at a significantly lower cost than that of potable water. The plant was commissioned in early fiscal year 2016 and has design capacity to provide Ergo with 10 Mega Litres (“Ml”) a day from the Rondebult sewage treatment facility. However, due to the deterioration of the local government authorities’ infrastructure, the expected quantity of sewerage is not reaching the treatment facility and as a result Ergo is still not able to extract the full design capacity of 10 Ml of water a day. It is not certain if and when the flow of sewerage will reach expected levels.

These measures may not be sufficient to alleviate the water scarcity issues we face.

Government Regulation

                Government policies in South Africa may adversely impact our operations and profits.

                The mining industry in South Africa is extensively regulated through legislation and regulations issued through the government’s administrative bodies. These involve directives in respect of health and safety, the mining and exploration of minerals and managing the impact of mining operations on the environment. A variety of permits and authorities are required to mine lawfully, and the government enforces its regulations through the various government departments. The formulation or implementation of government policies may be discretionary and unpredictable on certain issues, including changes in conditions for the issuance of licenses insofar as social and labor plans are concerned, transformation of the workplace, laws relating to mineral rights, ownership of mining assets and the rights to prospect and mine, additional taxes on the mining industry and in extreme cases, nationalization. A change in regulatory or government policies could adversely affect our business.

                Mining royalties and other tax reform could have an adverse effect on the business, operating results and financial condition of our operations.

                The Mineral and Petroleum Resources Royalty Act, No.28 of 2008 and the Mineral and Petroleum Resources Royalty Act (Administration), No.29 of 2008 govern royalty rates for gold mining in South Africa. These acts provide for the payment of a royalty, calculated through a royalty rate formula (using rates of between 0.5% and 5.0%) applied against gross revenue per year, payable half yearly with a third and final payment thereafter. The royalty is tax deductible and the cost after tax amounts to a rate of between 0.33% and 3.3% at the prevailing marginal tax rates applicable to the taxed entity. The royalty is payable on old unconverted mining rights and new converted mining rights. Based on a legal opinion the Company obtained, mine dumps created before the enactment of the Mineral and Petroleum Resources Development Act (“MPRDA”) fall outside the ambit of this royalty and consequently the Company does not pay any royalty on any dumps created prior to the MPRDA. Introduction of further revenue based royalties or any adverse future tax reforms could have an adverse effect on our business, operating results and financial condition.

                Failure to comply with the requirements of the Broad Based Socio-Economic Empowerment Charter could have an adverse effect on our business, operating results and financial condition of our operations.

                The Broad Based Socio‑Economic Empowerment Charter for the South African Mining Industry (“Mining Charter”) (effective from 2014) established certain numerical goals and timeframes to transform equity participation in the mining industry in South Africa. The goals set by the Mining Charter include that each mining company must achieve 15% ownership by historically disadvantaged South Africans, or HDSA, of its South African mining assets within five years and 26% ownership within ten years, in each case, from May 1, 2004. This is to be achieved by, among other methods, the sale of assets to historically disadvantaged persons (“HDP”) on a willing seller/willing buyer basis at market value.

                In September 2010, the Department of Mineral Resources (“DMR”) released amendments to the Mining Charter. The intention behind the amendments to the Mining Charter was to clarify certain ambiguities and uncertainties which existed under the Mining Charter and to provide more specific targets. It was this latter Mining Charter which the DMR applied to assess compliance with socio-economic transformation objectives. The goals set by the amendments to the Mining Charter include: minimum 26% HDSA ownership by March 2015; procurement of a minimum 40% of capital goods, 50% of consumer goods and 70% of services from Black Economic Empowerment, or BEE, entities by March 2015; minimum 40% HDSA representation at each of executive management level, senior management level, middle management level, junior management level and core and critical skills levels; minimum 3% investment of annual payroll in skills training; investment in community development; and attaining an occupancy rate of one person per room in on-site accommodation.       

                 A new Mining Charter has been implemented in September 2018 and supersedes all previous iterations thereof – refer Item 4B. Business Overview – Governmental regulations and their effect on our business –  The Broad Based Socio-Economic Empowerment Charter.

Government policies in South Africa may adversely impact our operations and profits related to financial provisioning for rehabilitation.

                An amendment to the MPRDA was first proposed in 2013. The amendment bill, if implemented, would have had a material adverse impact on the Group's estimated financial provisions for environmental remediation and management due to the proposed inclusion of historic and old mine dumps in the definition of “residue stockpiles” as well as the extension of the liability for rehabilitation beyond the issuance of a closure certificate and the requirement to maintain financial provision for closed sites within a period of 20 years after a site is closed. The MPRDA Amendment Bill was withdrawn in August 2018 by the Minister of Mineral Resources, citing, amongst other things, the adequacy of the current MPRDA to deal with all regulatory matter pertaining to the mining and petroleum industries.

                Revised Financial Provisioning Regulations (“FPR”) were published on November 20, 2015 under the National Environmental Management Act, 107 of 1998 (“NEMA”) and became effective from the date of publication thereof. Proposed amendments to the FPRs were published for public comment GNR 1228 GG 41236 of November 10, 2017 (“Draft Regulations”), which seek to address some challenges relating to the implementation thereof. Under these FRPs to be implemented by the DMR, existing environmental rehabilitation trust funds may only be used for post closure activities and may no longer be utilised for their intended purpose of concurrent and final rehabilitation and closure. Further amendments were made to the FPR on September 21, 2018, which extended the period of compliance with the FPR to February 19, 2020. This is likely to affect the amount of funds set aside for financial provision for rehabilitation of the mine. See discussion in 4.B. Business Overview – Governmental regulations and their effect on our business – Financial Provision for Rehabilitation.

The implementation of Carbon Tax effective from June 1, 2019 may have a direct or indirect material adverse effect on our business, operating results and financial condition.

                The Carbon Tax Act No 15 of 2019, or the CTA, came into effect from June 1, 2019. The CTA is based on the polluter-pays-principle and will be implemented across phases. The first phase will run from June 1, 2019 to December 31, 2022 and is applicable to scope 1 emitters. The second phase will be implemented from January 1, 2023 to December 31, 2030. During the first phase, tax-free emission allowances ranging from 60 per cent to 95 per cent are available to emitters in this first phase. This includes a basic tax-free allowance of 60 per cent for all activities, a 10 per cent process and fugitive emissions allowance, a maximum 10 per cent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to 5 per cent for companies that reduce the emissions intensity of their activities, a 5 per cent carbon budget allowance for complying with the reporting requirements and a maximum 10 per cent allowance for trade exposed sectors. Regulations detailing the tax-free emission allowances during the first and second phases have not been published to date. The Carbon Tax will not have a direct impact on the price of electricity during the first phase of implementation. However, the second phase of implementation of the Carbon Tax may have a direct or indirect material adverse effect on our business, operating results and financial condition. In addition, the potential increases in costs resulting from suppliers passing through their Carbon Tax exposure to the Company may have a direct or indirect material adverse effect on our business, operating results and financial condition.

                Ring-fencing of unredeemed capital expenditure for South African mining tax purposes could have an adverse effect on the business, operating results and financial condition of our operations.

                The Income Tax Act No 58 of 1962, or the ITA, contains certain ring-fencing provisions in section 36 specifically relating to different mines regarding the deduction of certain capital expenditure and the carry over to subsequent years. After the restructuring of the surface operations, effective July 1, 2012, Ergo is treated as one taxpaying operation pursuant to the relevant ring-fencing legislation. It is expected that FWGR will also be treated as one taxpaying operation pursuant to the relevant ring-fencing legislation. In the event that we are unsuccessful in confirming our position or should the South African Revenue Service have a different interpretation of section 36 of the ITA, it could have an adverse effect on our business, operating results and financial condition.

                Draft amendments to the ITA regarding claiming accelerated capital expenditure allowances for South African mining tax purposes could have an adverse effect on the business, operating results and financial condition of our operations.

                The National Treasury has proposed a prospective amendment to the preamble of section 15 of the ITA to limit the accelerated capital expenditure allowances applicable to taxpayers conducting mining operations to only those taxpayers that hold “a mining right as defined in section 1 of the Mineral and Petroleum Resources Development Act in respect of the mine where those mining operations are carried on”. In addition, in relation to section 36 of the ITA, the National Treasury has proposed an amendment to the heading in order to limit the application of the provisions in respect of the calculation of the redemption allowance and balance of unredeemed capital expenditure, to certain mining operations.

                DRDGOLD, as a surface miner, conducts mining operations for its own benefit (i.e. it is not a contract miner) but DRDGOLD is not required to hold a mining right in terms of the MPRDA. The proposed requirement by the ITA to require a miner to hold a mining right in terms of the MPRDA will preclude DRDGOLD from claiming accelerated capital expenditure allowances in terms of sections 15 and 36 of the ITA.

                If these proposed amendments are adopted, it will accelerate cash outflows resulting from current tax expenditure. This could have a material adverse effect on our cash flows, operations, capital investment decisions and financial condition.

                Assessment of unredeemed capital expenditure by the South African Revenue Service could have an adverse effect on the business, operating results and financial condition of our operations.

                The the South African Revenue Service (“SARS”) assessed capital expenditure when it is redeemed against taxable mining income rather than when it is incurred. A different interpretation by SARS could have an adverse effect on our business, operating results and financial condition.

                Since our South African labor force has substantial trade union participation, we face the risk of disruption from labor disputes and new South African labor laws.

                Labor costs are significant for Ergo, constituting 22% of Ergo’s production costs for fiscal year 2020 (2019: 18%). As of June 30, 2020, our Ergo operations provided full-time employment for 783 employees while our main service providers deployed an additional 1,372 employees to our operations, of whom approximately 91.9% are members of trade unions or employee associations.

                Labor costs are significant for FWGR, constituting 31% of FWGR’s production costs subsequent to the date of commercial production of April 1, 2019. As of June 30, 2020, our FWGR operations provided full-time employment for 154 employees while our main service providers deployed an additional 243 employees to our operations, of whom approximately 83.1% are members of trade unions or employee associations. We have entered into various agreements regulating wages and working conditions at our mines. Unreasonable wage demands could increase production costs to levels where our operations are no longer profitable. This could lead to accelerated mine closures and labor disruptions. We are also susceptible to strikes by workers from time to time, which result in disruptions to our mining operations.

                In recent years, labor laws in South Africa have changed in ways that significantly affect our operations. In particular, laws that provide for mandatory compensation in the event of termination of employment for operational reasons and that impose large monetary penalties for non-compliance with the administrative and reporting requirements of affirmative action policies could result in significant costs to us. In addition, future South African legislation and regulations relating to labor may further increase our costs or alter our relationship with our employees. Labor cost increases could have an adverse effect on our business, operating results and financial condition.

                Labor unrest could affect production.

                During December 2018 to April 2019 there was strike action by staff at the Sibanye-Stillwater gold mines adjacent to FWGR. Such events at our operations or at our reclamation sites could have an adverse effect on our business, operating results and financial condition.

                We use a third party service provider for the management of our reclamation sites as well as on our Brakpan/Withok TSF and Driefonteint 4 TSF. Any labor unrest or other significant issue at this third party service provider may impact the operation of this facility. 

                 Strike action and intimidation at mining operations adjacent to our FWGR mining operations could have an adverse effect on our business, operating results and financial condition.

                Our financial flexibility could be materially constrained by South African currency restrictions.

South African law provides for exchange control regulations, which restrict the export of capital from the Common Monetary Area, including South Africa. The Exchange Control Department of the South African Reserve Bank, or SARB, is responsible for the administration of exchange control regulations. In particular, South African companies:

·         are generally not permitted to export capital from South Africa or to hold foreign currency without the approval of the SARB;

·         are generally required to repatriate, to South Africa, profits of foreign operations; and

·         are limited in their ability to utilize profits of one foreign business to finance operations of a different foreign business.

                 While the South African Government has relaxed exchange controls in recent years, it is difficult to predict whether such relaxation of controls will continue in the future. For further information see Item 10D. Exchange Controls.

                We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside of the United States.

                The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. This includes aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non- U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with the FCPA and other applicable anti-bribery laws. Our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees, the employees of any of our businesses, or third party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we would investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits, reputational harm or other restrictions which could disrupt our business and have a material adverse effect on our business, financial condition, results of operations or liquidity.

                We face risks with respect to compliance with the FCPA and similar anti-bribery laws through our acquisition of new companies and the due diligence we perform in connection with an acquisition may not be sufficient to enable us fully to assess an acquired company’s historic compliance with applicable regulations. Furthermore, as we make acquisitions such as the acquisition of FWGR, our post-acquisition integration efforts may not be adequate to ensure our system of internal controls and procedures are fully adopted and adhered to by acquired entities, resulting in increased risks of non-compliance with applicable anti-bribery laws.

Risks related to ownership of our ordinary shares or ADSs

                It may not be possible for you to effect service of legal process, enforce judgments of courts outside of South Africa or bring actions based on securities laws of jurisdictions other than South Africa against us or against members of our board.

Our Company, certain members of our board of directors and executive officers are residents of South Africa. All our assets are located outside the United States and a major portion with respect to the assets of members of our board of directors and executive officers are either wholly or substantially located outside the United States. As a result, it may not be possible for you to effect service of legal process, within the United States or elsewhere including in South Africa, upon most of our directors or officers, including matters arising under United States federal securities laws or applicable United States state securities laws.

Moreover, it may not be possible for you to enforce against us or the members of our board of directors and executive officers’ judgments obtained in courts outside South Africa, including the United States, based on the civil liability provisions of the securities laws of those countries, including those of the United States. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:

·           the court which pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts;

·           the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it);

·           the judgment has not lapsed;

·           the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including observance of the rules of natural justice which require that no award is enforceable unless the defendant was duly served with documents initiating proceedings, that he was given a fair opportunity to be heard and that he enjoyed the right to be legally represented in a free and fair trial before an impartial tribunal;

·           the judgment was not obtained by fraudulent means;

·           the judgment does not involve the enforcement of a penal or revenue law; and

·           the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Business Act, 1978 (as amended), of South Africa.

                It is the policy of South African courts to award compensation for the loss or damage sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system that does not mean that such awards are necessarily contrary to public policy. Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law.

                It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for use in South African courts. It may not be possible therefore for an investor to seek to impose liability on us in a South African court arising from a violation of United States federal securities laws.

Dividend withholding tax will reduce the amount of dividends received by beneficial owners.

On April 1, 2012, the South African Government replaced Secondary Tax on Companies (then 10%) with a 15% withholding tax on dividends and other distributions payable to shareholders. The dividend withholding tax rate was increased to 20%, effective from February 22, 2017.  The withholding tax reduces the amount of dividends or other distributions received by our shareholders. Any further increases in such tax will further reduce net dividends received by our shareholders.

Your rights as a shareholder are governed by South African law, which differs in material respects from the rights of shareholders under the laws of other jurisdictions.

Our Company is a public limited liability company incorporated under the laws of the Republic of South Africa. The rights of holders of our ordinary shares, and therefore many of the rights of our ADS holders, are governed by our memorandum of incorporation and by South African law. These rights differ in material respects from the rights of shareholders in companies incorporated elsewhere, such as in the United States. In particular, South African law significantly limits the circumstances under which shareholders of South African companies may institute litigation on behalf of a company. 

Control by principal shareholders could adversely affect our other shareholders.

Sibanye-Stillwater beneficially owns 50.1% of our outstanding ordinary shares and voting power and has the ability to control, or exert a significant influence over, our board of directors. Sibanye-Stillwater will continue to have significant influence over our affairs for the foreseeable future, including with respect to the election of directors, the consummation of significant corporate transactions, such as an amendment of our constitution, a  merger or other sale of our company or our assets, and all matters requiring shareholder approval. In certain circumstances, Sibanye-Stillwater’s interests as a principal shareholder may conflict with the interests of our other shareholders and Sibanye-Stillwater’s ability to exercise control, or exert significant influence, over us may have the effect of causing, delaying, or preventing changes or transactions that our other shareholders may or may not deem to be in their best interests. In addition, any sale or expectation of sale of some or all the shares held by Sibanye-Stillwater could have an adverse impact on our stock price.

Sales of large volumes of our ordinary shares or ADSs or the perception that these sales may occur, could adversely affect the prevailing market price of such securities.

The market price of our ordinary shares or ADSs could fall if substantial amounts of ordinary shares or ADSs are sold by our stockholders, or there is the perception in the marketplace that such sales could occur. Current holders of our ordinary shares or ADSs may decide to sell them at any time. Sales of our ordinary shares or ADSs, if substantial, or the perception that any such substantial sales may occur, could exert downward pressure on the prevailing market prices for our ordinary shares or ADSs, causing their market prices to decline. Trading activity of hedge funds and the ability to borrow script in the marketplace will increase trading volumes and may place our share price under pressure.

ITEM 4. INFORMATION ON THE COMPANY

4A. HISTORY AND DEVELOPMENT OF THE COMPANY

Introduction

                DRDGOLD Limited, or DRDGOLD, is a South African domiciled company that holds assets engaged in surface gold tailings retreatment in South Africa including exploration, extraction, processing and smelting.

                We are a public limited liability company, incorporated on February 16, 1895, as Durban Roodepoort Deep, Limited. On December 3, 2004, the company changed its name from Durban Roodepoort Deep Limited to DRDGOLD Limited. Our operations focus on South Africa's Witwatersrand Basin, which has been a gold producing region for over 120 years.

                Our shares and/or related instruments trade on the JSE, and the New York Stock Exchange.

                Our registered office and business address is Constantia Office Park, Cnr 14th Avenue and Hendrik Potgieter Road, Cycad House, Building 17, Ground Floor, Weltevreden Park, 1709, South Africa. The postal address is P.O. Box 390, Maraisburg, 1700, South Africa. Our telephone number is (+27 11) 470-2600 and our facsimile number is (+27 86) 524-3061. We are registered under the South African Companies Act 71, 2008 under registration number 1895/000926/06. For our ADSs, the Bank of New York Mellon, at 101 Barclay Street, New York, NY 10286, United States, has been appointed as agent.

                All of our operations are conducted in South Africa.  

                 Our operations primarily consist of Ergo and FWGR. Our Ergo operations include the historic Crown operations (which were restructured into Ergo during fiscal year 2012 and have substantially been rehabilitated as at the end of fiscal year 2018) and the East Rand Proprietary Mines Limited's (“ERPM”) underground mining infrastructure which is currently under care and maintenance.

Ergo

                Ergo was formed in June 2007. Ergo is the surface tailings retreatment operation consisting of what was historically the Crown Gold Recoveries Proprietary Limited (“Crown”), ERPM Cason Dump operation and the ErgoGold business units. On July 1, 2012, Ergo acquired the mining assets and certain liabilities of Crown and all the surface assets and liabilities of ERPM as part of the restructuring of our surface operations. Also as part of this restructuring, Ergo acquired DRDGOLD's 35% interest in ErgoGold.             

                Capital expenditure for the Ergo projects is mainly financed through cash resources and operational cash flows while financing for significant growth projects may be obtained through specific financing arrangements if required.

Brakpan/Withok TSF expansion

                To extend the life of our Ergo operation, it is necessary to increase residue tailings deposition capacity at our Brakpan/Withok TSF.

A legal review of the existing authorizations was undertaken for increasing the deposition capacity of the Brakpan/Withok TSF. The results indicated that most of the current authorizations are sufficient, however certain documentation would need to be amended. We expect this could increase the potential deposition capacity by approximately 800Mt, and thus, our life of mine from 13 years to more than 20 years.

For further information on other capital investments, divestures, capital expenditure and capital commitments, see Item 4D. Property, Plant and Equipment, and Item 5B. Liquidity and Capital Resources.

FWGR

                On July 31, 2018, we acquired certain gold surface processing assets and tailing storage facilities that included Driefontein 3 and 5, Kloof 1, Venterspost North and South, Libanon, Driefontein 4, Driefontein 2 plant, Driefontein 3 plant, WRTRP pilot plant, and land required for the future development of a central processing plant, regional tailings storage facility and return water dam (together, the “WRTRP Assets”) associated with Sibanye-Stillwater’s WRTRP, subsequently renamed FWGR.  This acquisition represented a significant increase in our assets, which impacted our results in fiscal 2019 and fiscal 2020. In connection with the acquisition, we issued to Sibanye-Stillwater new shares equal to 38.05% of outstanding shares and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the acquisition at a 10% discount to the prevailing market value. On January 8, 2020, Sibanye-Stillwater exercised the option and subscribed for 168,158,944 DRDGOLD shares at an aggregate subscription price of R1,086 million, on January 22, 2020 (R6.46 per DRDGOLD share).

The assets acquired are to be developed in two phases – Phase 1 and Phase 2.

FWGR Phase 1

Phase 1 envisioned the reclamation of Driefontein 5 dumps through a reconfigured Driefontein 2 plant and deposition onto the Driefontein 4 tailings storage facility. Although the Phase 1 upgrade of the Driefontein 2 Plant was essentially complete by the end of fiscal 2019, a decision was made to bypass the mill so that further improvements to the mill liner configuration could be made. These modifications were successfully completed, and the mill was recommissioned in September 2019. A further upgrade to convert the mill to closed circuit from the current open circuit is being considered for fiscal 2021. We believe that this will improve the grind of the material and yield more gold.

The Driefontein 4 tailings storage facility was an upstream day-wall dam with a capacity of approximately 200,000 tonnes per month. In order to increase the deposition capacity to 500 000 tonnes per month, the conversion of this dam to cyclone deposition commenced in fiscal 2019. The conversion of the dam to cycloning has been successful and this allows a deposition capacity of 500,000 tonnes per month until at least the end of calendar year 2024. 

FWGR Phase 2 expansion

An engineering consulting company has been engaged to undertake the relevant feasibility study for the Phase 2 expansion project. Phase 2 includes the construction of a new Central Processing Plant (“CPP”) with a capacity of between 1.2 to 2.4 million tonnes per month and the equipping of the required reclamation sites and pipeline infrastructure to supply the relevant resources to the CPP.

Phase 2 also includes the construction of a new Regional Tailings Storage Facility (“RTSF”) , that we believe is necessary in order to develop our FWGR as envisaged [by our management], the new RTSF is expected to be capable of processing 3 million tonnes per month up to a capacity of approximately 800 million tonnes. An external consultant has been appointed to lead the team designing the RTSF. It is anticipated that the definitive feasibility studies will be complete in the first half of fiscal year 2021 and that dam construction will commence in first half fiscal year 2022. The plant construction is anticipated to commence 6-9 months later.

Financing for significant growth projects may be obtained through specific financing arrangements if required. Capital expenditure for FWGR Phase 1 was financed through our RCF (Refer to Item 18. “Financial Statements - Note 20 – Capital Management). Significant financing is required for the Phase 2 expansion which is expected to be financed through a combination of cash resources, the RCF and operational cash flows. Capital expenditure for other projects is mainly financed through cash resources and operational cash flows.

For further information on other capital investments, divestures, capital expenditure and capital commitments, see Item 4D. Property, Plant and Equipment, and Item 5B. Liquidity and Capital Resources.

ERPM

                ERPM, which consists of an underground mine which has been under care and maintenance since fiscal year 2009, and ERPM Extension 1 and 2 exploration tenements, were acquired in October, 2002. Underground mining at ERPM was halted in October 2008. On July 1, 2012, ERPM sold its surface mining assets and its 65% interest in ErgoGold to Ergo in exchange for shares in Ergo as part of the restructuring of our surface operations.

                In December 2018, ERPM concluded revised agreements to dispose certain of its underground assets to OroTree Limited (“Orotree”). The disposal of the underground mining and prospecting rights were concluded in the second half of the financial year ended June 30, 2019. Orotree did not exercise an option to purchase the underground mining infrastructure.

Crown

                Crown was acquired on September 14, 1998. Due to the depletion of ore reserves in the western Witwatersrand, the Crown plant ceased operation in March 2017.

4B. BUSINESS OVERVIEW

We are a South African company that holds assets engaged in surface gold tailings retreatment including exploration, extraction, processing and smelting. Our surface tailings retreatment operations, including the requisite infrastructure and metallurgical processing plants, are located in South Africa. Our operating footprint is unique in that it involves some of the largest concentration of gold tailings deposits in the world, situated within the city boundaries of Johannesburg and its suburbs and the far west rand of the province of Gauteng.

The success of DRDGOLD’s long-term goal to extract as much gold as possible and economically viable from its assets depends, to a large extent, on how effectively it continues to manage its capitals. DRDGOLD uses sustainable development to direct its strategic thinking. We seek sustainable benefits in respect to financial, manufactured, natural, social and human capitals, each of which is essential to our operations.

                We also aim to align and overlap the interests of each of these capitals in such a manner that an investment in any one translates into value-added increases in as many of the others as possible. We therefore seek to achieve an enduring and harmonious alignment between them, and we pursue these criteria in the feasibility analysis of each investment. The board intends to explore opportunities made possible by technology, which could entail further investment in research and development (“R&D”) to improve gold recoveries even further over the long term.

                On July 31, 2018, we acquired the gold assets associated with Sibanye-Stillwater’s WRTRP, subsequently renamed FWGR.  This acquisition represented a significant increase in our assets.

During the fiscal years presented in this Annual Report, all of our operations took place in one geographic region, namely South Africa.

Description of Our Mining Business

Surface tailings retreatment

                Surface tailings retreatment involves the extraction of gold from old mine dumps and slimes dams,  comprising the waste material from earlier underground gold mining activities. This is done by reprocessing sand dumps and slimes dams. Sand dumps are the result of the less efficient stamp-milling process employed in earlier times. They consist of coarse-grained particles which generally contain higher quantities of gold. Sand dumps are reclaimed mechanically using front end loaders that load sand onto conveyor belts. The sand is fed onto a screen where water is added to wash the sand into a sump, from where it is pumped to the plant. Most sand dumps have already been retreated using more efficient milling methods. Lower grade slimes dams were the product of the “tube and ball mill” recovery process. This material has become economically more viable to process owing to improved treatment methods. The material from the slimes dams is broken down using monitor guns that spray jets of high pressure water at the target area. The resulting slurry is then pumped to a treatment plant for processing.

Exploration

                Exploration activities are focused on the extension of existing ore reserves and identification of new ore reserves both at existing sites and at undeveloped sites. Once a potential site has been identified, exploration is extended and intensified in order to enable clearer definition of the site and the portions with the potential to be mined. Geological techniques are constantly refined to improve the economic viability of exploration and exploitation.

Our Metallurgical Plants and Processes

                A detailed review of the metallurgical plants and processes is provided under Item 4D. Property, Plant and Equipment.

Gold Market

                The gold market is relatively liquid compared to other commodity markets, and the price of gold is quoted in dollars. Physical demand for gold is primarily for manufacturing purposes, and gold is traded on a world-wide basis. Refined gold has a variety of uses, including jewelry, electronics, dentistry, decorations, medals and official coins. In addition, central banks, financial institutions and private individuals buy, sell and hold gold bullion as an investment and as a store of value.

The use of gold as a store of value and the large quantities of gold held for this purpose in relation to annual mine production have meant that historically the potential total supply of gold has been far greater than demand. Thus, while current supply and demand play some part in determining the price of gold, this does not occur to the same extent as in the case of other commodities. Instead, the gold price has from time to time been significantly affected by macro-economic factors such as expectations of inflation, interest rates, exchange rates, changes in reserve policy by central banks and global or regional political and economic crises. In times of inflation and currency devaluation or economic uncertainty gold is often seen as a safe haven, leading to increased purchases of gold and support for its price.

The average gold spot price increased by 24% from $1,263 per ounce to $1,562 per ounce during fiscal year 2020 after having decreased by 3% from $1,297 per ounce to $1,263 per ounce during the fiscal year 2019 and having increased by 3% from $1,257 per ounce to $1,297 per ounce during the fiscal year 2018. The average gold price received by us for fiscal year 2020 increased by 33% to R768,675 per kg compared to the previous year at R577,483 per kg.

We generally take full exposure to the US dollar spot price of gold and rand/dollar exchange rate. The higher the gold price, the higher our profit margin and visa versa. We benefited from a sustained upswing in gold price in the fourth quarter of fiscal 2020, and in the first quarter of fiscal 2021, following the global response to the COVID-19 pandemic, the gold price surged further to all-time highs.

Investors globally, as they have in so many previous times of crisis, turned to gold and gold stocks as a safe haven asset, leading to a surge in the average gold price from R781,261 per kg in the quarter ended March 31, 2020 to R988,030 per kg for the quarter ended June 30, 2020. The rand/dollar exchange rate remained volatile throughout the year mainly as a result of economic uncertainty and perceived political instability, global market slowdown sentiment, tensions between the USA and China, low economic growth, and a seemingly terminally distressed Eskom. Further volatility in the Rand was fueled by Moody’s downgrade of South Africa’s sovereign credit rating to sub-investment grade as a result of “continuing  deterioration in fiscal strength and structurally very weak economic growth.”

Looking ahead we believe that the global economic environment (particularly during the COVID-19 pandemic), including escalating sovereign and personal levels of debt, economic volatility and the oversupply of foreign currency, will continue to make gold attractive to investors. The supply of gold has shrunk in recent years and is likely to shrink even more due to the significantly reduced capital expenditure and development occurring in the sector.  We believe that this, coupled with global economic uncertainty, is likely to provide support to the gold price in the long term.

All of our revenue is generated in South Africa. Our total revenue for fiscal year ended June 30, 2020 amounted to R4,185.0 million (2019: R2,762.1 million and 2018: R2,490.4 million).

                All gold we produce is sold on our behalf by Rand Refinery Proprietary Limited (Rand Refinery) in accordance with a refining agreement entered into in October 2001 and updated in July 2018. The gold bars which we produce consist of approximately 85% gold, 7-8% silver and the remaining balance comprises copper and other common elements. The gold bars are sent to Rand Refinery for assaying and final refining where the gold is purified to 99.9% and cast into troy ounce bars of varying weights. The Group recognizes revenue from the sale of gold at a point in time when Rand Refinery, acting as an agent for the sale of all gold produced by the Group, delivers the Gold to the buyer. The sales price is fixed at the London afternoon fixed dollar price on the day the Gold is delivered to the buyer. The dollar proceeds are remitted to us within two days. In exchange for this service, we pay Rand Refinery a variable refining fee plus fixed marketing and administration fees. We own 11% (fiscal year 2019 and 2018: 11%) of Rand Refinery. 

Ore Reserves

Ore Reserve estimates in this Annual Report are reported in accordance with the requirements of the SEC’s Industry Guide 7. Accordingly, as of the date of reporting, all ore reserves are planned to be mined under the life of mine plan within the period of our existing rights to mine, or within the time period of assured renewal periods of our rights to mine. In addition, as of the date of this report, all ore reserves are covered by required permits and governmental approvals. See Item 4D. Property, Plant and Equipment for a description of the rights in relation to each mine.

In South Africa, we are legally required to publicly report Ore Reserves and Mineral Resources in compliance with the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, or SAMREC Code. The SEC’s Industry Guide 7 does not currently recognize Mineral Resources. Accordingly, we do not include estimates of Mineral Resources in this Annual Report. The SEC has adopted rules that will amend Guide 7 in future years to required the inclusion of Mineral Resources in additional to Mineral Reserves.

Ore Reserve calculations are subject to a review conducted in accordance with SEC Industry Guide 7. Ore Reserve tons, grade and content are quoted as delivered to the gold plant. There are two types of methods available to select ore for mining. The first is pay-limit, which includes cash operating costs, including overhead costs, to calculate the pay-limit grade. The second is the cut-off grade which includes cash operating costs, excluding fixed overhead costs, to calculate the cut-off grade, resulting in a lower figure than the full pay-limit grade. The cut-off grade is based upon direct costs from the mining plan, taking into consideration production levels, production efficiencies and the expected costs. We use the pay-limit to determine which areas to mine as an overhead inclusive amount that is indicative of the break-even position.

                The pay-limit approach is based on the minimum in-situ grade of reclamation sites, for which the production costs, which includes all overhead costs, including head office charges, are equal to a three-year historical average gold price per ounce for that year. This calculation also considers the previous three years’ mining and milling efficiencies, which includes metallurgical and other mining factors and the production plan for the next twelve months. Only areas above the pay-limit grade are considered for mining. The pay-limit grade is higher than the cut-off grade, because this includes overhead costs, which indicates the break-even position of the operation.

                When delineating the economic limits to the ore bodies, we adhere to the following guidelines:

·           The potential ore to be mined is well defined by an externally verified and approved geological model;

·           The potential ore, which is legally allowed to be mined, is also confined by the mine's lease boundaries; and

·           A business plan is prepared to mine the potential ore.

                Our Ore Reserves figures are estimates, which may not reflect actual ore reserves or future production. These figures are prepared in accordance with industry practice, converting mineral deposits to an Ore Reserve through the preparation of a mining plan. The Ore Reserve estimates contained herein inherently include a degree of uncertainty and depend to some extent on statistical inferences. Ore reserve estimates require revisions based on actual production experience or new information. Should we encounter mineralization or formations different from those predicted by past drilling, sampling and similar examinations, ore reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might adversely affect our operations and actual gold recoveries may differ from those indicated in our Ore Reserves. Moreover, if the price of gold declines, or stabilizes at a price that is lower than recent levels, or if our production costs increase or recovery rates decrease, it may become uneconomical to recover Ore Reserves containing relatively lower grades of mineralization.

                Our Ore Reserves are prepared using three-year average rand gold prices. We prepare business plans using the forecast rand gold price at the time of the ore reserve determination.

Gold prices and exchange rates used for Ore Reserves and for our business plan are outlined in the following table.

Our Ore Reserves (imperial) changed in the past three fiscal years as follows:

·          Our Ore Reserves (imperial) decreased from 5.770 million ounces at June 30, 2019, to 5.725 million ounces at June 30, 2020, mainly because of depletion through ongoing mining activities as well as the Grootvlei dump 6/L/16 of 0.3Moz no longer being classified as an Ore Reserve. The decrease was offset by inclusion of Marievale dumps at Ergo of 0.5Moz.

·          Our Ore Reserves (imperial) increased from 3.28 million ounces at June 30, 2018, to 5.770 million ounces at June 30, 2019, mainly because of the acquisition of the gold assets associated with the Sibanye-Stillwater WRTRP project, subsequently renamed FWGR, that added Ore Reserves of 2.72Moz. The increase was offset by depletion through ongoing mining activities.

The life-of-mine for Ergo based on proven and probable ore reserves under Industry Guide 7 of the SEC as at June 30, 2020, was 13 years (June 30, 2019: 11 years, June 30, 2018: 12 years). The increase was due the inclusion of the Marievale dumps at Ergo of 0.5Moz.

The life of mine for FWGR based on proven and probable ore reserves under Industry Guide 7 of the SEC as at June 30, 2020 was 20 years (June 30, 2019: 15 years).

             The measurement and classification of our Proven and Probable Ore Reserves are sensitive to an extent to the fluctuation of the rand gold price. If we had used different rand gold prices than the three-year average prices at the time of ore reserve determination, as of June 30, 2020 and 2019 respectively, we would not have had significantly different ore reserves as of those dates. Using the same methodology and assumptions as were used to estimate Ore Reserves but with different rand gold prices as detailed below, our Ore Reserves as of June 30, 2020 and 2019 would be as follows:

Governmental regulations and their effects on our business

Common Law Mineral Rights and Statutory Mining Rights

                Prior to the introduction of the Minerals and Petroleum Resources Development Act, or MPRDA in 2002, ownership in mineral rights in South Africa could be acquired through the common law or by statute. With effect from May 1, 2004, all minerals have been placed under the custodianship of the South African government under the provisions of the MPRDA and old order proprietary rights were required to be converted to new order rights of use within certain prescribed periods, as dealt with in more detail below. Mine dumps create before the MPRDA became law fall outside the MPRDA and do not require a mining license to be processed nor does it require the extensive rehabilitation and closure guarantees that are a feature of the MPRDA. Many of the activities to re-process a mine dump do fall under the provisions of the National Environmental Management Act though, which requires at it most basic the compilation and submission of an Environmental Impact Assessment.

Conversion of Rights under the Mineral and Petroleum Resources Development Act, 2002

                Existing old order rights were required to be converted into new order rights in order to ensure exclusive access to the mineral for which rights existed at the time of the enactment of the MPRDA. In respect of used old order mining rights, the DMR is obliged to convert the rights if the applicant complies with certain statutory criteria. These include the submission of a mining works program, demonstrable technical and financial capability to give effect to the program, provision for environmental management and rehabilitation, and compliance with certain black economic empowerment criteria and a social and labor plan. These applications had to be submitted within five years after the promulgation of the MPRDA on May 1, 2004. Similar procedures apply where we hold prospecting rights and a prospecting permit and conduct prospecting operations. Under the MPRDA mining rights are not perpetual, but endure for a fixed period, namely a maximum period of thirty years, after which they may be renewed for a further period of thirty years. Prospecting rights are limited to five years, with one further period of renewal of three years. Applications for conversion of our old order rights were submitted to the DMR within the requisite time periods. As at June 30, 2020 and September 30, 2020 respectively, all of our Ergo operation’s old order mining rights have been converted into new order rights under the terms of the MPRDA.

The Broad Based Socio-Economic Empowerment Charter

                In order to promote broad based participation in mining revenue, the MPRDA provides for a Mining Charter to be developed by the Minister within six months of commencement of the MPRDA beginning May 1, 2004. The Mining Charter was initially published in August 2004 and was subsequently amended in September 2010. Its objectives include:

·           increased direct and indirect ownership of mining entities by qualifying parties as defined in the Mining Charter;

·           expansion of opportunities for persons disadvantaged by unfair discrimination under the previous political dispensation;

·           expansion of the skills base of such persons, the promotion of employment and advancement of the social and economic welfare of mining communities; and

·           promotion of beneficiation.

The Mining Charter sets certain goals on equity participation (amount of equity participation and time frames) by historically disadvantaged South Africans of South African mining assets. It recommends that these are achieved by, among other methods, disposal of assets by mining companies to historically disadvantaged persons on a willing seller, willing buyer basis at fair market value. The goals set by the Mining Charter require each mining company to achieve 15 percent ownership by historically disadvantaged South Africans of its South African mining assets within five years and 26 percent ownership by May 1, 2014. It also sets out guidelines and goals in respect of employment equity at management level with a view to achieving 40 percent participation by historically disadvantaged persons in management and ten percent participation by women in the mining industry, each within five years from May 1, 2004. Compliance with these objectives is measured on the weighted average “scorecard” approach in accordance with a scorecard which was first published around August 2010.

                 The Mining Charter and the related scorecard are not legally binding and, instead, simply state a public policy. However, the DMR places significant emphasis on the compliance therewith. The Mining Charter and scorecard have a decisive effect on administrative action taken under the MPRDA.

                In recognition of the Mining Charter’s objectives of transforming the mining industry by increasing the number of black people in the industry to reflect the country’s population demographics, to empower and enable them to meaningfully participate in and sustain the growth of the economy, thereby advancing equal opportunity and equitable income distribution, we have achieved our commitment to ownership compliance with the MPRDA through our existing black economic empowerment structure. Our black economic empowerment partner, the DRDSA Empowerment Trust, holds 1.2% in DRDGOLD Limited. (See Item 4C. Organizational Structure).

                The mining industry in South Africa is extensively regulated through legislation and regulations issued by government’s administrative bodies. These involve directives with respect to health and safety, mining and exploration of minerals, and managing the impact of mining operations on the environment. A change in regulatory or government policies could adversely affect our business.

                On September 27, 2018 the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (“Mining Charter 2018”) was published in Government Gazette No. 41934 of Government Notice No. 639 on September 27, 2018 superseding and replacing all previous charters, including the Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016 (“Mining Charter III”). 

                Mining Charter 2018 requires an enduring 30% BEE interest in respect of new mining rights. It also has extensive provisions in respect of HDP representation at board and management, as well provisions relating to local procurement of goods and services. The procurement target of the total spend on services from South African companies has been pegged at 80% (up from 70% in Mining Charter III) and 60% of the aggregate spend thereof must be apportioned to BEE entrepreneurs.

                Key provisions of Mining Charter 2018, which are welcomed by the industry are:

•               The conditional acceptance of the continued consequences of previous compliance of the BEE ownership threshold of 26% in respect of existing mining rights;

•               Of the 30% HDP ownership component, qualifying employees and communities are each to hold a 5% carried interest (as opposed to a free carry interest as per Mining Charter III)  the cost of which may be recovered by the mining right holder from the development of the asset. The community interest in turn may be offset by way of an equity equivalent;

•               Removal of the so-called 1% of EBITDA trickle dividend provided for in Mining Charter III; and

•               The removal of provisions requiring community and employee representation at board level.

                Elements of Mining Charter 2018 which we consider unfortunate, and which will be the topic of ongoing discussion with the DMR,  are:

•               that the continuing consequences of HDP ownership are not recognized for transfers of mining rights; and

•               that a top up of HDP ownership back to 30% is required for the renewal of existing rights. 

                In April 2018, judgement was handed down by the North Gauteng High Court in Pretoria against a provision in the 2017 Mining Charter which required holders of mining rights to top up the HDP ownership to 30%. The DMR in August 2020, withdrew their notice to appeal to the Supreme Court of Appeal in respect of the judgement issued in April 2018 by the Pretoria High Court.

                The Minerals Council SA has also brought forward an application for a review of the Mining Charter 2018’s provision that the recognition of continued consequences of HDP ownership would not apply in cases of the renewal of existing rights and therefore a top-up to 30% is required. This matter is still in pending in the High Court.

Mine Health and Safety Regulation

                The South African Mine Health and Safety Act, 1996 (as amended), or the Mine Health and Safety Act, came into effect in January 1997. The principal object of the Mine Health and Safety Act is to improve health and safety at South African mines and, to this end, imposes various duties on us at our mines and grants the authorities broad powers to, among other things, close unsafe mines and order corrective action relating to health and safety matters. In the event of any future accidents at any of our mines, regulatory authorities could take steps which could increase our costs and/or reduce our production capacity. The Act was amended in 2009 and the amendments to the Act dealt with inter alia the stoppage of production and increase punitive measures including increased financial fines and legal liability of mine management. Some of the more important provisions in the 2009 amendment bill are the insertion of section 50(7A) that obliges an inspector to impose a prohibition on the further functioning of a site where a person’s death, serious injury or illness to a person or a health threatening occurrence has occurred; a new section 86A(1) creating a new offence for any person who contravenes or fails to comply with the provisions of the Mine Health and Safety Act thereby causing a person’s death or serious injury or illness to a person. Subsection (3) further provides that (a) the “fact that the person issued instructions prohibiting the performance or an omission is not in itself sufficient proof that all reasonable steps were taken to prevent the performance or omission”; and that (b) “the defense of ignorance or mistake by any person accused cannot be permitted”; or that (c) “the defense that the death of a person, injury, illness or endangerment was caused by the performance or an omission of any individual within the employ of the employer may not be admitted”; section 86A(2) creating an offence of vicarious liability for the employer where a Chief Executive Officer, manager, agent or employee of the employer committed an offence and the employer either connived at or permitted the performance or an omission by the Chief Executive Officer, manager, agent or employee concerned; or did not take all reasonable steps to prevent the performance or an omission. The maximum fines were also increased. Any owner convicted in terms of section 86 or 86A may be sentenced to “withdrawal or suspension of the permit” or to a fine of R3 million or a period of imprisonment not exceeding five years or to both such fine and imprisonment, while the maximum fine for other offences and for administrative fines have all been increased, with the highest being R1 million.

                Under the South African Compensation for Occupational Injuries and Diseases Act, 1993 (as amended), or COID Act, employers are required to contribute to a fund specifically created for the purpose of compensating employees or their dependents for disability or death arising in the course of their work. Employees who are incapacitated in the course of their work have no claim for compensation directly from the employer and must claim compensation from the COID Act fund. Employees are entitled to compensation without having to prove that the injury or disease was caused by negligence on the part of the employer, although if negligence is involved, increased compensation may be payable by this fund. The COID Act relieves employers of the prospect of costly damages, but does not relieve employers from liability for negligent acts caused to third parties outside the scope of employment. In fiscal year 2020, we contributed approximately R4.3 million under the COID Act (2019: R3.7 million and 2018: R3.6 million) to a multi-employer industry fund administered by Rand Mutual Assurance Limited.

                Under the Occupational Diseases in Mines and Works Act, 1973 (as amended), or the Occupational Diseases Act, the multi-employer fund pays compensation to employees of mines performing “risk work,” usually in circumstances where the employee is exposed to dust, gases, vapors, chemical substances or other working conditions which are potentially harmful, or if the employee contracts a “compensatable disease,” which includes pneumoconiosis, tuberculosis, or a permanent obstruction of the airways. No employee is entitled to benefits under the Occupational Diseases Act for any disease for which compensation has been received or is still to be received under the COID Act. These payment requirements are based on a combination of the employee costs and claims made during the fiscal year.

                Uranium and radon are often encountered during the ordinary course of gold mining operations in South Africa, and present potential risks for radiation exposure of workers at those operations and the public to radiation in the nearby vicinity. We monitor our uranium and radon emissions for compliance with all local laws and regulations pertaining to uranium and radon management and under the current legislative exposure limits prescribed for workers and the public, under the Nuclear Energy Act, 1999 (as amended) and Regulations from the National Nuclear Regulator.

Environmental Regulation

Managing the impact of mining on the environment is extensively regulated by statute in South Africa. Recent statutory enactments set compliance standards both generally, in the case of the National Environmental Management Act, and in respect of specific areas of environment impact, as in the case of the Air Quality Act 2004, the National Water Act (managing effluent), and the Nuclear Regulator Act 1999. Liability for environmental damage is also extended to impose personal liability on managers and directors of mining corporations that are found to have violated applicable laws.

The impact on the environment by mining operations is extensively regulated by the MPRDA. The MPRDA has onerous provisions for personal liability of directors of companies whose mining operations have an unacceptable impact on the environment.

Mining companies are also required to demonstrate both the technical and financial ability to sustain an ongoing environmental management program, or EMP, and achieve ultimate rehabilitation, the particulars of which are to be incorporated in an EMP. This program is required to be submitted and approved by the DMR as a prerequisite for the issue of a new order mining right. Various funding mechanisms are in place, including trust funds, guarantees and concurrent rehabilitation budgets, to fund the rehabilitation liability.

The MPRDA imposes specific, ongoing environmental monitoring and financial reporting obligations on the holders of mining rights.

                We believe that our environmental risks have been addressed in EMPs which have been submitted to the DMR for approval. Additionally, key environmental issues have been prioritized and are being addressed through active management input and support as well as progress measured in terms of activity schedules and timescales determined for each activity.

                Our existing reporting and controls framework is consistent with the additional reporting and assessment requirements of the MPRDA.

                Financial Provision for Rehabilitation

                We are required to make financial provision for the cost of mine closure and post-closure rehabilitation, including monitoring once the mining operations cease. We fund these environmental rehabilitation costs by irrevocable contributions to environmental trust funds that function under the authority of trustees that have been appointed by, and who owe a statutory duty of trust to the Master of the High Court of South Africa. The funds held in these trusts are invested primarily in interest bearing call deposits. As of June 30, 2020, we held a total of R542.2 million (2019: R508.9 million) in trust, the balance held in each fund being R122.1 million (2019: R114.8 million) for Ergo, R408.1 million (2019: R382.9 million) for FWGR and R12.0 million (2019: R11.3 million) for ERPM. Trustee meetings are held as required and quarterly reports on the financial status of the funds, are submitted to our board of directors. If any of the operations are prematurely closed, the rehabilitation funds may be insufficient to meet all the rehabilitation obligations of those operations.

                Whereas the old Minerals Act allowed for the establishment of a fully funded rehabilitation fund over the operational life of mine, the MPRDA assumes a fully compliant fund at any given time. Insurance instruments may also be utilized to make up the shortfall in available cash funds subject to the DMR’s consent. The Company has subsequently made use of approved insurance products for a portion of its rehabilitation liabilities. As of June 30, 2020, we held a total of R83.8 million (2019: R78.6 million) in funds held in insurance instruments. As at June 30, 2020 guarantees amounting to R427.3 million (2019: R427.3 million) were issued to the DMR.

                The provision for environmental rehabilitation for the group was R568.9 million at June 30, 2020, compared to R682.6 million at June 30, 2019.

                New Financial Provisioning Regulations (“FPR”) were promulgated on November 20, 2015 under the National Environmental Management Act, 107 of 1998 (“NEMA”)  by the Department of Environmental Affairs (“DEA”) . Proposed amendments to the FPRs were published for public comment GNR 1228 GG 41236 of 10 November 2017 (“Draft Regulations”), which seek to address some challenges relating to the implementation thereof.

                Under the FPRs to be implemented by the DMR, existing environmental rehabilitation trust funds, of which DRDGOLD has R542.2 million, may be used only for post closure activities and may no longer be utilized for their intended purpose of concurrent and final rehabilitation on closure. As a result, new provisions will have to be made for these activities.

                Further amendments to the FPRs, (“Proposed Amendments”) were published in September 2018, which extends the compliance therewith to 19 February 2020.

                The Proposed Amendments, in their current form and which are still subject to the approval of the DMR and Treasury, allow under certain circumstances for the withdrawal against financial provision (which is currently not contemplated in the FPR). It is therefore uncertain whether these provisions relating to withdrawal will remain in their current form, or at all. 

                Regulation 5(4) of the Proposed Amendments states that the determination of financial provision must be undertaken by a specialist, which according to the definitions listed in the Proposed Amendments is an “independent person”. Regulation 10 of the Proposed Amendments further requires the annual review and re-assessment of financial provision by an independent specialist, which in terms of Regulation 11 of the Proposed Amendments must also be audited by an independent auditor. The Proposed Amendments do not require that the annual review and re-assessment of financial provision be audited by a financial auditor.

4C. ORGANIZATIONAL STRUCTURE

                 The following chart shows our principal subsidiaries as of June 30, 2020 and as of September 30, 2020 respectively. All of our subsidiaries are incorporated in South Africa. Our voting interest in each of our subsidiaries are equal to our ownership interests. We hold the majority of our subsidiaries directly or indirectly as indicated below. Refer to Exhibit 8.1 for a list of our significant subsidiaries.

4D. PROPERTY, PLANT AND EQUIPMENT

Description of Significant Subsidiaries' Properties and Mining Operations

Ergo

Overview

                We own 100% of Ergo. Ergo is a surface tailings retreatment operation operating across central and east Johannesburg. In order to improve synergies, effect cost savings and establish a simpler group structure, DRDGOLD restructured the Group’s surface operations (Crown, ERPM’s Cason Dump surface operation and ErgoGold) into Ergo with effect from July 1, 2012. ERPM’s Cason Dump surface tailings retreatment operation was depleted in the first half of fiscal year 2015. At June 30, 2020, Ergo employed 783 full-time employees. In addition, specialist service providers deployed a further 1,372 employees to our operations bringing the total number of in-house and outsourced employees to 2,155 at June 30, 2020 (at June 30, 2019: 2,214; at June 30, 2018: 2,288).   

Properties

                The Ergo plant is located approximately 43 miles (70 kilometers) east of the Johannesburg’s central business district in the province of Gauteng on land owned by Ergo. Access to the Ergo plant is via the Ergo Road on the N17 Johannesburg-Springs motorway. As of June 30, 2020 and September 30, 2020, no encumbrances exist on Ergo's property.

                 Following the restructuring of the Crown operations, which consisted of three separate locations, City Deep, Crown Mines and Knights, into a single surface retreatment operation in Ergo, these mining rights were transferred to Ergo in March 2014.

                 Our ore reserves in the western Witwatersrand had become depleted. We therefore took a decision to close the Crown Mines plant which operated as a pump/milling station feeding the metallurgical plants until March 2017. By the end of fiscal year 2018, the Crown sites had been cleared and the rehabilitation of the Crown plant site was substantially completed.

                The City Deep operation is located on the West Wits line within the Central Goldfields of the Witwatersrand Basin, approximately 3 miles (5 kilometers) south-east of the Johannesburg central business district in the province of Gauteng. Access is via the Heidelberg Road on the M2 Johannesburg-Germiston motorway. The City Deep plant continues to operate as a pump/milling station feeding the metallurgical plants.

                The Knights operation is located at Stanley and Knights Road Germiston off the R29 Main Reef Road. The Knights plant continues to operate as a metallurgical plant.

As of June 30, 2020 and September 30, 2020, no encumbrances exist on Ergo's property.

Mining and Processing

Ergo undertakes the retreatment of surface tailings.

Material processed by Ergo is sourced from primary surface sources namely, sand and slime. The surface sources have generally undergone a complex depositional history resulting in grade variations associated with improvements in plant recovery over the period the material was deposited. Archive material is a secondary source of gold bearing material. This material is generally made up of old gold metallurgical plant sites.

                Our two gold producing metallurgical plants, Ergo and Knights have an installed capacity to treat approximately 25 million tons of material per year based on 92% availability and are fully operational. All of the plants have undergone various modifications during recent years resulting in significant changes to the processing circuits. The City Deep plant continues to operate as a pump/milling station feeding the metallurgical plants.

                Ergo’s assets include: access to tailings deposited across the western, central and eastern Witwatersrand; a 50km pipeline; and tailings deposition facilities including the significant Brakpan/Withok TSF.

                The feedstock is made up of sand and slime which are reclaimed separately. Sand is reclaimed using mechanical front-end loaders, re-pulped with water and pumped to the plant. Slime is reclaimed using high pressure water monitoring guns also known as hydraulic reclamation. The re-pulped slime is pumped to the plant and the reclaimed material is treated using screens, cyclones, ball mills and Carbon-in-Leach, or CIL, technology to extract the gold.

                Set forth below is a description of each of our plants in operation:

                Ergo Plant:  Commissioned by Anglo American Corporation in 1977, became part of AngloGold Ashanti in 1998 from which it was acquired for a consideration of R42.8 million in 2007. The remaining five CIL tanks were refurbished during fiscal year 2015 to increase capacity to treat up to 25.2Mt per year. The Ergo FFG project is designed to assist in liberating the gold particles currently encapsulated in the sulphides and to achieve a targeted improvement in gold recovery efficiencies of between 16% and 20%.

                Knights Plant:  Commissioned in 1988, this surface/underground plant comprises a circuit including screening, primary cycloning, milling in closed circuit with hydrocyclones, thickening, oxygen preconditioning, CIL, elution, electro-winning and smelting to doré. The Knights plant, although historically part of the Crown operation, is located further east and considerably closer to the Brakpan TDF. Due to the location of the Knights plant it is able to access the Brakpan TDF to deposit waste. The Knights plant has an installed capacity to treat an estimated 3.6Mt per year.

                City Deep Plant:  Commissioned in 1987, this surface/underground plant comprises a circuit including screening, primary, secondary and tertiary cycloning in closed circuit milling, thickening, oxygen preconditioning, CIL, elution and zinc precipitation followed by calcining and smelting to doré. Retreatment continued at the City Deep Plant until the plant was decommissioned in August 2013 to operate as a milling and pump station and is currently pumping material to the Ergo Plant for the final extraction of gold.

                 As of June 30, 2020, the net book value of Ergo’s mining assets was R1,283.9 million (2019: R 1,300.4 million).

Capital Expenditure

                 For a discussion of capital expenditures in fiscal years 2018, 2019 and 2020, see "Item 5.A. Operating and Financial Review and Prospects—Capital expenditure".                

                Advance planning is underway for the expansion of the Brakpan/Withok tailings storage facility to accommodate higher grade resources in the Far East area of the Gauteng province and further extend the life of mine of ERGO.  

                 Capital expenditure is financed through cash resources and operational cash flows while financing for significant growth projects may be obtained through specific financing arrangements if required. For a summary of capital expenditure, see Item 5A. Operating Results.

Exploration and Development

                Exploration and development activity at Ergo involve the drilling of surface dumps and evaluating the potential gold bearing surface material.

Environmental and Closure Aspects

                Municipal infrastructure as well as commercial and residential developments have encroached towards the Ergo operation. The major environmental risks are associated with dust from various reclamation sites, and effective management of relocated process material on certain tailings dams. The impact of windblown dust on the surrounding environment and community is addressed through a scientific monitoring and evaluation process, with active input from Professor H. Annagran from the Cape Peninsula University of Technology and appropriate community involvement. Environmental management programs, addressing a wide range of environmental issues, have been prepared by specialist environmental consultants, which are audited annually. Water pollution is controlled by means of a comprehensive system of return water dams which allow for used water to be recycled for use in Ergo’s metallurgical plants. Overflows of return water dams may, depending on their location, pollute surrounding streams and wetlands. Ergo has an ongoing monitoring program to ensure that its water balances (in its reticulation system, on its tailings and its return water dams) are maintained at levels that are sensitive to the capacity of return water dams.

                Dust pollution is controlled through an active environmental management program for the residue disposal sites and chemical and organic dust suppression on recovery sites. Short-term dust control is accomplished through ridge ploughing the top surface of dormant tailings dams. Additionally, environmentally friendly dust suppressants are applied. Dust fall-out is monitored through an extensive dust monitoring network monthly, and is utilized as a management measure to ensure the effectiveness of mitigation measures employed. In the long-term, dust suppression and water pollution is managed through a program of progressive vegetation of the tailings followed by the application of lime, to reduce the natural acidic conditions, and fertilizer to assist in the growth of vegetation planted on the tailings dam.

                A program of environmental restoration that provides for the rehabilitation of areas affected by mining operations during the life of the mine is in place. The surface reclamation process at Ergo has several environmental merits as it removes potential pollution sources and opens up land for development.

Environmental management and compliance is further assisted by the in–house developed electronic monitoring system (Compliance Management Tool) that incorporates all existing Environmental Impact Assessments (“EIAs”), EMPs, Mining Right Conversions, Performance Assessments and Social and Labor Plans (“SLPs”) associated with each mining right. The existing and most recent studies are used to supplement the management components with regards to the mining right boundaries and its required compliance parameters. The individual management items are integrated to provide a holistic overview of the state of each of the mining right areas. Spatial data pertaining to the mining right boundaries is stored onto a central database and is utilized to create a live map which illustrates the mining right area and various environmental monitoring systems. This map depicts the mining right boundaries, roads, rails, mine dumps, plants, rivers, pipeline routes, servitudes, way leaves, municipal services and other spatial data relevant to our mining operations.

While the ultimate amount of rehabilitation costs to be incurred is uncertain, we have estimated that the total cost for Ergo, in current monetary terms as at June 30, 2020 is approximately R447.7 million. As at June 30, 2020, a total of R122.1 million (2019: R114.8 million) is held in the Ergo Rehabilitation Trust Fund, previously called the Crown Rehabilitation Trust Fund, which is an irrevocable trust, managed by specific responsible people who we nominated and who are appointed as trustees by the Master of the High Court of South Africa. In addition, a total of R59.9 million (2019: R56.2 million) is held in insurance instruments.

Ore Reserves

                As at June 30, 2020, our Proven and Probable Ore Reserves of Ergo was 3.127 million ounces, an increase from 3.080 million ounces at June 30, 2019 due to the addition of Marievale dumps. A Mineral Resource competent person is appointed at each operation to review our Ore Reserve calculations for accuracy. For Ergo, Professor Steven Rupprecht is the designated competent person in terms of the SAMREC Code responsible for the compilation and reporting of ore reserves.

Production

                For fiscal year 2020, production decreased to 128,249 ounces from 144,453 ounces in fiscal year 2020 mainly due the volume throughput that decreased from 23,162Mt to 20,228Mt, a consequence of the COVID-19 Lockdown, subsequent cautious ramp-up and interruptions in power supply from Eskom and the City of Ekurhuleni. The impact of this decrease was mitigated by the increase in the average yield from 0.194g/t in fiscal 2019 to 0.197g/t in fiscal 2020.

                 Ergo temporarily halted its operations on March 26, 2020 pursuant to the announcement of the Lockdown. The Disaster Management Act regulations subsequently issued by the Department of Co-operative governance and traditional affairs affirmed that gold mining and refining are “essential services” and was therefore exempt from restrictions imposed by the Lockdown. Ergo considered numerous processes for recommencing limited operations without exposing employees to increased risk from COVID-19 whilst at the same time sustaining the infrastructure and mitigating the impact of the stoppage in operations. A detailed process followed to study various guidelines and go through a consultation process with the Department of Mineral Resources and organized labor to safeguard employees from increased risk of infection. Various protocols including newly issued Codes of Practices and Safe Operating procedure manuals to responsibly conduct limited production at our operations were implemented. To date we have been able to contain infections at our operations. ERGO recommenced operations on April 9, 2020 with limited sites and ramped up to almost full production in June 2020. ERGO’s Knights plant recommenced operations on May 7, 2020 and ramped up to almost full production in June 2020.

                Cash operating costs in fiscal year 2020 increased $80 per ounce from $1,124 in fiscal year 2019 to $1,204 per ounce mainly due to the decrease in production.

FWGR

Overview

                On July 31, 2018, we acquired WRTRP Assets, which are surface gold processing assets and tailing storage facilities in Carletonville in the West Rand Goldfield of Gauteng, 30km from Johannesburg, that include Driefontein 3 and 5, Kloof 1, Venterspost North and South, Libanon, Driefontein 4, Driefontein 2 plant, Driefontein 3 plant, WRTRP pilot plant, and land for the development of a central processing plant, regional tailings storage facility and return water dam associated with Sibanye-Stillwater’s WRTRP, subsequently renamed as FWGR. This acquisition represents a significant increase in our assets, which had a material impact on our results for fiscal year ended June 30, 2020. 

                In connection with the acquisition, we issued to Sibanye-Stillwater new shares equal to 38.05% of outstanding shares and granted Sibanye-Stillwater an option to acquire up to a total of 50.1% of our shares within a period of 2 years from the effective date of the acquisition at a 10% discount to the prevailing market value. On January 8, 2020, Sibanye-Stillwater exercised the option. On January 22, 2020 Sibanye-Stillwater subscribed for 168,158,944 DRDGOLD shares at an aggregate subscription price of R1,086 million. These shares were allotted and issued at a price of R6.46 per share, being a 10% discount to the 30-day volume weighted average traded price

                The WRTRP Assets consist of the following:

As of June 30, 2020 and September 30, 2020, no encumbrances exist on FWGR's property.

                 At June 30, 2020, the net book value of FWGR’s mining assets was R1,303.5 million (2019: R1,443.6 million).

                At June 30, 2020, FWGR employed 154 full-time employees. In addition, specialist service providers deployed a further 243 employees to our operations bringing the total number of in-house and outsourced employees to 397.

Mining and Processing

FWGR undertakes the retreatment of surface tailings. Slime is reclaimed using high pressure water monitoring guns also known as hydraulic reclamation. The re-pulped slime is pumped to the DP2 plant and the reclaimed material is treated using screens, cyclones, ball mills and Carbon-in-Leach, or CIL, technology to extract the gold.

                During Phase 1, the DP2 metallurgical plant was reconfigured to have an installed capacity to treat approximately 6 million tons of material per year based on 92% availability. Material is sourced from Driefontein Dump 5. The surface sources have generally undergone a complex depositional history resulting in grade variations associated with improvements in plant recovery over the period the material was deposited.

                The FWGR makes use of and require access to Sibanye-Stillwater’s mining infrastructure and related services. FWGR entered into a smelting agreement with Sibanye-Stillwater to smelt and recover gold from gold loaded carbon produced at the DP2 plant, and deliver the gold to Rand Refinery. In exchange for this service, Sibanye-Stillwater receives a fee based on the smelting costs plus 10% of the smelting costs. Rand Refinery performs the final refinement of all gold produced. FWGR also engaged its fellow subsidiary, Ergo Mining Proprietary Limited, to act as its agent and representative and to enter into a refining services arrangement with Rand Refinery for the sale, marketing and export of the refined gold of the Company. This agreement is expected to be in place until FWGR obtains its own precious metals beneficiation license.

The Mineral Resources and Mineral Reserves held by FWGR were acquired from Sibanye Gold Ltd, a subsidiary of Sibanye-Stillwater Ltd, in a transaction in which common law ownership was established over the various tailings dams containing the said Mineral Resources and Mineral Reserves, and control was established by Sibanye-Stillwater over DRDGOLD. FWGR conducts its activities inter alia in accordance with Environmental Approvals and the provisions of the Mine Health and Safety regulations. A Use and Access Agreement with Sibanye Gold articulates the various rights, permits and licenses held by Sibanye Gold in terms which FWGR operates, pending the transfer to FWGR of those that are transferable.

Capital Expenditure

                 For a discussion of capital expenditures in fiscal year 2020, see "Item 5.A. Operating and Financial Review and Prospects—Capital expenditure".            

                Financing for significant growth projects may be obtained through specific financing arrangements if required. Capital expenditure incurred on the development of Phase 1 of FWGR, of approximately R324.4 million were financed through a combination of borrowings (refer to the Revolving Credit Facility described in Item 10C. Material Contracts) and cash resources and operational cash flows of the Group.

                 FWGR has appointed an engineering consulting company to undertake the detail design and definitive feasibility study for the Phase 2 project. The project includes the construction of a new Central Processing Plant (“CPP”) with a capacity of between 1.2 Mtpm to 2.4Mtpm and the equipping of the required reclamation sites and pipeline infrastructure to supply the relevant resources to the CPP. Phase 2 also includes the construction of a new RTSF capable of accepting 3Mtpm to a capacity of approximately 800Mt.

                 For a summary of capital expenditure, see Item 5A. Operating Results.

Exploration and Development

                Exploration and development activity at FWGR involves the drilling of surface dumps and evaluating the potential gold bearing surface material, as well as exploratory and development activities around Phase 2 of the project.

Environmental and Closure Aspects

                 The major environmental risks are associated with dust from various reclamation sites, and effective management of relocated process material on certain tailings dams. The impact of nuisance dust fallout on the surrounding environment and community is addressed through a comprehensive monitoring network, with active input from Professor H. Annagran from the Cape Peninsula University of Technology and appropriate community involvement. Environmental management programs, addressing a wide range of environmental issues, have been prepared by independent specialist environmental consultants, which are audited annually. Water pollution where appropriate is controlled by means of a comprehensive system of return water dams which allow for used process water to be returned for use in FWGR’s metallurgical plant and hydraulic reclamation. FWGR has an ongoing monitoring program to ensure that its water balances (in its reticulation system, on its tailings and its return water dams) are maintained at levels that are sensitive to the capacity of return water dams.

                Nuisance dust fallout is controlled through active mitigation measures described in the environmental management program for the management of our activities. These mitigation measures include environmentally friendly dust suppressants applied to high impact areas, active wetting of access roads by water bowsers, a network of high velocity sprayers on our active TSF. Dust fall-out is monitored through an extensive dust monitoring network monthly and is utilized as a management measure to ensure the effectiveness of mitigation measures employed. In the long-term, dust suppression and water pollution will be managed through concurrent rehabilitation of the tailings dam, thus reducing water ingress and dust from exposed areas.

                FWGR will undertake concurrent rehabilitation of areas affected by mining operations during the life of the mine. The surface reclamation process at FWGR has several environmental merits as it removes pollution sources and opens up land for development.

                Environmental management and compliance is further assisted by the in–house developed electronic monitoring system (Compliance Management Tool) that details the commitments made within the EMPs and Water Use Licenses to aid in keeping the operation compliant to its statutory obligations. The existing and most recent specialist studies are used to supplement the management components with regards to the compliance parameters. The individual management items are integrated to provide a holistic overview of the state of the operation. Spatial data pertaining to the operation is stored on a Geographical Information System (GIS) which provides a spatial overview of the operation which includes environmental monitoring systems, right boundaries, roads, rails, mine dumps, plants, rivers, wetlands, pipeline routes, servitudes, way leaves, municipal services and other spatial data relevant to our mining operations.

While the ultimate amount of rehabilitation costs to be incurred is uncertain, we have estimated that the total cost for FWGR, in current monetary terms as at June 30, 2020 is approximately R103.3 million (June 30, 2019: R179.8 million). As at June 30, 2020, a total of R408.1 million is held in the Ergo Rehabilitation Trust Fund for the benefit of FWGR’s rehabilitation. The Ergo Rehabilitation Trust Fund is an irrevocable trust, managed by specific responsible people who we nominated and who are appointed as trustees by the Master of the High Court of South Africa.

Ore Reserves

                As at June 30, 2020, our Proven and Probable Ore Reserves of FWGR was 2.598 million ounces, down from 2.690 million ounces at June 30, 2019 due to depletion. A Mineral Resource competent person is appointed to review our Ore Reserve calculations for accuracy. For FWGR, Mr. Vaughn Duke is the designated competent person in terms of the SAMREC Code responsible for the compilation and reporting of ore reserves.

Production

                For fiscal year 2020, production increased to 46,136 ounces from 10,706 ounces produced in fiscal year 2019. This was mainly due the volume throughput that increased from 1,277Mt in fiscal 2019 to 6,052Mt in fiscal 2020 as the latter was the first full year of production. The average yield decreased from 0.261g/t to 0.237g/t.

                FWGR temporarily halted its operations on March 26, 2020 pursuant to the announcement of the Lockdown. The Disaster Management Act regulations subsequently issued by the Department of Co-operative governance and traditional affairs affirmed that gold mining and refining are “essential services” and was therefore exempt from restrictions imposed by the Lockdown. FWGR considered numerous processes for recommencing limited operations without exposing employees to increased risk from COVID-19 whilst at the same time sustaining the infrastructure and softening the impact of the stoppage in operations. A detailed process followed to study various guidelines and go through a consultation process with the Department of Mineral Resources and organized labor to safeguard employees from increased risk of infection. Various protocols including newly issued Codes of Practices and Safe Operating procedure manuals to responsibly conduct limited production at our operations were implemented. To date we have been able to contain infections at our operations. Due to its small footprint, and employees living close to the operation, FWGR was able to recommence operations on April 3, 2020 and was able to ramp up production to 97% and 100% in May and June 2020, respectively.

                Construction of Phase 1 commenced during August 2018 with R330.7 million spent on, inter alia, the reconfiguration of the DP2 plant and relevant infrastructure to process tailings from the Driefontein 5 slimes dam and deposit residues on the Driefontein 4 Tailings Storage Facility. During this construction phase, some gold was produced at the adjacent Driefontein 3 plant (“DP3”). Early-stage commissioning of the DP2 plant commenced on December 6, 2018 with the pumping of reclaimed tailings into the carbon in leach (“CIL”) circuit. Testing of the reconfigured plant and ramp-up of production continued during the third quarter of the fiscal year ended June 30, 2019. Management considered, inter alia, the design capacity of the plant, recoveries and the ability to sustain production in determining the date of commercial production. The date of commercial production for Phase 1 (excluding the milling section) was determined to be April 1, 2019. The mills were subsequently commissioned in September 2019.

                FWGR’s DP2 plant achieved gold production of 4,855oz before the date of commercial production of Phase 1 (excluding the milling section). R93.7 million working costs and R88.9 million proceeds from the sale of gold produced were capitalized to additions to property, plant and equipment as pre-production costs.

                Cash operating costs in fiscal year 2020 decreased $172 per ounce from $688 in fiscal year 2019 to $516 per ounce mainly due to the increase in production.

                 See Item 5A. Operating Results – Capital expenditure for a discussion on capital expenditure.

ERPM

Overview

                In December 2018, ERPM concluded revised agreements to dispose certain of its underground assets to OroTree Limited (“OroTree”). The revised agreements consisted of a disposal of ERPM's underground mining and prospecting rights and an option agreement, at the sole discretion of OroTree, to purchase the underground mining infrastructure exercisable on or before June 30, 2020. The disposal of the underground mining and prospecting rights were concluded in the second half of the financial year ended June 30, 2019. OroTree’s option to purchase the underground mining infrastructure lapsed on June 30, 2019 when it did not exercise said option. The underground mining infrastructure remains under care and maintenance until final rehabilitation is completed.