Letters to Shareholders
Surviving slings and arrows – and setting the record straight
When I wrote to you in our Investor Brief last week, I thought we had just survived some of the toughest times at DRDGOLD, but I must admit now that the last 48 hours have been even tougher.
The decision we took to provisionally liquidate our North West Operations has been amongst the toughest I have been party to as a chief executive.
Nevertheless, my Board and I believe emphatically that it was the right decision and that DRDGOLD and all of its stakeholders will emerge the stronger for it. We will be well placed to take advantage of what we still see as just the beginning of a gold bull run.
It has been disappointing, nonetheless, that the company has been attacked from various quarters during its attempts to resolve the North West Operations’ difficulties and for its final decision to provisionally liquidate.
It would be easy to turn the other cheek but I am concerned that there are shareholders at some remove from the heat so to speak, who may be disconcerted by the vitriol, which is simply not supported by fact.
The National Union of Mineworkers (NUM), representative of most of our employees, has castigated us in the South African media for our safety record.
The fact is, official Government statistics prove that DRDGOLD recorded the lowest fatality rate in the whole of the South African gold mining industry last year. Then, as we reported in the Investor Brief last week, Blyvooruitzicht mine has just won, for the seventh time in a row, the West Rand Mine Managers’ Inter-mine Safety Competition. Such awards and achievements do not come easily, but are the result of hard work and dedication by all of our employees.
I must re-state, in this context, a primary motivation for our provisional liquidation of the North West Operations: that is, our firm conviction that continued exploitation of high-grade pillar panels amid continuing incidences of seismicity was simply untenable from a safety point of view.
The NUM has accused us of being the worst payer in the South African mining industry.
The fact is, our pay scales are absolutely in line with those of the rest of industry. More specifically, our minimum wage rates, signed off by our primary detractor in this, are the same as those of our competitors. In fact, our workforce at the Harties section of the provisionally liquidated North West Operations was the second highest paid in the country.
Our commitment to South Africa:
The North West Operations’ provisional liquidation has served as yet another opportunity for our detractors to question our patriotism and commitment to South Africa while they continue to ignore the simple unsustainability of a business that has continued to lose more than R20 million a month – a business in which DRDGOLD in recent months for many reasons – including its commitment to this country – has invested more than R280 million with absolutely no return.
They choose also to ignore the investment we have taken in the country, averaging over R120m a year in new capital expenditure over the last five years, sustaining profitable gold production of over 400 000 ounces a year and securing 6 500 jobs.
When everyone else, including the South African Government, had turned its back on one of the South African gold mining industry’s most notorious of ‘Cinderellas’ – East Rand Proprietary Mines, it was DRDGOLD and its Black Economic Empowerment (BEE) partner, Khumo Bathong Holdings, that came to the final rescue.
Together, we have nursed the mine through fires, seismicity, industrial action and general pariah status, back to profitability. And all for a total investment of R160m that has ultimately secured some 2 300 jobs.
We’re proud, too, that we were the first South African mining company to secure a BEE transaction.
Wherein, then, lies the substance for accusations of unpatriotic behaviour and lack of commitment to South Africa? Because we have diversified our mining activities to Australasia? Surely this should be a source of national pride, not denigration. Were it not for the profits generated by these overseas assets, our South African assets would have been considerably worse off as they struggle to cope with the strong Rand and consequent low Rand gold price inflicted upon them.
Enough said. I hope the foregoing helps allay any concerns you may have about the current storm that surrounds us. I take some heart from the fact that the dramatic improvement in the company’s share price in the last 24 hours points to a fairly thoroughgoing level of support and understanding amongst the investing comm-unity.
Chief Executive Officer
24 March 2005