CEO’S REVIEW

Once DRDGOLD had disposed of its last interests in Australasia in the year under review, we were able to turn our full attention to South Africa. The first priority was to stabilise our operations and return them to sustainable production levels. The next step was to start focusing on growing our ounces, both at existing assets and through pursuing new opportunities. It has been a testing period for the company but the tough decisions and hard work are starting to pay off and DRDGOLD is now in a far sounder position than it was a year ago, in respect of both the balance sheet and our income statement. We ended the year with adjusted headline earnings of 30 cents per share, compared with a loss of 87 cents per share 12 months ago.

We were pleased to be able to declare a final dividend of 10 South African cents per ordinary share for FY08 which amounts in total to R37.7 million. This dividend was based on the higher gold price received. The payment of dividends in the future will be considered if the gold price remains favourable.

SAFETY, HEALTH AND ENVIRONMENT

Before providing some commentary on these aspects during FY08, I would like to mention that, for the first time, DRDGOLD has produced a separate Sustainable Development Report. This document, which is published on our website (www.drdgold.com), looks at the broader economic, social and environmental impacts of our business on our stakeholders. Shortened versions of the safety, health and environment sections of the Sustainable Development Report appear in this report.

It is with great sadness that I must advise that four people died in work-related incidents at DRDGOLD operations during the 2008 financial year. Three were employees of DRDGOLD SA and the fourth was a contractor.

Those who lost their lives were Samuel Vini and P Ngxakazela at ERPM, and Ncedile Loloni and Abram Pwetwe at Blyvoor. I would like to extend my deepest condolences to their families, friends and colleagues.

Although we fell short of our target of zero fatalities, it is encouraging that DRDGOLD SA’s fatal injury frequency rate (FIFR) declined from 0.21 to 0.13. The reportable injury frequency rate (RIFR) also improved, from 4.75 to 3.02. Falls of ground, either gravity- or seismicity-related, cause more injuries than any other factor.

The substantial effort that is being put into safety initiatives, including several that are specifically aimed at reducing falls of ground, at all our operations has certainly played a part in the general improvement in safety achieved in FY08. I would like to make special mention of the emphasis that is being placed on changing employees’ behaviour. There is no doubt that one of the keys to success is to have a situation where each individual is aware of safety and takes responsibility for it. Training of internal behaviour-based safety consultants is under way at Blyvoor and implementation of a pilot project is scheduled for the second quarter of FY09.

In the same way, campaigns to raise awareness form an important part of DRDGOLD’s health programmes, particularly with respect to noise-induced hearing loss (NIHL), TB and HIV/Aids. The increasing numbers of employees going for voluntary counselling and testing (VCT) and participating in wellness clinics bear testimony to the effectiveness of such interventions.

Dust control and water management are the main challenges that DRDGOLD faces on the environmental front and much progress has been made in addressing both during FY08. Great attention is also being paid to using resources responsibly. A good example of this can be found at Blyvoor where the establishment of a plant to treat the water from underground to a potable standard for use on the mine is being investigated. Apart from reducing a potential source of pollution, this would cut the amount of fresh water that the operation uses.

TRANSFORMATION

A comprehensive account of our progress in terms of meeting the requirements of the South African Mining Charter can be found in our Sustainable Development Report and a summary is included in this report. A measure of the importance that DRDGOLD attaches to this sphere of activity is borne out by our establishment of a new board committee, the Transformation and Sustainable Development Committee (Transco), in the year under review.

DRDGOLD is making steady progress as it strives to meet the targets set by the Mining Charter and the related Scorecard. One of the challenges we face is the retention of talent because promising historically disadvantaged South Africans (HDSAs) are in great demand in a country where there is a serious shortage of skills across all industries. Rather than recruiting people from outside the group, we try as far as possible to develop our employees to take up positions as these become vacant. In line with this, we have extensive training programmes in place and our internship initiative is growing apace. Crown has already met the Mining Charter’s target of 40% HDSAs in management positions by 2009 and, with 8.5% women in the workplace currently, is close to the target of 10%.

Education and job creation are two of the most important areas of focus in the Local Economic Development (LED) programmes which we have in place for the communities around our three operations. Blyvoor’s reef picking project, ERPM’s Community ABET Centre and Crown’s East Rand Academy of Learning at Ergo to promote community skills development and education are among the most significant community upliftment ventures in which we are involved. More details about these and other projects can be found in our Sustainable Development Report. I should also mention that all three operations have initiatives under way to provide quality housing with full services for employees and their dependants.

GOLD MARKET

The gold market was strong but exceptionally volatile in FY08, reaching an all-time high of $1 030 per ounce ($/oz) on 17 March 2008. The average spot price, at $821/oz, was 30.7% above the $638/oz recorded in the previous year. The average gold price received by DRDGOLD for the year was $822/oz, 27% higher than the $642/oz achieved in FY07.

Both the strength and the volatility of the market are illustrated by a comparison of the average US dollar spot prices for the four quarters. The price was $680/oz in the first quarter, $788/oz in the second quarter, $925/oz in the third quarter, and $898/oz in the fourth quarter. Concerns about the health of the world economy and rising inflation are undoubtedly the main reasons for the erratic gold price. While the gold price continues to be closely allied to the performance of the US dollar, a relatively new trend is its close link with the oil price.

Unsure about the stability of the global economy, investors have turned to gold as they have done down the ages during times of uncertainty. Exchange Traded Funds (ETFs) reached a peak in the third quarter when these holdings amounted to 29.7 million ounces with a value of over $27.2 billion. Year-on-year investment spending on gold went up by 29% to reach $3.5 billion. Given renewed fears about further write-downs in the financial sector, it can be expected that investment in gold will continue to find favour.

There are two other factors that bode well for gold. The first is the decline in global production by 0.4% in 2007 to an 11-year low and a forecast of a further decline in 2008. The second is continued de-hedging activity, with the global hedge book reaching 18.81 million ounces on 30 June 2008, which GFMS estimates is its lowest level since 1987. The result is that demand is exceeding supply and this is likely to continue because worldwide, gold exploration has been largely unsuccessful in recent times and because of the difficulties of maintaining profitable production during a time of rising costs. The demand for gold in terms of value reached a quarterly record high of $21.2 billion in the fourth quarter of FY08. Another positive trend is that industrial demand grew by 27% in FY08 and amounted to $3.2 billion. We remain bullish about our product, and believe that the gold price will rise again to around the $1 000/oz level in FY09.

OPERATING AND FINANCIAL PERFORMANCE

DRDGOLD’s production decreased by 33% to 321 432 ounces in FY08, largely because of the company’s withdrawal from Australasia and the restoration of the South African operations first to stability and then to sustainable levels of profitable production.

Group revenue from continuing operations rose by 20% to R1 843.9 million, reflecting the higher average gold price received. In spite of the 14% increase in operating costs from continuing operations to R1 503.0 million, gross profit was 78% higher at R245.5 million. Net profit was R1 225.1 million compared with the previous year’s loss of R1 165.0 million, mainly because of the R1 169.2-million profit realised from the disposal of the Australasian interests.

It must be said that the operating environment in FY08 was not an easy one. Looking at economic factors first, rising inflation in South Africa had a marked impact on costs. To add to this, Eskom cut off power supply to the mining industry for five days in early 2008 and there were a number of power outages in the following months. Eskom has managed to contain electricity stoppages but the fact remains that the country’s current reserve capacity is insufficient and this slim margin will remain until 2012-13. However, apart from the five-day closure, DRDGOLD’s production has not been affected to date.

On the political front, the situation in Zimbabwe continues to destabilise southern Africa. The most obvious manifestation of this was the spate of xenophobic attacks on foreign Africans by South Africans that occurred during the fourth quarter. DRDGOLD’s ERPM operation was directly affected. Two employees died in the violence and attendance was down at the operation for several days. Although these attacks have been contained, the challenge for the South African Government is to come up with a long-term and judicious immigration policy. The political situation in South Africa was uncertain in FY08 and remains so with the population deeply divided in terms of its support for the President of the ANC, Jacob Zuma, who is set to become President of the country following national elections in 2009.

There is a shortage of skills in the mining industry worldwide and the prevailing political situation in southern Africa makes it difficult to attract and retain skilled employees. In particular, there is a worrying dearth of people with managerial experience and leadership ability, but a target for our team is that DRDGOLD remains an employer of preference.

RESERVE AND RESOURCE MANAGEMENT

Although DRDGOLD disposed of its Australasian operations in FY08, the group’s attributable ore reserves rose by 25% from 6.3 to 7.9 million ounces, and the attributable mineral resources went up from 54.2 to 54.7 million ounces.

The substantial increase in ore reserves was largely because of a 271% rise in ERPM’s underground and surface reserves, from 0.7 to 2.6 million ounces. The underground reserves went from 0.5 to 1.2 million ounces following the conversion of the ERPM Extension 1 measured and indicated resources to proved and probable reserves. The surface reserves increased from 0.2 to 1.5 million ounces because of the inclusion of the Elsburg surface tailings complex, which will be mined by Ergo.

An additional 2.2 million attributable ounces from Ergo is the main reason for the higher attributable mineral resources.

BOARD AND MANAGEMENT CHANGES

It gives me great pleasure to announce the appointment of Niël Pretorius as CEO Designate and an executive director of DRDGOLD with effect from 21 August 2008. Niël, who joined the company in 2003, has been at the helm of DRDGOLD SA since July 2006. My contract with DRDGOLD comes to an end on 31 December 2008 when I will retire, and Niël takes over as CEO on 1 January 2009. I wish him well in his new position.

Edmund Jeneker was appointed an independent non-executive director in November 2007. He is chairman of the Transformation Committee and a member of the Audit Committee.

Shortly before the end of the financial year, in May 2008, Craig Barnes was appointed Chief Financial Officer of DRDGOLD. Prior to this he was Chief Financial Officer of DRDGOLD SA. Craig is 38 and forms part of what is a young management team, a fact which we consider to be one of the group’s strengths.

ACKNOWLEDGEMENTS

In what has been an eventful year for DRDGOLD, I would like to express my gratitude to our executives and employees for their commitment and their support during difficult times.

LOOKING AHEAD

Following a prolonged period of restructuring and consolidation, we are looking ahead to an exciting phase of growth for DRDGOLD. The company has a pipeline of sound projects, measured against a set of robust criteria, which will boost production, from FY09 onwards.

After a long delay, Crown has been granted a mining right to re-treat material from the Top Star dump to the south of the Johannesburg central business district (CBD). This 20-month project is expected to deliver 128 000 ounces of gold. Production from the two projects at Blyvoor – the Way Ahead and No 6 Shaft 15/29 Incline projects - will start in FY09. ERPM is busy with a four-year drilling programme which has the potential to extend the life of mine by more than 10 years.

Phase 1 of our Ergo Mining Joint Venture with Mintails SA is progressing well and production of 75 000 ounces a year is expected to start in the last quarter of calendar 2008.

We believe that our combination of underground and surface re-treatment operations at DRDGOLD gives us a firm platform for the future.While underground mining offers greater volumes and higher yields, it is also more costly and more challenging from a safety perspective. In inflationary times and with input costs soaring, we are pleased to be looking at increased production from our surface operations. We believe that optimal performance from our current operations and projects could deliver total production of some 400 000 ounces a year in the foreseeable future.

As an unhedged gold mining company, we have benefited from the higher gold price in FY08 and we expect to continue to do so in the year ahead.

We consider our share price to be undervalued at present levels. Partly, of course, this is to do with the current political and economic uncertainties in southern Africa and as such is out of our control. We hope, however, that our improved financial position, our growth projects and our management team with a wealth of experience in the South African mining industry will start to be reflected in a more realistic valuation of our share price in FY09.

John Sayers
Chief Executive Officer
22 September 2008