Chairman’s letter

Dear Shareholder

It has been an extraordinary year for DRDGOLD and the gold mining industry.

Gold price

The debt crisis in Europe and the United States and the revolutionary changes that have swept through North Africa have sent investors flocking to gold as the ultimate safe haven. It is unlikely that the appetite for gold will diminish while Europe and the US continue to battle to reduce budget deficits during a time of sluggish world growth. The higher gold price resulted in a 76% increase in operating profit for the year to June. It has also enabled us to continue to invest in our surface retreatment operations at Ergo without going to shareholders for funds. I am happy to report that the board has declared a 50% increase in the annual dividend to 7.5cents.

Rising costs

While the rising gold price has been extremely beneficial, we have had to deal with the steeply rising cost of water and electricity from state-run monopolies, along with rising labour costs. To this end we continue to develop our surface operations and we are working towards the ultimate divestment of our deep-level underground operation in such a way as to preserve the value of the asset.

Surface operations

Our surface retreatment operations at Ergo reported a 250% increase in operating profit as a result of higher gold production, lower costs and the higher gold price. The capital expenditure of R800 million at this operation over the last few years is coming to fruition as the operations ramp up tonnage and recovered grade improves. The 50km pipeline, which will link our surface operations across Johannesburg, is close to completion on time and on budget. This will allow us to increase the life of our operations and take advantage of synergies between our plants. Recovering a higher percentage of the gold content remains a challenge at Ergo but ongoing test work to determine how we can improve this is encouraging. Given the huge tonnage of material that is being processed, the benefit of recovering a few more hundredths of a part per million is substantial.

Community development

Recently I visited our Ekurhuleni Business Development Academy at Ergo. Here adults can learn literacy skills and a wealth of fully accredited engineering trades. These skills are essential not only for the mining industry, but for South Africa as a whole. The academy has state-of-the-art machinery and equipment and there was a real sense of purpose and enthusiasm as we toured the campus. What makes this facility unique is that it is open to everybody, not just employees of DRDGOLD. This, along with our other community development projects, is the way by which we are making a real difference to the quality of people’s lives in South Africa.

Blyvoor

Our underground operations at Blyvoor continue to face challenging financial conditions due to falling grades and rising costs. Last year the operation was placed under judicial management for five months to protect it from creditors and to give it a chance to trade its way back into profit, which it succeeded in doing. However in June of this year, the financial position deteriorated and we determined that it was not in the interests of our shareholders to continue to fund losses and so we initiated business rescue proceedings. Ownership of Blyvoor is not consistent with our strategic goals of reducing risk, managing costs and increasing the profit margin and the business rescue practitioner is preparing a business plan that will facilitate divestiture.

ERPM Extensions 1 and 2

With so much attention on the development of our surface assets, it is easy to overlook the fact that we have other substantial and potentially valuable underground resources. ERPM Extensions 1 and 2 currently have a resource of 18 million ounces of gold; relative to other South African gold deposits, the resource lies close to the surface and the grades are good. Our immediate goal is to unlock the value of this resource for our shareholders and establish how this can be developed into a producing mine.

Exploration

Our focus remains South Africa but we continue to look at neighbouring countries for opportunities. In Zimbabwe we have accumulated a substantial number of hectares for exploration, many of them on the site of historical mining and current artisanal mining activities. It is too early to say what may come of this but it makes good sense to be looking in prospective areas that can be easily accessed from Johannesburg.

Year ahead

We start FY2012 in good financial shape. Our surface operations go from strength to strength and there is real potential for technical developments to further improve the payback at these operations. We have worked hard to keep our underground operations at Blyvoor functioning and preserve value so that we can divest this asset.

Thanks

I should like to thank everyone at DRDGOLD for their contribution to the success of our company.

Geoffrey Campbell
Chairman
19 September 2011

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