• DRD's hedge book will cost $ 85 million to clear .. roughly 20 % of the market cap of the company.



• Anglogold's hedge book will cost about $250 to clear .. roughly 5 % of the market cap of the company.



• Harmony will gain 500,000 oz per year of free state production from the purchase of Anglogold's assets but at a cost of about 1.3 billion rand .. about 6% of their market cap.

However, these 3 companies can be compared by assuming that these one off costs will be met by theoretical increases in company stock .. as follows

157 * 1.2 = 188 mill shares for DRD
144 * 1.06 = 153 mill for Harmony
97 * 1.06 = 102 mill for Anglogold

with goldfields unaffected at 460 mill shares

costs assumptions based 4th quarter 2001 results as outlined below

(all in thousand oz and million rands)

Forecast profits at $300 gold and 11.5 rand/$ rate will become:

DRD
1.05 mill oz/yr times (300- 2205/11.5)*.7 /188
= $0.42/share … at 10 P/E values DROOY at $4.20

Harmony
2.9 mill oz/yr times (300 - 2055/11.5)*.7/153
= $1.61/share ... at 10 P/E values Harmony at $16.10

Anglogold
6.9 mill oz/yr times (300 - 1960/11.5) *.7 /102
= $6.13/share at 10 P/E values Anglo's at $61.3 or $30.6 on the ADR

(Anglo can be expected to trade at a higher P/E because of quality of reserves and geographic mix of operations)

Gold Fields
3.95 times (300 - 2000/11.5 ) *.7 /460 =
$0.76/share or $ 7.60 at a 10 P/E ..

(there should be an added credit for platinum discovery for Gold Fields)

Based on the above, I'd expect a further run up in price of about 50 % on DRD and Harmony, and 30 % on Anglogold (PLUS what ever premium the market assigns on their proven ability to hedge and their geographic mix). Gold Fields seems close to fully valued.

Note 1 .. DRD Hedge Book

Forward sales over the next two years as follows
208900 oz at 1752 rd/oz close out cost gold @3450 = $31 mill
170000 oz at 2154 rd/oz close out cost gold @3450 = $19 mill
150000 oz at 2200 rd/oz close out cost gold @3450 = $16 mill
for a total close out cost of $66 mill

Calls sold
sold .. 100751 oz at 2042 .. cost $12.3 mill
sold .. 204000 oz at 2077 .. cost $24.3 mill
sold .. 34000 oz at 2084 .. cost $4.0 mill
total cost calls sold .. $40 mill

Calls bought
bought .. 65000 at 2300 .. profit $6.5 mill
bought .. 150000 at 3000 .. profit $6.0 mill
bought .. 150000 at 3000 profit $6.0 mill
total profit on calls bought = $ 18.5 mill

Total hedge book loss = 66 + 40 -18.5 = $87.5 mill

Note 2 .. I have NOT tried to include the effect of the sale of free state assets on Anglogold production will be reduced .. partly offset by reduced cost of production plus a gain of 2.2 billion rand.

John Disney PhD (Chem Engr)
jdisney@kingsley.co.za

21 February 2002