Chairman and CEO' Report

1. Kennedy Maxwell, 62

To our shareholders
This past year has seen continued progress towards the Company’s longer-term strategy of capital growth. The portfolio is today significantly different from previous years. The investments in precious metals are through 61 per cent held Avgold Limited’s (Avgold) Target and ETC gold mines and the new, 55 per cent owned, Two Rivers Platinum project. Base metals interests are through the Nkomati nickel mine, 75 per cent held by Avmin, while the cobalt/copper interests are via the 90 per cent held Chambishi Metals plc (Chambishi). The ferrous metals interests are in iron, manganese and chrome ores and are held in Assmang Limited (Assmang), owned 50 per cent by Avmin. Other major investments include interests in Iscor Limited (13 per cent) and Assore Limited (18 per cent), Avmin’s partner in Assmang. In parallel with the Group’s large and ongoing capital growth programme, there has been a three year disposal strategy during which Avmin sold off a variety of mining interests, which yielded some R4,5 billion. The disposals included the Hartebeestfontein gold mine and the interest in the Venetia diamond mine, held through The Saturn Partnership.

The year’s results
The rand devaluation against the United States dollar during the financial year contributed significantly to the Company’s profitability in rand terms. Headline earnings for the year amounted to R281 million (30 June 2000: R486 million). The previous year’s headline earnings included a contribution to Avmin of R347 million by way of diamond royalty income and R28 million from the disposal of Hartebeestfontein gold mine. The Saturn Partnership was sold to De Beers Consolidated Mines Limited during the latter part of fiscal 2000. Excluding diamond royalty income, headline earnings rose by 102 per cent. The headline earnings per share equate to 259 cents (455 cents per share). Costs were well contained throughout all the Company’s operating entities. Sales revenues were higher in all sectors of the business with the exception of precious metals due to the inclusion, in the previous year, of gold sales from the Hartebeestfontein mine prior to its disposal on 16 August 1999. The last year has been a period of intensive capital investment and capacity building, and the bottom line result achieved is very pleasing. The only exception was Chambishi, where current refining operations were disappointing and the new furnace commissioning suffered a six month delay in terms of full production, which is now expected during the first half of calendar 2002. Avmin continued to perform strongly with a 71,7 per cent increase in the share price during the six months ended 30 June 2001 compared to an increase of 22,9 per cent for the mining holdings and houses index on the JSE Securities Exchange, South Africa. In early January 1999, Avmin’s share price was R17,30 per share and the share price closed at R39,50 on 30 June 2001 – an increase of nearly 130 per cent.

Controlling shareholding
It was announced on 12 October 2000 that the Menell family had achieved the reshaping of Avmin’s control structure through the negotiation of a partnership. The partners have entered into agreements whereby their collective interests in Avmin are pooled in Arctic Resources Limited (Arctic). This controlling partnership consists of the Menell family and other financial investors. The substantial investment in Avmin by Arctic is a strong endorsement of its faith in the ability of Avmin to unlock maximum value for its shareholders. On 30 June 2001, the Menell family’s historic high voting rights ceased when their unlisted preference shares were converted to ordinary shares, which is now the only class of share in issue.

Corporate development
David Murray was appointed president and chief operating officer in February 2001 and is responsible for the day-to-day operation of the Group and the execution of approved projects and strategies. The board is delighted that David is continuing to bring the same levels of discipline and rigorous management to the Group as he achieved, most effectively, as managing director of Avgold.
Brian Menell was appointed executive director: corporate strategic development to pursue corporate strategies for Avmin’s longer-term growth initiatives. During the middle of the year Avmin acquired slightly more than 35 million shares in Iscor Limited (Iscor) for a cash consideration of R494 million.  Part of this shareholding was subject to a call option that had been granted to a financial institution for 9,5 million Iscor shares at a net strike price of R25,00 per ordinary share. On 19 September 2001, 4,2 million of these options were exercised and the balance of 5,3 million options lapsed.
Avmin’s investments in the economic potential of the Northern Cape Province, through its interests in Assmang and Iscor, place the Company in a favourable position to participate in the possible rationalisation of the mining sector in that area.
A Group strategic objective to enter the platinum group metals (PGMs) business was achieved when Avmin and Impala Platinum Holdings Limited together successfully bid for the PGM rights held by Assmang over the Dwars Rivier property at a cost of R551 million. Avmin has a 55 per cent stake in the venture and is responsible for mining through to the production of concentrates. Impala will apply its PGM processing and marketing knowledge and infrastructure making it the ideal partner for this venture. The transaction is presently subject to a Competition Commission review.
The high level of expenditure on current development projects constrains Avmin’s ability to fund new exploration initiatives, which fall under the responsibility of the corporate strategic development team. The Group has therefore decided to downscale its programme for early stage exploration and will continue to fund only those programmes with the potential to provide above average returns in the short- to medium-term.

Economic and social factors
The entrenchment of sound economic policies and the South African government’s rational approach to changes in legislation are providing an environment that favours the investment necessary for growth in South Africa. Avmin, through its numerous development projects, is playing its part in pursuing investment opportunities that will contribute to economic growth in South and southern Africa. The Group remains committed to the cause of nation building and continues its support of economic empowerment and social upliftment, not only as an expression of its confidence in the future of South Africa, but also as a result of its responsibility as a large employer.
Avmin is one of the founders of the Business Trust. The Trust was established to expand job opportunities in the tourism industry, build capacity in schools and technical colleges and address impediments to job creation. The Trust’s beneficiaries include South African Tourism, the Tourism, Hospitality and Sport Education and Training Authority, READ, the Joint Education Trust and Business Against Crime.
Avmin has benefited and will continue to do so from the leading role that its chief executive officer has played – in his role as the president of the Chamber of Mines of South Africa over the past two years – in the new Minerals Development Bill debate and other key areas of policy formulation. Through this involvement, the Group has been in a position to make useful input in discussions with other senior South African executives who form the President’s Big Business Working Group. The proposed Minerals Development Bill, published during December 2000, has been revised by the government’s drafting team for further consideration by cabinet. This revision followed numerous submissions from interested parties, culminating in agreement reached between government and senior mining industry representatives on the manner in which key aspects should be addressed in a new mining and minerals law for South Africa. It is understood that, subject to approval by cabinet, the revised draft bill will be submitted later this year for consideration by Parliament.

HIV/AIDS
As the HIV/AIDs epidemic continues on its destructive path it looms as a major obstacle, both to the future social fabric of South Africa and to the economic well being of the country. The management of Avmin is concerned both about the issues that confront its employees and the growing impact on its operations. In order to develop meaningful and practical policies, Avmin is obtaining as much information as possible about the incidence level of HIV/AIDS among its employees and its rate of growth. To this end, Avmin is involved in a collaborative study with the Centre for International Health at the Boston University to determine, on an anonymous basis, the extent to which the disease has spread among employees. The results of this programme will be used to project the likely impact and cost of HIV/AIDS on the business. As this information is collated, policies are being formulated to address such issues as: the rights of individuals; confidentiality; protection against discrimination and unfair practice; the nature of the Group’s care for those with HIV/AIDS and their dependents; and the affordability of these programmes. The Group will demonstrate respectful attitudes towards those who are HIV positive or who suffer from AIDS and offer appropriate care and treatment. As the results of the research are received, each operating company or unit is being tasked to develop and implement specific management plans to control and minimise, in a sensitive and humane manner, the identified impacts of the HIV/AIDS epidemic on its  operations.

Social environment and employment equity
The Group remains committed to contributing to the economic and social development of the communities in which it operates and conducts its business in compliance with all applicable legal requirements. The diverse programme of community projects in which the Group is involved has, over the years, made significant progress towards improving prevailing socio-economic conditions through collaboration with relevant social partners on a national basis and at all operations. These programmes focus on education, life skills training, environmental projects and health care. Avmin is committed to ensuring that all employees enjoy the benefit of fair and equitable recruitment procedures, working conditions and health care and the Group promotes career development opportunities for all employees.
A more detailed report on these and other issues is included in the section starting on page 30.

Dividend policy
The current policy adopted by the board is to declare a dividend annually with at least four times earnings cover. However, the Company is subject to bank covenants relating to the debt finance for Chambishi for the 2001 and 2002 financial years. This, together with the large capital projects being advanced during the coming years, will result in no cash dividends being declared during financial years 2001 and 2002.

The year ahead
The Company is expecting a year of weakness in the economies of Japan, Europe and the United States of America that will probably depress global economic growth. It is expected that prices received for most of the commodities that Avmin produces will remain under pressure. It is therefore anticipated that this year’s financial results will not show an improvement over those for 2001.
Avmin will continue to incur significant development expenditure. The Target mine as well as the Chambishi smelter and refinery will build up to full production. The new platinum acquisition and the Nkomati mine expansion will be further evaluated. Within Assmang, the new chrome alloy smelter and pelletising plant will be fully commissioned and the Nchwaning shaft complex will be further developed.

Directorate
Following his appointment as president and chief operating officer in February this year, David Murray was appointed an executive director. Roy Oron joined the board in November 2000 and, since year-end, Brian Frank and Nir Livnat have been appointed non-executive directors.
The diverse members of the board are very conscious of the need for good governance and make significant contributions to the audit, remuneration and environmental committees, which strongly support the Group’s business efforts. We wish to convey our gratitude to the members of the board for their continued guidance, patience and counsel during the year.

Appreciation
The board also expresses its thanks to the Company’s valued shareholders for their strong support, which is essential for Avmin’s continued growth. Thanks and appreciation are also directed towards all Group staff, which total 5 263 people, for their dedication and hard work during the year. It was a period that presented a number of challenges, most of which were overcome successfully.

Avmin is committed to  ensuring that all employees enjoy the benefit of fair and equitable recruitment procedures, working conditions and health care and the Group promotes career development opportunities for all employees