Gold: Harmony

Geography and locality

Scorecard

F2010 objectives	F2010 performance	F2011 objectives
Generate free cash flow
Eliminate loss-making assets. Restructuring portfolio.	Good progress made.
Increase production: More development for more face length. Achievable plans.	Majority of shafts perform in line with plan.	1.7 million ounces per annum.
Improve productivity. More focus on: training; motivation; safety, health, environment; labour relations.	106 grams per total employees costed (underground).	120 grams per total employees costed.
Commissioning projects: Financed own capital projects: Doornkop: 2,5 years to complete major capital; Kusasalethu: 1,5 years of project capital; Phakisa: majority of capital spent, Tshepong decline producing. Hidden Valley commissioned.	In line with plan. Done.	Two to four years on average to complete.
Grow the company
Explore PNG – Wafi/Golpu. PNG tenements 100% owned.	Excellent drilling results. Drilling started.	10 million ounces.
Build future mines Wafi/Golpu.	Concept study in progress.	2 016 profitable copper-gold mining.
Acquire Only quality ounces with healthy margins.	Continues.	On-going review.

Operational performance

		F2010	F2009
Gold produced	Kg	44 433	45 437
	000oz	1 429	1 461
Operating cost	R/kg	195 162	168 661
	US$/oz	801	583
Financial performance
Revenue	R million	11 284	11 496
Production costs	R million	8 358	7 657
Cash operating profit	R million	2 926	3 839
Net profit/(loss) for the year (includes discontinued operations)	R million	(192)	2 927
Total headline(loss)/earnings per share (includes discontinued operations)	R million	(7)	262
Total capital expenditure	R million	3 353	4 469
Market performance
Average gold price received	R/kg	266 009	250 826
	US$/oz	1 092	867
R/US$ exchange rate (average for period)		7.58	9.00
R/US$ exchange rate – at end of the period		7.63	7.72
Market capitalisation	R billion	34.9	34.1
	US$ billion	4.5	4.4

Harmony Gold Mining Company Limited

Harmony, one of the world’s largest gold mining companies, operates primarily in South Africa and Papua New Guinea (PNG).

In South Africa, the company has 10 underground and two surface operations. In PNG, Harmony has a 50% interest in the Morobe Mining Joint Ventures (MMJV), which includes Hidden Valley, an open-cast gold and silver project which began production in June 2009, the Wafi-Golpu project, and extensive exploration tenements. Harmony’s partner in PNG is Newcrest Mining Limited (Newcrest), which acquired its interest in this operation from Harmony, the original developer of the project, in F2009. Harmony’s exploration portfolio focuses principally on highly prospective areas in PNG and the Wafi-Golpu project in particular, as well as exploration projects in South Africa.

Harmony is a publicly listed company. The group’s primary listing is on the JSE Limited (share code: HAR) in South Africa. Harmony’s ordinary shares are also listed on stock exchanges in London (HRM), and Berlin (HAM1), and are quoted in the form of American Depositary Receipts on the New York (HMY), and as International Depositary Receipts on the Brussels exchange (HMY).

At the end of June 2010 the group had issued 428 654 779 ordinary shares and had a market capitalisation of R34.89 billion (US$4.5 billion).

Harmony’s corporate headquarters are located in Randfontein, South Africa.

In F2010, Harmony produced 1.43 million ounces of gold (F2009: 1.46 million ounces). The company employed 42 597 people, largely in South Africa, of whom 36 893 were full-time employees and 5 704 contractors (F2009: 45 685 people, including contractors).

Significant capital expenditure in recent years has been aimed at accessing the group’s extensive resources and to extend the lives of its mines.

Harmony continues to focus on growth and thus investment in exploration. In August 2010 Harmony announced a significant increase in the mineral resource in its Walfi-Golpu porphyry copper-gold project in PNG. This project which is part of Harmony’s joint venture with Newcrest Mining Limited contains 16 million ounces of gold and 4.8 million tonnes of copper (expressed in gold equivalent ounces the resource amounts to 38.5 Moz of gold*). In addition Harmony’s international exploration programme has lead to the discovery of a new zone of mineralisation adjacent to the main Golpu resource in PNG.

At 30 June 2010, Harmony reported ore reserves of 48.1 million ounces and mineral resources of 189.2 million ounces.

The group is planning to grow gold production to 2 million safe and profitable ounces by 2012.

Harmony’s gold production from continuing operations decreased to 1 428 545 ounces in F2010, from 1 460 831 ounces in F2009. Despite the higher average gold price received, cash costs increased by 16% as Harmony continued to execute its stated strategy to restructure its asset base to deliver safe, profitable and sustainable ounces.

Harmony’s cash operating profit decreased to R2.9 billion in F2010 from R3.8 billion in F2009. The result was a net loss to R192 million in F2010 from a profit of R2.9 billion in the previous year. This equated to a headline loss of 7 cents per share, significantly lower than last year’s 262 cents per share earnings.

The Hidden Valley project remains on schedule with construction 87% complete and essentially all capital committed. A major project milestone was achieved when the first gold pour was completed late in June 2009. Site construction activities focused on the process plant, crushers and power station facilities. The mill, gravity concentrators and tailing system were all completed and commissioned to enable the first ore to be processed. The mine reached commercial levels of production in May 2010.

Harmony also declared a dividend, paying 50 cents per share. This was paid on 20 September 2010. ARM’s dividend receipt from Harmony is R32 million and this will be accounted for in the F2011 financial statements. Harmony has reflected on its previous achievements and disappointments and, taking into account the needs of all its shareholders and stakeholders, has implemented a number of initiatives to ensure that the Company is profitable into the future.

Harmony is well-positioned to take advantage of a higher gold price and, at a price of R250 000/kg, the Company’s plans support strong cash flows, covering both ongoing and growth capital.

The ARM statement of financial position at 30 June 2010 reflects a marked-to market investment in Harmony of R5.1 billion, which is based on a Harmony share price of R81.40. Changes in the value of the investment in Harmony are accounted for by ARM through the statement of comprehensive income net of deferred capital gains tax. Dividends are recognised in ARM’s income statement. The investment reflected at market value in the statement of financial position represents approximately 15% of ARM’s market capitalisation of R34 billion at 30 June 2010.

Harmony’s full results for the financial year ended 30 June 2010 can be viewed on Harmony’s website at www.harmony.co.za

* Gold equivalents based on US$950 oz Au, $4 412/t Cu at 100% recovery for both metals.