PART I | 1 | |||
Item 1 Identity of Directors, Senior Management and Advisers | 1 | |||
Item 2 Offer Statistics and Expected Timetable | 1 | |||
Item 3 Key Information | 1 | |||
SELECTED FINANCIAL DATA | 1 | |||
EXCHANGE RATES | 3 | |||
CAPITALIZATION AND INDEBTEDNESS | 3 | |||
REASONS FOR THE OFFER AND USE OF PROCEEDS | 3 | |||
RISK FACTORS | 3 | |||
Item 4 Information on the Company | 16 | |||
BUSINESS | 16 | |||
Introduction | 16 | |||
History | 17 | |||
Strategy | 23 | |||
Hedge Policy | 27 | |||
Description of Mining Business | 28 | |||
Harmony's Management Structure | 31 | |||
Exploration | 32 | |||
Capital Expenditures | 35 | |||
Description of Property | 36 | |||
Geology | 39 | |||
Reserves | 39 | |||
Harmony's Mining Operations | 41 | |||
REGULATION | 96 | |||
Mineral Rights | 96 | |||
Environmental Matters | 99 | |||
Health and Safety Matters | 101 | |||
Item 5 Operating and Financial Review and Prospects | 103 | |||
OVERVIEW | 103 | |||
CRITICAL ACCOUNTING POLICIES | 105 | |||
RESULTS OF OPERATIONS | 113 | |||
Years ended June 30, 2003 and 2002 | 113 | |||
Years ended June 30, 2002 and 2001 | 121 | |||
LIQUIDITY AND CAPITAL RESOURCES | 128 | |||
Cash Resources | 129 | |||
Sales of Equity Securities | 133 | |||
Contractual Obligations and Commercial Commitments | 133 | |||
Trend Information | 136 | |||
Working Capital and Anticipated Financing Needs | 137 | |||
OTHER FINANCIAL INFORMATION | 137 | |||
Export Sales | 137 | |||
Item 6 Directors, Senior Management and Employees | 138 | |||
DIRECTORS AND SENIOR MANAGEMENT | 138 | |||
BOARD PRACTICES | 147 | |||
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT | 150 | |||
EMPLOYEES | 153 | |||
General | 153 | |||
Unionized Labor | 154 | |||
Share Option Scheme | 156 |
Share Purchase Scheme | 157 | |||
Item 7 Major Shareholders and Related Party Transactions | 157 | |||
MAJOR SHAREHOLDERS | 157 | |||
RELATED PARTY TRANSACTIONS | 159 | |||
INTERESTS OF EXPERTS AND COUNSEL | 161 | |||
Item 8 Financial Information | 161 | |||
CONSOLIDATED STATEMENTS | 161 | |||
OTHER FINANCIAL INFORMATION | 161 | |||
Export Sales | 161 | |||
Legal Proceedings | 161 | |||
Dividends and Dividend Policy | 162 | |||
SIGNIFICANT CHANGES | 163 | |||
Item 9 The Offer and Listing | 165 | |||
MARKETS | 165 | |||
OFFERING AND LISTING DETAILS | 165 | |||
THE JSE SECURITIES EXCHANGE SOUTH AFRICA | 166 | |||
PLAN OF DISTRIBUTION | 168 | |||
SELLING SHAREHOLDERS | 168 | |||
DILUTION | 168 | |||
EXPENSES OF THE ISSUE | 168 | |||
Item 10 Additional Information | 169 | |||
SHARE CAPITAL | 169 | |||
MEMORANDUM AND ARTICLES OF ASSOCIATION | 169 | |||
General | 169 | |||
Objects and Purposes | 169 | |||
Directors | 170 | |||
Share Capital | 172 | |||
Variation of Rights | 177 | |||
Changes in Capital or Objects and Powers of Harmony | 177 | |||
Meetings of Shareholders | 178 | |||
Title to Shares | 179 | |||
Non-South African Shareholders | 180 | |||
Disclosure of Interest in Shares | 180 | |||
Changes in Control | 180 | |||
Register of Members | 180 | |||
Annual Report and Accounts | 181 | |||
MATERIAL CONTRACTS | 181 | |||
EXCHANGE CONTROLS | 181 | |||
CERTAIN SOUTH AFRICAN TAX CONSIDERATIONS | 183 | |||
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS | 185 | |||
DIVIDENDS AND PAYING AGENTS | 187 | |||
STATEMENTS BY EXPERTS | 187 | |||
DOCUMENTS ON DISPLAY | 187 | |||
SUBSIDIARY INFORMATION | 188 | |||
Item 11 Quantitative and Qualitative Disclosures About Market Risk | 189 | |||
Item 12 Description of Securities Other than Equity Securities | 197 | |||
GLOSSARY OF MINING TERMS | 198 | |||
PART II | 206 | |||
Item 13 Defaults, Dividend Arrearages and Delinquencies | 206 | |||
Item 14 Material Modifications to the Rights of Securityholders and Use of Proceeds | 206 | |||
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS | 206 |
USE OF PROCEEDS | 207 | |||
Item 15 Controls and Procedures | 207 | |||
Item 16 [Reserved] | 207 | |||
Item 16A Audit Committee Financial Expert | 207 | |||
Item 16B Code of Ethics | 208 | |||
PART III | 209 | |||
Item 17 Financial Statements | 209 | |||
Item 18 Financial Statements | 209 | |||
Item 19 Exhibits | 210 | |||
SIGNATURES | 213 | |||
CERTIFICATIONS | 214 |
On September 25, 2001, Harmony announced that it had reached an agreement in principle with Bendigo, to acquire 294 million shares of Bendigo for a total purchase price of
approximately A$50 million (R292 million at an exchange rate of R5.84 per A$1.00, or $22.8
million at an exchange rate of R12.80 per $1.00). On December 13, 2001, shareholders of
Bendigo approved this subscription and Harmony acquired ordinary shares representing
approximately 31.8% of the outstanding share capital of Bendigo. On that date, Harmony was
also granted options to acquire 360 million additional shares of Bendigo at any time before
December 31, 2003, at a price of A$0.30 per share for a maximum consideration of
A$108 million (R630.7 million at an exchange rate of R5.84 per A$1.00, or $72.2 million). If
Harmony exercises these options, Harmony would own approximately 50.1% of the diluted
capital of Bendigo. Bendigo is a single project Australian gold mining development company
that controls the New Bendigo Gold Project in the historic Bendigo goldfields. Bendigo controls
all of the mining and exploration rights beneath and in the vicinity of the city of Bendigo in
Victoria. Bendigo has reported that it is using the funds it received from Harmony's investment
in a project with the goal of developing and bringing into production a high grade, mechanized
On February 26, 2003, Harmony announced that it had agreed to subscribe for new shares in, and intended to make a public takeover offer for, Australian listed gold producer
Abelle Limited. The offer closed on March 26, 2003 and Harmony acquired 87% of the shares
and 65% of the listed options in Abelle. The total consideration payable was A$151 million or
US$98 million. On June 30, 2003, at a share price of A$1.10 per share, our investment was
valued at US$127 million. Due to some of the minority shareholders exercising their options,
Harmony's interest was diluted to 84.57% of Abelle shares and 63.18% of Abelle options in the
quarter ended September 30, 2003.
On November 7, 2003, Harmony entered into an agreement to dispose of of its wholly-owned subsidiary, Kalgold to The Afrikander Lease Limited ("Aflease") for a total consideration of $39.0 million. The consideration comprised of a cash payment of $19.5 million and the issue by Aflease to Harmony of 25,700,935 ordinary shares in Aflease valued at $19.5 million.
Also on November 7, 2003 Abelle announced that it has entered into negotiations with Legend Mining Limited, whereby Legend has offered to purchase the Gidgee gold project. Legend has made an offer to buy Abelle's 100% legal and beneficial interest in the project for a consideration of A$ 6.5 million (subject to certain adjustments) comprising approximately 600 square kilometers of mining and exploration tenements together with project infrastructure including the CIP gold treatment plant, haul roads and access infrastructure, underground mine and associated infrastructure as well as stockpiles, reserves and resources. The purchase price shall be subject to final adjustment in respect of stores, gold in circuit and environmental bonds. The transaction is conditional on the necessary governmental consents and approvals, including approval of the disposal of the assets by the shareholders of Abelle and Legend within 60 days of acceptance of the offer.
On November 13, 2003, Harmony announced that it reached an agreement in principle with Avmin whereby it would enter into a number of transactions with Avmin. The first transaction involves Harmony acquiring Avmin's 286,305,263 ordinary shares in Avgold, or 42.2% of Avgold's outstanding share capital, in exchange for 28,630,526 new Harmony ordinary shares to be issued to Avmin. Should the acquisition of Avmin's interest in Avgold become unconditional, Harmony will be required to make a mandatory offer to the Avgold minority shareholders on the same terms as which it acquired Avmin's interest in Avgold.
Cooke 4 ................................................
Underground operations at Mt. Magnet consist of the Hill 50 and Star mines, each
Because Harmony has acquired a large number of significant gold mining operations since 1996, its
financial results for each of the years since 1996 may not be directly comparable.
In response to the Securities and Exchange Commission's, or the SEC's, Release
No. 33-8040,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies," Harmony has identified
the most critical
accounting policies upon which its financial status depends. Some of Harmony's
accounting policies require the application of significant judgment by management in selecting the
appropriate assumptions
for calculating financial estimates. By their nature, these judgments are
subject to an inherent degree of
uncertainty and are based on Harmony's historical experience,
terms of existing contracts, management's
view on trends in the gold mining industry and information
from outside sources.
Amortization of intangible assets
Intangible assets represent mineral use rights for parcels of land not owned by the Company. The Companys intangible assets include mineral use rights related to production, development or exploration stage properties and the value of such intangible assets is primarily driven by the nature and amount of mineral interests believed to be contained, or potentially contained, in such properties. The amount capitalized related to a mineral interest represents its fair value at the time it was acquired, either as an individual asset purchase or as a part of a business combination. The straight-line amortization of the Companys exploration stage mineral interests is calculated after deducting applicable residual values.
Residual values range from 60% to 100% of the gross carrying value of the respective exploration stage mineral interests. Significant judgment is involved in the determination of residual values, and no assurance can by given that actual values will not differ significantly from estimated residual values. Changes in residual values will impact the amortization charge recorded in the consolidated financial statements.
Valuation of long-lived assets.
Management regularly reviews the carrying value of Harmony's long-lived mining assets to determine whether their carrying values, as recorded in the consolidated financial statements, are appropriate. These reviews, which are carried out on an annual basis and whenever events or changes in circumstances indicate that the carrying values may not be recoverable, are based on projections of anticipated future cash flows to be generated by utilizing the long-lived assets. While management believes that these estimates of future cash flows are reasonable, different assumptions regarding projected gold prices, production costs and foreign currency exchange rates could materially affect the anticipated cash
The effective tax rate for fiscal 2002 was lower than the estimated statutory tax rate of 20.5% for Harmony and its subsidiaries as a whole. A primary factor in the lower tax effective rate was the fact that the equity income from the Free Gold Company is excluded from the calculation of Harmony's taxable income. In addition, the effective tax rate for fiscal 2002 was lowered by Harmony's release of valuation allowances against deferred tax assets at Kalgold, which, in light of the higher prevailing market price for gold and the resulting increase in profitability, are now deemed more likely than not to be recovered.
The increase in the effective tax rate expense of 12% to 25.9% in fiscal 2003 from 13.9% fiscal 2002, was due to the revision of Harmony and its subsidiaries estimated expected future mining tax rate which resulted in an increased deferred tax liability and the release of the valuation allowance against deferred tax assets at Kalgold, which in the light of the higher prevailing gold prices and the resulting increased in profitability, were deemed more likely than not to be recovered
The following table summarizes Harmony's contractual obligations as of June 30, 2003:
The members of the Board, their principal past affiliations, information on their
John Sembie Danana (46), B. Journalism, B.A. (Hons), MBA. Sembie has served on the
executive committee, responsible for health and safety transformation since May 2002. Prior to
joining Harmony he served in various positions at LTA Construction, including General
Manager: Investments, General Manager: Fastfloor Systems, General Manager: New Business
Development and Commercial Manager for the N3 Toll Concession. He is the Chairman of
Pretoria Technikon Council and a Divisional Board Member of Petronet.